The actual reduction of available money-capital through crop failure, corn imports, and gold exports constituted an event that had nothing to do with the railroad swindles, — " iSTearly all commercial firms had begun to starve their busi- ness more or less, in order to invest the money in railroads." — The very extensive loans, which were made to railroads by commercial firms, misled the latter to depend far too much through the discounting of bills upon the banks and to carry on the commercial business in this way " (the same Hodgson, 1. c, p. 67). " In Manchester immense losses were sus- tained through speculation in railroads " (R. Gardner, pre- viously mentioned in volume I chapter XV, 3, c, p. 449, American edition, and in other places, Evidence No. 4877=^ 572 Capitalist Production.
One of the principal causes of the crisis of 1847 was the colossal overcrowding of the markets and the unbounded swindle in the East Indian trade with commodities. But there were also other circumstances, which bankrupted very rich firms in this line: ''They had plenty of means, but these could not be made available. Their entire capital was tied up in real estate in Mauritius, or in indigo and sugar factories. After they had assumed obligations to the tune of 5-600,000 pounds sterling, they had no means at hand to pay their bills of exchange, and finally it was found that, in order to pay their bills, they would have to rely entirely upon credit " (Ch. Turner, great East Indian merchant in Liverpool, No. 730, 1. c). — See furthermore Gardner, No. 4872, 1. c.: Immediately after the Chinese treaty such great prospects for a tremendous extension of our trade with China were held out to this country, that many large factories were built expressly for this business, for the purpose of manu- facturing the cotton goods mainly demanded in the Chinese markets, and these were added to all our already existing fac- tories." — 4874. " How did this business come out? " — " Most disastrously, so that it defies almost every description; I do not believe, that of all the shipments to China in 1844 and 1845 more than two- thirds of the amount have ever re- turned; tea being the principal article of return export, and such great prospects having been held out to us, we manu- facturers counted without fail on a large reduction of the tea tax. " — And now, naively expressed, comes the characteristic confession of faith of the English manufacturer: " Our trade with a foreign market is not limited by its capacity of con- suming our products, it is rather limited here at home by our capacity of consuming the products, which we receive in return for our industrial products. " (The relatively poor countries, with whom England trades, are supposed to be able to pay for and consume any amount of English products, but unfortu- nately wealthy England cannot digest the products sent in return.) — ^4876. "At first I shipped a few commodities out, and these were sold at a loss of about 15% in the full conviction that the price, at which my agents could buy tea.
Money-Capital and Actual Capital. 573 would yield so large a profit through its sale here, that this loss would be made good; but instead of making a profit, I lost sometimes 25% and even as much as 50%." — 4877. '' Did the manufacturers export for their own account? " — " Principally; the merchants, it seems, saw veiy soon that they did not make anything, and they encouraged the manu- facturers to make consignments rather than to participate in them themselves. " — In 1857, on the otlier hand, the losses and failures fell mainly upon the merchants, since the manu- facturers left to them the task of overcrowding the foreign markets " for their own account."
An expansion of the money-capital arising from the fact that in consequence of the expansion of the banking business a former private hoard or coin reserve may be converted into loanable capital for a short while, does not indicate a growth of the productive capital any more tlian the increasing de- posits of the London stock banks, as soon as they began to pay interest on deposits. (See the example of Ipswich farther along, where in the course of a few years immediately preceding 1857 the deposits of the capitalist farmers were quadrupled.) So long as the scale of production remains the same, this expansion leads only to an abundance of the loanable money-capital compared to the productive. Hence the rate of interest is low.
After the process of reproduction has again reached that state of prosperity, which precedes that of overexertion, the commercial credit once more arrives at a great expansion, which has then indeed for its " sound " basis a flow of easy returns and more extended production. In this state the rate of interest is still low, although it rises above its minimum. This is in fact the only time, of which it may be said, that a low rate of interest, and consequently a relative abundance of loanable capital, coincide with a real expansion of in- dustrial capital. • The facility and regularity of the returns, together with an extensive commercial credit, secures the sup- ply of loan capital in spite of the increased demand for it, 574 Capitalist Production. -M and prevents the level of the rate of interest from rising, ^i! Moreover, those knights now appear in large numbers, who work without any reserve capital, or even without any capital at all and operate Avholly on a credit basis. To this is added the great expansion of the fixed capital of all forms, and the inauguration of vast masses of new enterprises of wide scope. The interest now rises to its average level. It arrives once more at its maximum, as soon as the new crisis comes in, when credit suddenly stops, payments are suspended, the proc- ess of reproduction is delayed, and a superabundance of industrial capital is unemployed, with the above-mentioned exceptions, while there is an almost absolute lack of loan capital.
On the whole, then, the movements of loan capital, as expressed in the rate of interest, tend in a direction opposite to that of industrial capital. That phase in which a low rate of interest rising just above its minimum coincides with an " improvement " and a growing confidence after a crisis, and particularly that phase, in which the rate of interest reaches its average level, midway between its minimum and maximum, are the only two periods in which an abundance of loan capital is available simultaneously with a great ex- pansion of industrial capital. But at the beginning of the industrial cycle a low rate of interest coincides w^ith a con- traction, and at the end of an industrial cycle a high rate of interest coincides with a superabundance, of industrial capi- tal. The low rate of interest, which indicates an " improve- ment," shows that commercial credit requires the assistance of banking credit but to a slight degree, because it still stands on its own legs.
The industrial cycle is of such a character, that the same cycle must periodically reproduce itself, once that the first impulse has been given, ^°*^ *"** [I have already stated in another place, that a change has taken place in the character of commercial crises since the last great universal one. The acute form of the periodical process, with its former decennial cycle, seems to have given way to a more chronic, long drawn, alternation between a relatively short and slight business improvement and a relatively long, undecided, depression, both of them differently distributed over the various industrial countries. But perhaps it is merely a matter of a prolongation of the duration of the cycle. In the childhood Money-Capital and Actual Capital. 575 In the condition of lassitude production sinks below the level, which it had reached in the preceding cycle, and for which the technical basis has now been laid. During pros- perity, the middle period, it continues to develop on this basis. In the period of overproduction and swindle it exerts the productive forces to the utmost, even beyond the capitalistic limits of the process of production.
That means of payment are scarce during the period of crisis, goes without saying. The convertibility of bills of exchange has substituted itself for the metamorphosis of com- modities themselves, and so much more so at such times, as a portion of the firms operates purely on credit. An ignorant and mistaken legislation, such as that of 1844-45, may intensify a money crisis. But no manner of bank leg- islation can abolish a crisis.
In a system of production, in which the entire connection of the process of reproduction rests upon credit, a crisis must obviously occur through a tremendous rush for means of payment, when credit suddenly ceases and nothing but cash payment goes. At first glance, therefore, the whole crisis seems to be merely a credit crisis and money crisis. And in fact it is but a question of the convertibility of bills of exchange into cash money. But the majority of these bills represent actual sales and purchases, and it is of world commerce, 1815-1847, it can be shown that a crisis occurred about every fifth year; from 1847-1867 the cycle is decidedly decennial; is it possible, that we are now in the preparatory stage of a new world crash of unparalleled vehemence? Many things seem to indicate this. Since the last great universal crisis of 1867 many profound changes have taken place. The colossal extension of the means of transportation and communication — seagoing steamers, railroads, electric telegraphs, the Suez Canal — have made a real world market a fact. The former monopoly of England in industry has been matched by a number of competing industrial coun- tries; infinitely greater and varied fields have been opened in all parts of the world for the investment of superfluous European capitals, so that it is far more distributed, and local overspeculation may be more easily overcome. By means of these things, the old breeding grounds of crises and opportunities for the growth of crises have been eliminated or strongly reduced. At the same time competition in the internal markets recedes before Kartels and trusts, while it is restricted in the international market by protective tariffs, with which all great industrial coun- tries, England excepted, surround themselves. But these protective tariffs are nothing but preparations for the ultimate general industrial war, which shall decide the supremacy on the world market. Thus every element, which works against a repetition of the old crises, carries the germ of a far more tremendous future crisis in itself.— F, E.]
576 Capitalist Production.
the extension of these far beyond the demands of society which is at the bottom of tlie whole crisis. At the same time an enormous quantity of these bills represents mere swindles, and this becomes ajDparent now, when they burst. There are furthermore unlucky speculations made with the money of other people. Finally there are commodity-capitals, which have either become depreciated or unsalable or returns that can never more be realized. This entire artificial system of forced expansion of the process of reproduction cannot, of course, be remedied by having some bank, like the Bank of Eng- land, give to the swindlers the needed capital in the shape of paper notes and buy up all the depreciated commodities at their old nominal values. Moreover, everything appears turned up- side down here, since no real prices and their real basis appear in this paper world, but only bullion, metal coin, notes, bills of exchange, securities. Particularly in the centers, in which the whole money business of the country is crowded together, like London, this reversion becomes apparent; the entire process becomes unintelligible. It is not quite so in the industrial centers.
By the way, we make the following remarks about the superabundance of industrial capital, which shows itself during crises: The commodity-capital is in itself also a money-capital, that is, a definite sum of money expressed in the price of the commodities. As a use-value it is a definite quantity of useful objects, and there is a superfluity of them at the time of the crisis. But as a money-capital in itself, as a potential money-capital, it is subject to continual ex- pansion and contraction. On the eve of a crisis, and during its sway, commodity-capital in its caj^acity as a potential money-capital is contracted. It represents less money-capital for its owner and his creditors (likewise as a security for bills of exchange and loans), than it did at the time when it was bought and when the discounts and loans made on it were transacted. If this is the meaning of the contention, that the money-capital of a country is reduced in times of stringency, it is identical with the statement, that the prices Money-Capital and Actual Capital. 577 of commodities have fallen. Such a collapse of prices merely balances their inflation in preceding periods.
The incomes of the unproductive classes and of those, who live on fixed incomes, remain for the greater part stationary during the inflation of prices going hand in hand with an overproduction and overspeculation. Hence their consum- ing capacity diminishes relatively, and with it their ability to reproduce that portion of the total reproduction, which should enter normally into consumption. Even though their de- mand should remain nominally the same, it decreases actually.
With reference to the imports and exports we remark, that all countries become successively implicated in a crisis, and that then it becomes evident, that all of them, with few ex- ceptions, have exported and imported too much, so that there is a balance of payment against all of them. The trouble, therefore, is not with the balance of payment. For instance, England suffers from an export of gold. It has imported too much. But at the same time all other countries are over- crowded with English goods. They have also imported too much, or too much has been imported into them. (There is, indeed, a difference between that country, which exports on credit, and those countries, which export little or nothing on credit. But in that case, these last countries import on credit; and this is not the case only when commodities are sent to them on consignment.) The crisis may first break out in England, in that country which gives most of the credit and takes least of it, because the balance of payment due, which must be squared immediately, is against it, even though the general balance of trade is for it. This is ex- plained partly by the credit which it has granted, partly by the mass of capitals loaned to foreign countries, so that a large quantity of returns come back to it in the shape of com- modities, aside from actual trade returns. (However, the crisis broke out sometimes in America, that country in which most of the trade and capital credit is taken from England.) The crash in England, introduced and accompanied by an ex- 5/8 Capitalist Production.
port of gold, settles England's balance of payment, partly by a bankruptcy of its importers (about which more is said far- ther on), partly by throwing off a portion of its commodity- capital at cut prices to foreign countries, partly by the sale of foreign securities, the purchase of English securities, etc. Now it is the turn of some other country. The balance of payment was momentarily in its favor. But now the time normally allowed between the balance of payment and balance of trade has been reduced by the crisis or entirely abolished. All payments are now suj)ix)sed to be made immediately. The same thing is now repeated here. England now has a return of gold, the other country an export of gold. What appears in one country as excessive imports, appears in the other as excessive exports, and vice versa. But overimports and overexports have taken place in all countries (we are not alluding now to any crop failures, but to a general crisis); that is, there has been a general overproduction, promoted by credit and the inflation of prices that goes with it.
In 1857, the crisis broke out in the United States. An ex- port of gold from England to America followed. But as soon as the inflation in America collapsed, the crisis broke out in England and the gold export went from America to England. The same took place between England and the continent. The balance of payment is in times of general crisis against every nation, at least against every commer- cially developed nation, but always the one succeeding the other, like firing in squads, as soon as the turn of each comes for making payments. And once the crisis has broken out, say, in England, it compresses the succession of these terms of payment into a very short period. It then becomes evident, that all these nations have simultaneously overexported (and ovei-produced) and overimported (and overtraded), that prices were inflated in all of them, and credit overdrawn. And the same collapse follow^s in all of them. The phenome- non of gold exports then shows itself successively in all of them, and proves by this very generality, 1 ), that the gold ex- ports are but an evidence of a crisis, not its cause; 2), that the succession, in which the gold exports take place in differ- Money-Capital and Actual Capital. 579 ent countries, indicates only the time when their turn has come to settle their affairs, the time when the crisis seizes them and causes an eruption of its latent forces.
It is characteristic for the English economic writers — and the economic literature worth mentioning since 1830 resolves itself mainly into a literature on currency, credit, crisis — that they look upon the exports of precious metals in times of crisis, in spite of the alteration of quotations on bills, merely from the standpoint of England, as a purely national phenomenon, and completely close their eyes against the fact, that all other European banks raise tlieir rate of interest, when their own bank raises its in times of crisis, and that, when the cry of distress over the exports of gold is raised in their country today, it is taken up in America tomorrow and in Germany and France the day after.
In 1847, " the obligations of England had to be fulfilled " [mostly for corn]. ''Unfortunately they were mostly ful- filled by bankruptcies." [The wealthy England got its breath by bankruptcies in its obligations toward the Continent and America.] " But so far as they were met by bankrupt- cies, they were fulfilled by the export of precious metals." {Be port of Committee on Bank Ads, 1857.) In other words so far as a crisis is intensified by bank legislation, this legis- lation is a means of cheating the corn-exporting countries in periods of famine, robbing them first of their corn and then of the money for the corn. A prohibition of the export of corn in such periods and in such countries, which are them- selves suffering more or less from stringencies, is, therefore, a very rational measure to thwart the above plan of the Bank of England for " meeting obligations on corn imports by bankruptcies." It is in that case much better that the com producers and speculators should lose a portion of their profit for the good of their own country than their capital for the good of England.
It follows from the above, that the commodity-capital largely loses its capacity of representing potential money- capital during a crisis, and during periods of business de- pression in general. The same is true of fictitious capital, 580 Capitalist Production.
interest-bearing papers, so far as they circulate in the stock exchanges as monej-capitaL Their price falls with a rise of interest. It falls furthermore through a general lack of credit, which compels their owner to throw them in masses on the market, in order to secure money. It falls, finally, in the case of stocks, partly in consequence of the spurious char- acter of the enterprises which they represent, partly in con- sequence of a decrease of the revenues, for which they con- stitute drafts. The fictitious capital is enormously reduced in times of crisis, and with it the power of its owners to loan money on it in the market. However, the reduction of the money denomination of these securities in the stock exchange quotations has nothing to do with the actual capital which they represent, but very much indeed with the solvency of their owners.
CHAPTEK XXXI.
MONEY-CAPITAL AND ACTUAL CAPITAL. II.
(Continued.)
We have not yet come to the end of the question, to what extent the accumulation of capital in the form of loanable money-capital coincides wdth the actual accumulation, the expansion of the process of reproduction.
The conversion of money into loanable money-capital is a far simpler matter than the transformation of money into productive capital. But two things should be distinguished here.
1). The mere conversion of money into money-capital; 2. ) The conversion of capital or revenue into money, which is turned into loan capital.
It is only the last named point, which can imply a posi- tive accumulation of loan capital connected with an actual accumulation of industrial capital.
Money-Capital and Actual Capital. 581 1. Conversion of Money into Loan Capital.
We have already seen, that an accumulation of loan cap- ital to the point of oversaturation may take place, which is connected with productive accumulation only to the extent that it stands in the opposite proportion to it. This is the case in two phases of the industrial cycle, namely first during the time, when the industrial capital in both its forms of productive and commodity-capital is contracted, that is, at the beginning of the cycle after a crisis; and secondly at the time, when the improvement begins without, however, demanding as yet very much bank credit for commercial capital. In the first case the money-capital, which was formerly employed in production and commerce, appears as unemployed loan capital; in the second case it appears employed to an increas- ing degree, but at a very low rate of interest, because then the industrial and commercial capitalist prescribes the con- ditions for the money capitalist. The superabundance of loan capital expresses in the first case a stagnation of indus- trial capital, and in the second a relative independence of commercial credit from banking credit, based on the fluidity of the returns, a short term of credit, and a preponderance of operations with one's o^^ti capital. The speculators, who count on the credit capital of other people, have not yet ap- peared upon the field; the people, who work with their own capital, are still far removed from an approximation to oper- ations based purely on credit. In the first named phase the superfluity of loan capital is the direct opposite of the ex- pression of actual accumulation. In the second- phase it coincides with a renewed expansion of the process of repro- duction, accompanies it, but is not its cause. The super- abundance of loan capital is already decreasing, is only a relative one compared to the demand. In both cases the ex- pansion of the actual process of accumulation is promoted by it, since the low interest, which coincides in the first case with low prices, in the second with slowly rising prices, in- creases that portion of the profit, which is transformed into profits of enterprise. This takes place still more when in- 582 Capitalist Production.
terest rises to its average level during the height of the period of prosperity, when it has grown, but not in the same pro- portion as profit.
We have seen, on the other hand, that an accumulation of loan capital may take place without any actual accumulation, by mere technical means, such as an expansion and concen- tration of the banking system, a saving in the currency re- serve, or in the reserve fund of private means of payment, which are then always converted into loan capital for a short time. Although this loan capital, which is also called float- ing capital for this reason, retains the form of loan capital only for short periods (and discount is supposed to be given for short periods only), it flows continually back and forth. If one withdraws it, another brings it along. The mass of loanable money-capital grows thus quite independently of the actual accumulation (we speak here quite generally of short- lived loans on bills and deposits, not of loans for a number of years).
B. C. 1857. Question 501. " Wliat do you mean by float- ing capital? " — Answer of Mr. Weguelin, Governor of the Bank of England: " It is capital available for money loans on short time."...(502) I^otes of the Bank of England...of the provincial banks, and the amount of money existing in the country. — Question: ^' It does not seem, from the testimony submitted to this Committee, pro- vided you mean by floating capital the active circulation " [of the notes of the Bank of England] " as though there were any very considerable fluctuation in this active circula- tion? " [But there is a gi^eat difl'erence, whether this active circulation is loaned by the money lender or advanced by the reproductive capitalist himself.] Weguelin's answer: "I include in the floating capital the reserves of the bankers, in which there is considerable fluctuation." — That is to say, there is considerable fluctuation in that portion of the de- posits, which the bankers have not loaned out again, but which figures as their reserve, and for the greater part also as the reserve of the Bank of England, where they are de- posited. Finally the same gentleman says that floating cap- Money-Capital and Actual Capital. 583 ital is bullion, that is, bullion and hard cash (503). — It is truly wonderful, what a different meaning and different form all economic categories receive in this credit jargon of the money market. Floating capital is there the term for cir- culating capital, which is, of course, quite another thing, money is capital, bullion is capital, bank notes are currency, capital is a commodity, debts are commodities, and fixed cap- ital is money invested in papers that are salable with diffi- culty!
'' The stock banks of London...have increased their deposits from 8,850,774: pounds sterling in 1847 to 43,- 100,724 pounds sterling, in 1857...The evidences and testimonies placed before tliis Committee permit the con- clusion, that a great part of this immense amount is derived from sources, which were formerly not available for this pur- pose; and that the custom of opening an account with the banker and depositing money with him has extended to numer- ous classes, that formerly did not invest their capital (!) in this manner. Mr. Rodwell, President of the Association of Provincial Private Banks " [distinguished from stock banks] " and delegated by it to testify before this Committee, states that in the region of Ipswich this custom has quadrupled of late among the capitalist farmers and small business men of that district; that nearly all faraiers, even those paying only 50 pounds sterling of rent annually, now have deposits in banks. The mass of these deposits, of course^ finds its way to employment in business, and gravitates particularly toward London, the center of commercial activity, where they are first employed in discoimting bills and in making other loans to the customers of London bankers. But a large portion of thenij which the bankers themselves cannot use im- mediately, pass into the hands of bill brokers, who give to the bankers commercial bills in their stead, which they have already discounted once before for people in London and in the provinces." (B. C. 1858, p. 8.)