will represent a capital of 200 pounds sterling. Its value is always but its capitalised income, that is, its income calcu- lated on a fictitious capital of so many pounds sterling at the prevailing rate of interest. In times when there is a strin- gency of money on the market these securities will, therefore, fall in price for two reasons: First, because the rate of in- terest rises, and secondly, because they are thrown in large quantities upon the market for the purpose of getting ready cash. This drop in tlieir price takes place independently of the fact, whether the income guaranteed to their owner by these papers is constant, as it is in the case of government bonds, or whether the self-expansion of the actual capital, which they represent, for instance in industrial enterprises, is subject to interruptions such as interfere with the process of reproduction. In this last eventuality the two causes of depreciation mentioned above are joined by a third one. As soon as the storm is over, the papers rise once more to their The Composition of Banking Capital. 551 former level, unless they represent failures or swindles. Their depreciation in times of crisis serves as a potent means of centralising money. ^^ To the extent that the depreciation or appreciation of such papers is independent of the movements of the value of actual capital represented by them, the wealth of the nation is just as great before as after their depreciation. " On October 23, 1847, the public funds and the canal and railroad stocks were already depreciated by 114,752,225 pounds sterling." So said Morris, the Governor of the Bank of England, in his testimony before the Committee on Commercial Distress, 1847-48. Unless this depreciation implied an actual stop- ping of production and of traffic on canals and rails, or a sus- pension of pending enterprises in the beginning stages, or a throwing away of capital in positively worthless ventures, the nation did not grow poorer by one cent through the bursting of this bubble of fictitious capital.
In all countries of capitalist production, there exists an enormous quantity of so-called interest-bearing capital, or moneyed capital, in this form. And accumulation of money- capital signifies to a large extent nothing else but an accumu- lation of such claims on production, an accumulation of the market-price, the illusory capital-value, of these claims.
A part of the banking capital is invested in these so-called interest-bearing papers. This is itself a portion of the re- serve capital, which does not perform any function in the ac- tual business of banking. The greater portion of these papers consists of bills of exchange, that is, promises to pay made by industrial capitalists or merchants. For the money lender these papers are interest-bearing, in other words, when he buys them, he deducts interest for the time which they still have to run. This is called discounting. It depends on the " [Immediately after the February Revolution, when commodities and securities were extremely depreciated and utterly unsaleable, a Swiss merchant in Liverpool, Mr. R. Zwilchenbart — who told my father about it — cashed all his belongings traveled with his cash to Paris and went to Rothschild, offering to do a joint business with him. Rothschild looked at him fixedly, rushed towards him, caught both his shoulders in his hands and asked: " Have you money in your posses- sion?" "Yes, Baron." "Then you are my man." And both of them made a great haul. — F. E.]
552 Capitalist Production.
prevailing rate of interest, how much of a deduction is made from the sum for which the bill calls.
The last part of the capital of a banker consists of his money reserve in gold and notes. The deposits, unless tied up bj agreement for a certain time, are always at the disposal of the depositors. They are in a state of continual fluctua- tion. But while one depositor withdraws his, another brings his in, so that the general average amount of deposits fluctu- ates little during periods of normal business.
The reserve funds of the banks, in countries with capital- ist production, always express on an average the magnitude of the money existing in tlie shape of a hoard, and a portion of this hoard in its turn consists of papers, mere drafts upon gold, which have no value in themselves. The greater por- tion of the banking capital is, therefore, purely fictitious and consists of certificates of indebtedness (bills of exchange), government securities (which represent spent capital), and stocks (claims on future yields of production). And it should not be forgotten, that the money-value of capital rep- resented by these papers in the strongboxes of the banker is itself fictitious, even of those which are checks for guaran- teed incomes, such as public bonds, or titles on actual capital, like industrial stocks, and that this value is regulated differ- ently than that of the actual capital, which they represent at least in part; or, when they stand for mere claims on the out- put of production, and not for capital, that the claim on the same amount is expressed in a continually changing fictitious money-capital. In addition to this it must be noted, that this fictitious capital represents largely, not his own capital, but that of the public, which makes deposits with him, either with or without interest.
Deposits are always made in money, in gold or notes, or in checks upon these. With the exception of the reserve fund, which is contracted or expanded in proportion to the require- ments of actual circulation, these deposits are in fact always in the hands, on one side, of the industrial capitalists and merchants, whose bills of exchange are discounted with them, and who receive advances out of them; on the other side, they The Conhposition of Banking Capital. 553 are in the hands of dealers in securities (exchange brokers), or in the hands of private parties, who have sold their securi- ties, or in the hands of the government (in the case of treas- ury notes and new loans). The deposits themselves play a double role. On the one hand, as we have just mentioned, they are loaned out as interest-bearing capital and are not found in the cash boxes of the banks, but figure merely in their books as credits of the depositors. On the other hand they figure as such book entries to the extent that the mutual credits of the depositors in the shape of checks on their de- posits are balanced against one another and so recorded. In this procedure it is immaterial, whether these deposits are en- trusted to the same banker, who can thus balance the various credits against each other, or whether this is done in different banks, who mutually exchange checks and pay only the bal- ances to one another.
With the development of the credit system and of interest- bearing capital all capital seems to double, or even treble, itself by the various modes, in which the same capital, or perhaps the same claim on a debt, appears in different forms in different hands.^^ The greater portion of this " money-capital " is purely fic- titious. All the deposits, with the exception of the reserve fund, are merely credits placed with the banker, which, how- *° [This duplication and triplication of capital has developed considerably further in recent years, for instance through financial trusts, which already occupy a column of their own in the London bank reports. A society is organised for the purchase of a certain class of interest-bearing papers, say, of foreign government bonds, English municipal or American public bonds, railroad stocks, etc. The capital, for instance, 2 million pounds sterling, is secured by stock subscriptions. The Board of Directors buys the desired values up, or speculates more or less actively in them, and distributes the ■ annual amounts of interest as dividends among the stockholders, after deducting the expenses. Furthermore, some stock companies have adopted the custom of dividing the ordinary shares into two classes, preferred and deferred. The preferred receive a fixed rate of interest, say 5%, provided that the total profit permits it; if there is anything left after that, the deferred get it. In this way the " solid " investment of capital is more or less separated by preferred shares from the speculation with the deferred shares. Since a few large enterprises have been unwilling to adopt this new mode, the expedient has been resorted to of organising new companies, that invest one or several millions of pounds sterling in shares of the first company and then issue new shares to the amount of the nominal value of the first shares, but make half of them preferred and the other half deferred. In t'lis case the original shares are doubled, by serving as a basis for a new issue of shares. — F. E.]
554 Capitalist Production.
ever, never exist in deposit. To the extent that they serve in the Giro business, they perform the function of capital for the bankers, after these have loaned them out. They pay to one another their mutual checks upon the nonexisting de- posits by balancing their mutual accounts.
Adam Smith says justly with regard to the role played by capital in the loaning of money: " Even in the money busi- ness the money is merely a check transferring from one hand to another such capitals as are not used by their owners. These capitals may be almost to any amount larger than the amount of money, which serves as an instrument of their transfer. The same pieces of money serve successively in many different loans, likewise in many different purchases. For instance, A lends to W 1,000 pounds sterling, with which W immediately buys from B 1,000 pounds sterling worth of commodities. Since B himself has no immediate use for this money, he lends the identical pieces of money to X, who im- mediately buys from C commodities worth 1,000 pounds ster- ling. In the same way and for the same reason C lends this money to Y, who again buys with it commodities from D. In this way the same pieces of gold or paper may serve in the course of a few days in the promotion of three different loans and three different purchases, each one of which has a value equal to the full amount of these pieces. What the three moneyed men, A, B and C have transferred to the three bor- rowers, W, X and Y, is the power to make these purchases.
In this power consists both the value and the usefulness of these loans. The capital loaned out by these three moneyed men is equal to the value of the commodities that can be bought with it, and it is three times greater than the value of the money with which these purchases are made. ISTeverthe- less all these loans may be perfectly safe, since the commodi- ties bought with them by the different debtors are employed in such a way, that they will in time bring an equal value in gold or paper money with a profit to boot. And just as the same pieces of money may serve in the promotion of different loans to an amount exceeding their own value three times, or The Composition of Banking Capital. 555 even thirty times, just so may they serve successively as means of return payment." (Book II, chapter IV.)
Since the same piece of money may perform different pur- chases, according to the velocity of its circulation, it may just as well j^erform the service of different loans, for the purchases take it from one hand to another, and a loan is but a transfer from one hand to another without the intervention of a purchase. To every seller his money represents the changed form of his commodities. Nowadays, when every value is expressed as the value of capital, it represents in the various loans different capitals, and this is but another way of saying that it can realise different commodity-values suc- cessively. At the same time it serves as a medium of circu- lation, in order to transfer the material capitals from hand to hand. In the transaction of loaning it does not pass from hand to hand as a medium of circulation. So long as it re- mains in the hands of the lender, it is in his hands not a medium of circulation, but the existing value of his capital. And in this form he transfers it when loaning it to another. If A had loaned the money to B, and B to C, without the in- tervention of purchases, then the same money would not rep- resent three capitals, but only one, only one capital-value. How many capitals it actually represents depends on the number of times in which it performs the service of the embodied value of different commodity-capitals.
The same thing which Adam Smith says of loans in gen- eral applies also to deposits, since these are merely another name for loans, which the public gives to the bankers. The same pieces of money may serve as instruments for any num- ber of deposits.
" It is undoubtedly true, that the 1,000 pounds sterling, which some one deposits today with A, are again issued to- morrow and become a deposit with B. The day after, paid away by B, they may form a deposit with C, and so forth infinitely. The same 1,000 pounds sterling may, therefore, by a number of transfers, multiply themselves into an abso- lutely indeterminable sum of deposits. It is, therefore, pos- sible, that nine-tenths of all the deposits in the United King- 556 Capitalist Production.
dom have no existence, save for the entries in the books of bankers registering them, who have to square accounts in due time...Such was the case in Scotland, where the currency of money never exceeded 3 million pounds sterling, while the deposits amounted to 27 millions. Unless a gen- eral run be made on the banks on account of these deposits, the same 1,000 pounds sterling, traveling backwards, might easily balance an equally indeterminable sum. Since the same 1,000 pounds sterling, with which some one pays today his debt to some dealer, may tomorrow settle this dealer's debt to some merchant, and next day the debt of the merchant to his bank, and so forth without end, the same 1,000 pounds sterling may also wander from hand to hand and from bank to bank, and balance any conceivable amount of deposits." (The Currency Question Reviewed, pp. 162, 163.)
Just as everything is duplicated and triplicated in this credit system and commuted into a mere fiction, so the same applies to the " reserve fund," where one would at last hope to grasp something solid.
Listen once more to Mr. Morris, the Governor of the Bank of England: " The reserves of the private banks are in the hands of the Bank of England in the form of deposits. The first effects of an export of gold seem to strike only the Bank of England; but it would just as well influence the reserves of the other banks, since it means an export of a part of the reserves, which they have deposited in our bank. In the same way it would influence the reserves of all provincial banks." (Commercial Distress 184:7-4:8.) Ultimately, then, the reserve funds actually dissolve themselves into the reserve fund of the Bank of England.^^ *' [To what extent this has since increased is proved by the following official tabulation of the bank reserves of the fifteen largest London banks in November, 1892, taken from the Daily News of December 15, 1892: NAME OF BANK LIABILITIES CASH RESERVE PERCENTAGES Capital and Counties 11,392,744 1,307,483 11.47 The Composition of Banking Capital. 557 However, this reserve fund again has a double existence. The reserve fund of the banking department of the Bank of England is equal to the excess of the notes, which the Bank is authorised to issue, over the notes in circulation. The legal maximum of the note issue is 14 million pounds sterling (for which no metallic reserve is required; it is the approximate amount owed by the state to the Bank) plus the amount of the precious metals in the Bank. If the supply of precious metals in the Bank amounts to 14 million pounds sterling, the Bank can issue 28 millions in notes, and if 20 millions of these are in circulation, the reserve fund of the banking department is 8 million pounds sterling. These 8 million pounds sterling are, in that case, legally the banking capital at the disposal of the Bank, and at the same time the reserve fund for its deposits. If an exportation of gold takes place now, by which the supply of precious metals in the Bank is reduced by 6 millions — notes to this amount must be de- stroyed at the same time — tlien the reserve of the banking department would fall from 8 millions to 2 millions. On the one hand, the Bank would raise its rate of interest con- siderably; on the other hand, the banks having deposits with it, and the other depositors, would observe a large decrease of the reserve fund covering their own credits in the Bank. In 1857 four of the largest stock banks of London threatened to call in their deposits, and thereby bankrupt the banking department, unless the Bank of England would secure a NAME OF BANK LIABILITIES CASH RESERVE PERCENTAGES Union of London 15,502,618 2,300,084 14.84 Williams, Deacon & Manchester, etc. 10,452,381 1,317,628 12.60 Of this sum of almost 28 milions of reserve, at least 25 millions are deposited in the Bank of England, and at most 3 milJJons of cash in the strongboxes of the 15 banks themselves. But the cash reserve of the banking department of the Bank of England never exceeded 16 millions during that same November of 1892. — 558 Capitalist Production.
" government script " suspending the Bank Acts of 1844.®'^ In this wav the banking department might fail, while a certain number of millions (for instance, 8 millions in 1847) are held in its issue department to secure the convertibil- ity of its circulating notes. But this security is once more illusory.
" The greater portion of the deposits, for which the bank- ers themselves have no immediate demand, passes into the hands of the bill brokers, who in return give to the banker security for his loan by means of commercial bills, which they have already discounted for people in London or in the provinces. The bill broker is responsible to the banker for the return payment of this money at call; and these transac- tions are of such an enormous volume, that Mr. Neave, the present Governor of the Bank of England, said in his testi- mony: We know that one broker had 5 millions, and we have reason to assume, that another had between 8 and 10 millions; another had 4, another 3^, a third more than 8. I speak of deposits with the brokers." (Report of Commit- tee on Bank Acts, 1857-58, p. 5, section 8.)
" The London bill brokers...carried on their enor- mous business without any reserve in cash; they relied upon the incomes from the successively due bills, or wlien it came to the worst, upon their power to secure from the Bank of England loans on depositing bills discounted by them." — Two firms of bill brokers in London suspended payments in 1847; both resumed business later. In 1857 they suspended again. The liabilities of one of these firms amounted in 1847 in round figures to 2,683,000 pounds sterling with a capital of 180,000 pounds sterling; its liabilities in 1857 were 5,- 300,000 pounds sterling, while its capital apparently was not more than one-quarter of what it had been in 1847. The lia- bilities of the other firm were both times between 3 or 4 mil- lions, while its capital amounted to no more than 45,000 pounds sterling. (Ibidem,, p. XXI, section 52.)
'^ The suspension of the Bank Acts of 1844 permitted to the Bank to issue any quantity of bank notes regardless of any backing by the gold reserve in its pos- session; to create, in this way, an arbitrary quantity of fictitious money-capital made of paper, and use it for the purpose of making loans to banks, exchange brokers, and through them to commerce.
Money-Capital and Actual Capital. 559 CHAPTER XXX.
MONEY-CAPITAL AND ACTUAL CAPITAL, I.
The only difficult questions, Avhich we are now approaching in the matter of the credit system, are the following: First: The accumulation of the money-capital strictly so- called. To what extent is it, and is it not, an indication of an actual accumulation of capital, that is, of reproduction on an enlarged scale? The so-called plethora of capital, an expres- sion used only with reference to the interest-bearing capital, is it only a peculiar way of expressing industrial overproduc- tion, or does it constitute a separate phenomenon alongside of it? Does this plethora, or this excessive supply of money- capital, coincide with the existence of stagnating masses of money (bullion, gold coin and bank notes), so that this super- fluity of actual money is an expression and phenomenon of that plethora of loan capital?
Secondly: To what extent does a stringency of money, that is, a scarcity of loan capital, express a real lack of actual capital (commodity-capital and productive capital)? To what extent does it coincide, on the other hand, with a lack of money as such, a lack of currency?
So far as w^e have hitherto considered the peculiar form of accumulation of money-capital and of money wealth in gen- eral, it resolved itself into an accumulation of claims of own- ership upon labor. The accumulation of the capital of the national debt has been revealed to mean merely an increase of a class of state creditors, who have the privilege of a first claim upon the revenues.^ ^ °' The public funds are nothing else but an imaginary capital, which represents that portion of the annual revenue, which is set aside to pay the debt. A capital of the same amount has been spent; it is this which serves as a denominator for the loan, but it is not this which is represented by the public funds; for this capital does not exist any longer. However, new wealth must be created by the work of industry; a portion of this wealth is annually set aside in advance for those, who 560 Capitalist Production.
In these facts, by which even an accumulation of debts may appear as an accumulation of capital, the perfection of the reversal accomplished by the credit system becomes apparent. These certificates of indebtedness, which are issued in place of the originally loaned and long spent capital, these paper duplicates of destroyed capital, serve for their owners as cap- ital to the extent that they are salable commodities and may, therefore, be reconverted into caj)ital.
The titles of ownership upon company business, railroads, mines, etc., are indeed, as we have seen, titles on actual capi- tal. But they do not imply any control of this capital. It cannot be called in. They merely convey legal titles to a.por- tion of the surplus-value to be produced by it. But these titles become likewise paper duplicates of the actual capital, as though a bill of lading were to acquire a value separate from the cargo and simultaneously with it. They become nominal representatives of a capital that does not exist. For the actual capital exists simultaneously and does not change hands by the transfer of those duplicates. They assume the form of interest-bearing capital, because they not only safc'- guard a certain income, but also make it possible to secure possession of their capital-value in the shape of a return-pay- ment when sold. To the extent that the accumulation of these papers expresses the accumulation of railroads, mines, steamships, etc., it indicates the expansion of the actual proc- ess of reproduction, just as the expansion, say, of a tax list indicates the expansion of the taxed objects, for instance, of movable property. But as duplicates serving themselves as commodities for sale and thus circulating as capital-values