they are illusory, and their value may fall or rise independ- ently of the value of the actual capital, upon which they rep- resent a claim. Their value, that is, their quotation at the Stock Exchange, necessarily has a tendency to rise with a fall in the rate of interest, so far as this fall, independently have loaned that wealth, which has been spent; this portion is taken by means of taxes from those who produce it, and is given to the creditors of the state, and, according to the customary proportion between capital and interest in this country, an imaginary capital is assumed of the same magnitude as that which could give rise to the annual income which these creditors are to receive. Sismondi, Nou- veaux Principles, II, p. 230.
Money-Capital and Actual Capital. 561 of the peculiar movements of money-capital, is due merely to the tendency of the rate of profit to fall; so that this imag- inary wealth, which has originally a nominal value for each of its aliquot parts, expands for this reason alone in the course of capitalist production/-"^ Gain and loss through fluctuations in the price of these titles of ownership, and their centralisation in the hands of railroad kings, etc., naturally becomes more and more a mat- ter of gambling, which takes the place of labor as the original method of acquiring capital and also assumes the place of di- rect force. This sort of imaginary money wealth does not merely constitute a very considerable part of the money wealth of private people, but also of banking capital, as we have al- ready indicated.
In order to settle this point without delay, we mention the idea, that one might also mean by the accumulation of money- capital the accumulation of wealth in the hands of bankers (money lenders by profession), acting as middle men between private money-capitalists on one side and the state, communi- ties, and reproducing borrowers on the other. For the entire vast extension of the credit system, and of all credit in gen- eral, is exploited by them as though it were their private cap- ital. These fellows possess capital and incomes always in the form of money or of direct claims upon money. The ac- cumulation of the wealth of this class may proceed in a direc- tion very different from actual accumulation, but it proves at any rate, that this class pockets a good deal of the real ac- cumulation.
Let us reduce the inquiry to narrower limits. Government bonds, like stocks and other securities of all kinds, are spheres of investment for loanable capital, for capital intended to bear interest. They are forms of loaning such capital. But they *° A portion of the accumulated loanable money-capital is indeed merely an ex- pression of the industrial capital. For instance, when England, in 1857, had in- vested SO million pounds sterling in American railroads and other enterprises, this investment was transacted almost throughout by the export of English commodities for which the Americans did not have to make payment in return. The English exporter drew bills of exchange for these commodities on America, the English stock subscribers bought these bills and used them to pay the amount of their stock subscriptions to America.
2J 562 Capitalist Production.
are not the loan capital itself, which is invested in them. On the other hand, so far as credit plays a direct role in the proc- ess of reproduction: what the industrial capitalist or the mer- chant need when wishing to have a bill discounted or a loan granted is neither stocks nor government bonds. What they need is money. They pawn or sell those securities, when they cannot secure money in any other way. It is the accumula- tion of this loan capital, with which we have to deal here, and more particularly of the loanable money-capital. We are not here concerned in the loans of houses, machines, or other fixed capital. Nor are we concerned in loans, which industrials and merchants make to one another in the shape of commodi- ties and within the circle of the process of rej)roduction. We must, indeed, investigate this point still farther before we proceed. But we are concerned exclusively in loans of money, which are made by bankers, as middle men, to in- dustrials and merchants.
Let us, then, analyse first the commercial credit, that is, the credit which the capitalists engaged in reproduction give to one another. It forms the basis of the credit system. Its representative is the bill of exchange, a certificate of indebted- ness whose payment is due at a certain date, a document of deferred payment. Every one gives credit with one hand and takes it with the other. Let us leave aside, for the present, the banking credit, which constitutes another, quite different, element. To the extent that these bills in their turn circulate among the merchants as means of payment, by endorsement from one to another, without the intervention of discount, it is merely a transfer of a claim of indebtedness from A to B, and does not alter anything in the general connection. It merely places one man into the position of another. And even in this case the liquidation may take place without the intervention of money. The spinner A, for instance, has to pay a bill of exchange to the cotton broker B, and he has to pay a bill to the importer C. l^ow, if C also exports yam, which happens often enough, he may buy yarn from A on a Money-Capital and Actual Capital. 563 bill of exchange, and the spinner A may guarantee the broker B with the broker's own bill paid by C to A, whereby at best a balance may have to be settled. The entire transaction then promotes merely the exchange of cotton and yarn. The ex- porter represents but the spinner, the cotton broker the cotton planter.
In the cycle of this commercial credit we must note two things: First: The settlement of these mutual claims of indebt- edness depends upon the reflux. of capital, that is, of C — M, which is merely deferred. If the spinner has received a bill of exchange from a cotton goods manufacturer, then this manufacturer can pay, when he has sold the cotton goods, which he has on the market. If the corn speculator has made out a bill of exchange on his dealer, then the dealer can pay the money, if the corn has meanwhile been sold at the ex- pected price. These payments, then, depend upon the smooth run of the reproduction, that is, the process of production and consumption. But since the credits are mutual, the sol- vency of one depends upon the solvency of another; for in making out his bill of exchange every one may have counted either on the reflux of the capital in his own business or on the reflux of the capital in anothers business, who has to pay him for a bill of exchange drawn in the meantime. Aside from the prospect of returns, the payment is possible only by means of reserve capital, which the writer of the bill has at his com- mand, in order to meet his obligations in case the returns should be delayed.
Secondly: This credit system does not do away with the necessity of cash payments. For a large portion of the ex- penses must always be paid in cash, such as wages, taxes, etc. Furthermore, capitalist B, who has received from C a bill of exchange in place of cash payment, may have to pay his own due bill to D before the bill of C becomes due, and so he must have ready cash. A rotation of such completeness as that as- sumed above in the reproduction from cotton planter to cotton spinner and vice versa will be an exception; as a rule repro- duction will be infringed at many points. We have seen in 564 Capitalist Production.
the discussion of the process of reproduction, volume II, Part III, that the producers of constant capital exchange partly constant capital among each other. In such a case the bills of exchange may be balanced against one another more or less. The same may be the case in the ascending line of production, where the cotton broker draws on the cotton spinner, the spinner on the manufacturer of cotton goods, the manufacturer on the exporter, the exporter on the importer (who may be an importer of cotton). But the cycle of these transactions is not completed simultaneously, and the series of claims is not turned around backward in the same way. For instance, the claim of the spinner on the weaver is not settled by the claim of the coal dealer on the machine builder. The spinner never has any counterclaims in his business on the machine manufacturer, because his product, yarn, never enters as an element into the process of reproduction of the machine maker. Such claims must, therefore, be settled by money.
The limits of this commercial credit, considered by itself, are 1), the wealth of the industrials and merchants, that is, their command of reserve capital in case of delayed returns; 2) these returns themselves. These may be delayed in time or the prices of commodities may fall in the meantime or the commodities may become momentarily unsalable through a clogging of the markets. The longer the bill runs, the larger must be the reserve capital, and the greater is the pos- sibility of an infringement or a retardation of the returns through a fall of prices or an overstocking of markets. And, furthermore, the returns are so much less secure, the more the original transaction was conditioned upon speculation on the rise or fall of the prices of commodities. But it is evident, that with the development of the productive power of labor, and thus of production on a large scale, 1) the markets expand and move a greater distance from the place of production; 2) that credits must be prolonged in con- sequence; 3) that the speculative element must thus more and more dominate the transactions. Production on a large scale and for distant markets throws the total product into the Money-Capital and Actual Capital. 5^5 hands of commerce; but it is impossible, that the capital of a nation should be doubled in such a way, that commerce by itself would be able to buy up the entire national product with its own capital and to sell it again. Credit is, therefore, indispensable here. Credit must grow in volume with the growing volume of value in production, and it must grow in the matter of time with the increasing distance of the markets. A mutual interaction takes place here. The development of the process of production extends the credit, and credit leads to an extension of industrial and, commercial operations.
Looking upon this credit separate from banking credit, it is evident that it grows with an increasing volume of industrial capital itself. Loan capital and industrial capital are here identical. The loaned capitals are commodity-capitals, in- tended either for ultimate individual consumption, or for the replacement of the constant elements of productive capital. What appears as loan capital in this case is always capital existing in some definite phase of the process of reproduction, but passing through sale and purchase from one hand to the other, while its equivalent is not paid to the buyer until later at some stipulated time. For instance, the cotton passes into the hands of the spinner in exchange for a bill of exchange, the yarn into the hands of the manufacturer of cotton goods in exchange for another bill, the cotton goods into the hands of the merchant for another bill, from the hands of the merchant into those of the exporter for another bill, from the hands of the exporter for another bill into those of some merchant in India, who sells the goods and buys indigo instead, etc. During this passage from hand to hand the cotton accomplishes its metamorphosis into cotton goods, and the cotton goods are finally transported to India and exchanged for indigo, which is shipped to Europe and enters there into the reproductive process. The various phases of the process of reproduction are here promoted by the credit, without any payment on the part of the spinner for the cot- ton, on the part of the manufacturer of cotton goods for the yam, on the part of the merchant for the cotton goods, etc. In the first acts of this process the commodity, cotton, goes 566 Capitalist Prodncthn.
throiigli its different phases of production, and this transition is promoted by credit. But as soon as the cotton has re- ceived its ultimate fonn as a commodity, the same com- modity-capital passes on through the hands of different mar- chants, who promote its transportation to distant markets, and the last of the merchants finally sells these commodities to the consumer and buys other commodities in their stead, which passes either into consumption or into the process of reproduction. Here, then, we have to distinguish two sec- tions: In the first, credit promotes the actual successive phases in the production of the same article; in the second, it promotes merely the passage of the finished article from the hands of one merchant into those of another, including its transportation, in other words, the act C — M. Yet the commodity is even here at least in a process of circulation, that is, in a phase of the process of reproduction.
It follows, then, that it is never unemployed capital, which is loaned here, but capital, which must change its forai in the hands of its owner and which exists in such a form, that it is merely commodity-capital for him, that is, capital which must be reconverted into its original form, and for the present, at least, into money. It is, therefore, the metamor- phosis of the commodity, which is here promoted by credit; not merely C — M, but also M — C and the actual process of reproduction. Much credit within the reproductive cycle does not sigTiify (banker's credit excepted) much unemployed capital, which is offered for loans and looking for profitable investment. It means rather much employment for capital in the process of reproduction. Credit promotes here, 1) so far as the industrial capitalists are concerned, the transition of industrial capital from one phase into another, the con- nection of the related and dove-tailing spheres of production; 2) so far as the merchants are concerned, it promotes the transportation and the passage of commodities from one hand to another until their definite sale for money or their ex- change for other commodities.
The maximum of credit is here identical with the fullest employment of industrial capital, that is, the utmost exertion Money-Capital and Actual Capital. 567 of its reproductive power without regard to the limits of consumption. These limits of consumption are extended by the exertions of the process of reproduction itself. On one hand this increases the consumption of revenue on the part of laborers and capitalists, on the other it is identical with an exertion of productive consumption.
So long as the process of reproduction is in flow and the reflux assured, this credit lasts and extends, and its extension is based upon the extension of the process of reproduction itself. As soon as a stoppage takes place, in consequence of delayed returns, overstocked markets, fallen prices, there is a superfluity of industrial capital, but it is in a form, in which it cannot perform its functions. It is a mass of com- modity-capital, but it is unsalable. It is a mass of fixed capital, but largely unemployed through the clogging of re- production. Credit is contracted, 1) because this capital is unemployed, that is, stops in one of its phases of reproduction, not being able to complete its metamorphosis; 2) because con- fidence in the continuity of the process of reproduction has been shaken; 3) because the demand for this commercial credit decreases. The spinner, who restricts his production and has a mass of unsold yarn in stock, does not need to buy any cotton on credit; the merchant does not need to buy any commodities on credit, because he has more than enough of them.
Hence, if this expansion is disturbed, or even the normal exertion of tlie process of reproduction infringed, credit also becomes scarce; it is more difficult to get commodities on credit. It is particularly the demand for cash payment and the caution observed toward sales on credit which are characteristic of that phase of the industrial cycle, which follows a crash. In the crisis itself, when every one has things to sell, cannot sell them, and yet must sell them, if he would secure means of payment, it is not the mass of the imemployed and investment seeking capital, but rather the mass of capital tied up in his process of reproduction, that is greatest just Avhen the lack of credit is most felt (and the rate of discount highest in banking credit). The hitherto 568 Capitalist Production.
invested capital is then, indeed, unemployed, because the process of reproduction lags. Factories are closed, raw materials accumulate, finished products swamp the market as commodities. Xothing is more erroneous, therefore, than to blame a scarcity of productive capital for such a condition. It is precisely at such times that there is a superabundance of productive capital, partly so far as the normal, but tem- porarily contracted, scale of reproduction is concerned, partly with regard to the paralysed consumption.
Let us suppose that the whole society is composed only of industrial capitalists and wage "workers. Let us further- more make exceptions of fluctuations of prices, which prevent large portions of the total capital from reproducing them- selves under average conditions and which, owing to the general interrelations of the entire process of reproduction, such as are developed particularly by credit, must always call forth general stoppages of a transient nature. Let us also make abstraction of the bogus transactions and speculations, which the credit system favors. In that case, a crisis could be explained only by a disproportion of production in various branches, and by a disproportion of the consumption of the capitalists and the accumulation of their capitals. But as matters stand, the reproduction of the capitals invested in production depends largely upon the consuming power of the non-producing classes; while the consuming power of the la- borers is handicapped partly by the laws of wages, partly by the fact that it can be exerted only so long as the laborers can be employed at a profit for the capitalist class. The last cause of all real crises always remains the poverty and restricted consumption of the masses as compared to the tendency of capitalist production to develop the productive forces in such a way, that only the absolute power of con- sumption of the entire society would be their limit.
A real lack of productive capital, at least among capi- talistically developed nations, can be said to exist only in times of general crop failures, either in the principal means of subsistence, or in the principal raw materials of industry.
T^wever, in addition to this commercial credit we have the Money-Capital and Actual Capital. 569 money credit strictly so-called. The loans of the industrials and merchants among one another go hand in hand with loans made to them by the banker and money lender in the fonn of money. In the discounting of bills of exchange the loan is but nominal. A manufacturer sells his product for a bill of exchange and gets this bill discounted at some bill broker's. In reality this broker loans only the credit of his banker, and this banker loans to the broker the money of his depositors, made up of the industrial capitalists and mer- chants themselves, of drawers of ground rent and other un- productive classes, but also of laborers (in savings banks). In this way every industrial manufacturer and merchant gets around the necessity of keeping a large reserve fund and being dependent upon his actual returns. On the other hand the whole process becomes so complicated, partly by the making of bogus checks, partly by operations with com- modities for the mere purpose of writing bills of exchange, that the semblance of a solid business and a smooth run of returns may persist even after returns come in only at the expense of swindled money lenders or swindled producers. Thus the business appears almost too sound just on the eve of a crash. The best proof of this is furnished, for instance, by the Reports on Bank Acts of 1857 and 1858, in which all bank directors, merchants, in short, all the summoned experts, with Lord Overstone at their head, con- gratulated one another on the prosperity and soundness of business — just one month before the eruption of the crisis of August, 1857. And, queer enough, Tooke in his History of Prices passes through the same illusion as the historian of every crisis. Business is always thoroughly sound and the campaign in full swing, until the collapse suddenly over- takes them.
We revert now to the accumulation of money-capital.
Not every augmentation of loanable capital indicates a real accumulation of capital or expansion of the process of reproduction. This becomes most evident in the phase of the industrial cycle following immediately after a crisis, when 570 Capitalist Production.
loanable capital lies fallow in masses. In such moments, in which the process of production is restricted (production in the English industrial districts was reduced bj one-third after the crisis of 1847), prices of commodities at their lowest level, the spirit of enterprise paralysed, the rate of interest is low, and it indicates then merelj an increase of loanable capital precisely because the industrial capital has been laid lame. It is quite obvious, that less currency is re- quired, Avhen the prices of commodities have fallen, the numbor of transactions decreased, and tlie capital invested in wages contracted; that, on the other hand, no additional money is required for the function of world money after the debts to foreign countries have been settled either by the exportation of gold or by bankruptcies; that, finally, the volume of the business of discounting bills diminishes with the ni;mber and amounts of bills of exchange. Hence the demand for loanable capital, either in the form of means of circulation or of means of payment (the investment of new capital being out of the question for a while), decreases and it becomes relatively abundant. At the same time, the supply of loanable capital increases also positively under such circumstances, as we shall see later.
Thus " a reduction of transactions and a great super- abundance of money " prevailed after the crisis of 1847 (Commercial Distress, 1847-48, Evidence No. 1664.) The rate of interest was very low en account of the " almost complete annihilation of commerce and nearly utter absence of a possibility of investing money" (1. c, p. 45, Testimony of Hodgson, Director of the Eoyal Bank of Liverpool). What nonsense those gentlemen concocted (and Hodgson is one of the best of them) in order to explain these facts, may be seen from the following phrase: "The stringency (1847) arose from an actual reduction of the money-capital in the country, caused partly by the necessity of paying for the imports from all quarters of the globe in gold, and partly by the conversion of floating capital into fixed." How the con- version of circulating capital into fixed capital should reduce the money-capital of a country is unintelligible. For in the Money-Capital and Actual Capital. 571 case of railroads, e. g., in which capital was mainly invested at that time, neither gold nor paper are used up for viaducts and rails, and the money for the railroad stocks, to the extent that it had been deposited for subscriptions, performed ex- actly the same functions as any other money deposited in banks and even increased the loanable money-capital tempo- rarily, as shown above. But to the extent that it had been spent for construction, it circulated in the country as a means of circulation and payment. Only so far as fixed cap- ital cannot be exported, so that with the impossibility of its export the available capital secured by returns from exported articles is eliminated, including the returns in bullion or cash, might the money-capital he affected. But English export articles were likewise piled up in masses on the foreign markets without being salable. It is true, the floating capital of the merchants and manufacturers of Manchester, etc., who had tied up a portion of their normal business capital in rail- road stocks and were therefore dependent upon loan capital for the continuation of their business, had become fixed, and they had to put up with the consequences. But it would have been the same, if the capital belonging to their business, but withdrawn from it, had been invested, say, in mines instead of railroads, mining products like iron, coal, copper being themselves floating capital.