In giving loans to the bill broker on bills which this broker has discounted once, the banker practically discounts them again; but in reality very many of these bills have already 584 Capitalist Production.
been rediscounted by the bill broker, and he rediscounts new bills with the very same money, with which the banker re- discounts the bills of the bill broker. What this leads to is shown by the following passage; "' Extensive fictitious credits have been created by accommodation bills and blank credits, and this was very much facilitated by the procedure of the provincial stock banks, that discounted such bills and then had them rediscounted by bill brokers in the London market, and at that solely on the strength of the bank's credit, with- out regard to the further quality of the bills." (L. c.)
Concerning this rediscounting and the help which these purely technical increase of loanable capital lends to credit swindlers, the following extract from the "Economist " is in- structive: " During many years capital " [namely loanable money-capital] " accumulated in some districts of the coun- try more rapidly than it could be employed, while in others the means of its investment grew faster than the capital it- self. While the bankers in the agricultural districts thus found no opportunity to invest their deposits profitably and safely in their own region, those in the industrial districts and the commercial cities had more demand for capital than they could supply. The effect of these different conditions in the various districts has led in recent years to the rise and startlingly rapid extension of a new class of firms engaged in the distribution of capital, who, although generally called bill brokers, are in reality bankers on the very largest scale. The business of these firms is to assume, for definitely agreed periods and at definitely fixed interest, the surplus-capital of the banks in districts in which it could not be employed, just like the temporarily idle funds of stock companies and great commercial firms, and to loan this money at a higher rate of interest to the banks in districts where capital is more in demand; as a rule by rediscounting the bills of their cus- tomers...In this way Lombard Street became the great center, in which the transfer of unemployed capital takes place from one part of the country, where it cannot be usefully employed, to another where it is in demand; and this applies to the different parts of the country as well as to Money-Capital and Actual Capital. 585 similarly situated individuals. Originally these transac- tions were almost exclusively limited to borrowing and lend- ing on collateral acceptable to banks. But in proportion as the capital of the country increased rapidly and was more and more economised by the erection of banks, the funds at the disposal of discounting firms became so large that they undertook to make advances, first on dock warrants (storage bills on commodities in docks) and then also on bills of lad- ing representing products that had not even arrived, although sometimes, if not regularly, bills of exchange had already been drawn against them at the produce brokers. This prac- tice soon changed the entire character of the English business. The facilities thus offered by Lombard Street gave to the pro- duce brokers in Mincing Lane a greatly enforced position; these gave in turn the entire advantage to the importing mer- chants; these last took so much advantage of it that, wdiereas 25 years previous a taking of credit on his bills of lading or even his dock warrants would have ruined the credit of a merchant, this practice became so general, that it may be considered as the rule, and no longer, as 25 years ago, as a rare exception. Yea, this system has been extended so far, that large sums have been taken up in Lombard Street on bills of exchange drawn against the still groiving crops of dis- tant colonies. The result of such accommodations was, that the import merchants expanded their foreign transactions and tied up their floating capital, with which they had hitherto carried on their business, in the most execrable of invest- ments, colonial estates, over which they could exert little or no control. Thus we see the direct concatenation of credits. The capital of the country, which is collected in our agricul- tural districts, is laid down in small amounts as deposits in country banks, and centralised for investment in Lombard Street. But it has been utilised, first, for the extension of business in our mining and industrial districts by rediscount- ing bills on banks there; furthermore also for granting greater accommodations to importers of foreign products by loans on warrants and bills of lading, whereby the ' legitimate ' mer- chants' capital of firms in foreign and colonial business was 586 Capitalist Production.
released and made available for the most abominable kinds of investment in transmarine estates." {Economist, 1847, This is the '' beautiful concatenation of credits." The rural depositor imagines to deposit only with his banker, and im- agines furthermore that, when his banker lends to others, it is done to private persons whom he knows. He has not the slightest suspicion, that this banker places his deposit at the disposal of some London bill broker, over whose operations neither of them have the slightest control.
How great public enterprises, such as railroads, may mo- mentarily increase the loan capital, owing to the circumstance that the deposited amounts always remain at the disposal of the bankers for a certain time until they are really used, we have already seen.
By the way, the mass of the loan capital is quite different from the quantity of the currency. By the quantity of the currency we mean here the sum of all bank notes and all hard cash existing and circulating in a country, including the bul- lion of precious metals. One portion of this quantity forms the reserves of the banks, an ever changing magnitude.
" On November 12, 1857 " [the date of the suspension of the Bank Acts of 1844], "the total reserve of the Bank of England, including all branch banks, amounted to only 580,- 751 pounds sterling; the sum of the deposits amounted at the same time to 22,500,000 pounds sterling, of which nearly 6,500,000 pounds sterling belonged to London bankers."
The variations of the rate of interest (aside from those occurring in long periods, or from the difference of the rate of interest in different countries; the first named are condi- tioned in variations of the general rate of profit, the last named on differences in the rates of profit and on the develop- ment of credit) depend upon the supply of loan capital (all other circumstances, state of confidence, etc., being equal), that is, of the capital loaned in the form of money, hard cash, Money-Capital and Actual Capital. 587 and notes; this is distinguished from industrial capital, which in the shape of commodities is loaned by means of commercial credit among the agents of reproduction themselves.
However, the mass of this loanable capital is different from and independent of the mass of the circulating money.
If 20 pounds sterling were loaned five times per day, a money-capital of 100 pounds sterling would be loaned, and this would imply at the same time that these 20 pounds ster- ling would besides have to serve at least four times as means of purchase or payment; for if this were to take place with- out the intervention of purchase and payment, so that this sum would not represent at least four times the converted form of capital (commodities including labor-power), it would not be a capital of 100 pounds sterling, but only five claims of 20 pounds sterling each.
In countries with a developed credit we may assume, that all money-capital available for loaning exists in the form of deposits with banks and money lenders. This holds good at least for the business in a general way. Moreover, in times of good business, before speculation proper breaks loose, when credit is easy and confidence growing, the greater portion of the functions of circulation is settled by a simple transfer of credit, without the intervention of metal or paper money.
The mere possibility of large amounts of deposits with a relatively small quantity of currency, depends solely: 1) Upon the number of purchases and sales, which the same piece of money performs; 2) The number of its return wanderings, in which it goes back to the banks as a deposit, so that its repeated function as a means of payment and purchase is promoted through its renewed conversion into a deposit. For instance, a small dealer deposits weekly with his banker 100 pounds sterling in money; the banker pays with this a portion of a deposit to a manufacturer; this man in his turn pays it over to some laborers; these pay the small dealer with it, who deposits it again in the bank. The 100 pounds sterling deposited by this dealer have, therefore, served, first, in paying to a man- ufacturer a portion of his deposit; secondly, in paying some 588 Capitalist Production.
laborers; thirdly, in paying the dealer himself; fourthly, in depositing another portion of the money-capital of the same small dealer; for at the end of twenty weeks, provided that he does not have to draw any of his money out of the bank, he would have deposited 2,000 pounds sterling in the bank by means of the same 100 pounds sterling.
To what extent this money-capital is unemployed, is shown only in the inward and outward movements of the banking reserves. Therefore Mr. Weguelin, Governor of the Bank of England in 1857, concludes that the gold of the Bank of England is the " only " reserve capital. — ■ 1258. " In my opinion the rate of discount is actually determined by the amount of unemployed capital existing in the country. The amount of unemployed capital is represented by the reserve of the Bank of England, which is in fact a gold reserve. Hence, when gold is exported, the amount of unemployed capital in the country is diminished and the value of the re- maining parts is thereby increased." — 13'64. " The gold reser\'e of the Bank of England is in fact the central reserve, or the cash fund, on the basis of which the entire business of the country is carried on...It is this fund, or this reservoir, upon which the effect of the foreign quotations on 'Change always fall." (Eeport on Bank Acts, 1857.)
For the accumulation of the actual, this is, productive and commodity-capital, the statistics of exports and imports fur- nish a measure. These show always that during the decen- nial cycles of the period of development of British industry from 1815 to 1870 the maximum of the last time of prosper- ity always reappears before the crisis, whereupon it rises to a new and far higher maximum.
The actual or declared value of the exported products of Great Britain and Ireland in the prosperous year 1824 was 40,396,300 pounds sterling. The amount of the exports falls thereupon with the crisis of 1825 below this sum and fluctu- ates between 35 and 39 millions annually. With the return I Money-Capital and Actual Capital. 589 of prosperity in 1834 the amount of exports rises above the former maximum to 41,649,191 pounds sterling, and reaches in 1836 the new maximum of 53,368,571 pounds sterling. In 1837 it falls again to 42 millions, so that the new mini- mum stands higher than the old maximum, and fluctuates thereupon between 50 and 53 millions. The return of pros- perity lifts the amount of exports in 1844 to 58,500,000 pounds sterling, a rise far above the maximum of 1836. In 1845 it reaches 60,111,082 pounds sterling; then it falls to something over 57 millions in 1846, reaches in 1847 almost 59 millions, in 1848 about 53 millions, rises in 1849 to 63,- 500,000, in 1853 to nearly 99 millions, in 1854 to 97 mil- lions, in 1855 to 94,500,000, in 1856 almost 116 millions, and reaches a maximum of 122 millions in 1857. It falls in 1858 to 116 millions, rises already in 1859 to 130 mil- lions, in 1860 to nearly 136 millions, in 1861 only 125 mil- lions (the new minimum is here again higher than the for- mer maximum), in 1863 to 146,500,000.
Of course, the same thing might be demonstrated in the case of imports, which show the extension of the market; but we are here concerned only in the scale of production. [Of course, this holds good of England only for the time of its actual industrial monopoly; but it applies quite generally to the whole complex of countries with modern great indus- tries, so long as the world market is still expanding. — F. E.]
Conversion of Capital or Revenue into Money that is Trans- formed into Loan Capital.
We will consider the accumulation of money-capital here in so far as it is not an expression, either of a relaxation in the flow of credit, or of greater economy, whether it be an economy in the actually circulating medium or in the reserve capital of the agents engaged in reproduction.
Aside from these two cases, an accumulation of money-cap- ital may arise through extraordinary imports of gold, such as those of 1852 and 1853 resulting from the output of the new Australian and Californian mines. This gold was dec^o Capitalist Production.
posited in the Bank of England. The depositors took notes instead, which they did not at once redeposit in banks. By this means the circulating medium was unusually increased. {Testimony of Weguelin, B. C. 1857, No. 1329.)
The Bank strove to utilise these deposits by lowering its discount to 2%. The mass of gold accumulated in the Bank rose during six months of 1853 to 22 or 23 millions.
The accumulation of all capitalists lending money natu- rally takes place always in the form of direct money, whereas we have seen that the actual accumulation of industrial cap- italists is accomplished, as a rule, by an increase of the ele- ments of reproductive capital itself. Hence the development of the credit system and the enormous concentration of the money-lending business into the hands of great banks must by itself alone accelerate the accumulation of loanable cap- ital, as a form distinguished from actual accumulation. This rapid development of loan capital is, therefore, a result of actual accumulation, for it is a consequence of the develop- ment of the process of reproduction, and the profit that forms the source of accumulation for these money-capitalists is but a. deduction from the surplus-value, which the reproductive capitalists filch from production (and it is at the same time a portion of the interest on the savings of others). The loan capital accumulates at the expense of both the industrial and commercial capitalists. We have seen that in the unfavor- able phases of the industrial cycle the rate of interest may rise so high, that it temporarily devours the whole profit in particularly handicapped lines of business. At the same time the prices of the public securities and other securities also fall. It is at such times that the money-capitalists buy up these depreciated papers in masses, which soon regain their former level in later phases or rise above it. Then they are sold again and a portion of the money-capital of the public appropriated through them. That portion, which is not sold yields a higher interest, because it was bought below price. But the money-capitalists convert all profits made by them and reconverted into capital first into loanable money-cap- ital. An accumulation of such money-capital, as distin- Money-Capital and Actual Capital. 591 guished from the actual accumulation that is it3 mother, takes place, obviously, even if we consider only the money- capitalists, bankers, etc., by themselves, that is, an accumu- lation of this particular class of capitalists. And it must grow with every expansion of the credit system such as goes with the expansion of the process of reproduction.
If the rate of interest is low, then the depreciation of the money-capital falls principally upon the depositors, not upon the banks. Before the development of stock banks three- fourths of all deposits rested in the English banks without returning any interest. If interest is now paid on them, it amounts to at least 1% less than the current rate of interest.
As for the money accumulation of the other classes of cap- italists, we leave aside that portion of it, which is invested in interest-bearing papers and accumulates in this form. We consider merely that portion, which is thrown upon the mar- ket as loanable money-capital.
In the first place, we have here that portion of the profit, which is not spent as revenue, but intended for accumulation, yet at the same time not immediately of any use for the in- dustrial capitalists in their own business. This profit exists originally in the form of commodity-capital, a part of whose value it constitutes, and is realised with it in money. Now, if it is not reconverted into the productive elements of com- modity-capital (we leave out of consideration for the pres- ent the merchant, whom we shall have to discuss separately), then it must remain for a while in the form of money. This mass increases with the mass of capital itself, even when the rate of profit declines. That portion, which is to be spent as revenue, is gradually consumed, but forms in the mean- time a loan capital of the banker in the form of a deposit. Thus even the gro\vth of that portion of profit, which is spent as revenue, expresses itself in a gradual and continually re- peated accumulation of loan capital. The same is true of that other portion, which is intended for accumulation. With the development of the credit system, then, and its organisa- tion, even the increase of revenue, that is, of the consump- tion of the industrial and commercial capitalists, expresses 592 Capitalist Production.
itself as an accumulation of loan capital. And this holds good of all revenues which are consumed gradually, in other words, of gi'ound rent, wages in their higher form, incomes of unproductive classes, etc. All of them assume for a cer- tain time the form of a money revenue and are, therefore, convertible into deposits and thus into loan capital. All rev- enue, whether it be intended for consumption or accumula- tion, so long as it exists in some form of money, is a part of the value of commodity-capital transformed into money, and is, for this reason, an expression and result of the actual ac- cumulation, but not the productive capital itself. When a spinner has exchanged his yarn for cotton, while he has ex- changed that portion, which forms his revenue, for money, then the real existence of his industrial capital is the yarn, which has passed into the hands of the weaver or, perhaps, of some private consumer, and this yarn is the existence of both the capital-value and surplus-value contained in it, Avhether it be intended for reproduction or consumption. The magnitude of the surplus-value transformed into money de- pends upon the magnitude of the surplus-value contained in the yarn. But as soon as it has been transformed into money, this money is but the existence of the value of this surplus- value. And as such it becomes an element of loan capital. ,To this end nothing more is required than that it should be transformed into a deposit, if it has not been loaned out by its owner. But in order to be reconverted into productive capital, it must have reached a certain minimum limit.
Money-Capital and Actual Capital. 593 CHAPTER XXXII.
MONEY-CAPITAL AND ACTUAL CAPITAL. III.
(Concluded.)
The mass of the money thus reconverted into capital is a result of the voluminous process of reproduction, but consid- ered by itself, as loanable money-capital, it is not itself a mass of reproductive capital.
The most important point of our presentation so far is, that the expansion of that part of the revenue which is in- tended for consumption (leaving out of consideration the laborer, because his revenue is equal to the variable capital) represents itself in the first instance as an accumulation of money-capital. The accumulation of money-capital, there- fore, presents a factor, which is essentially different from the actual accumulation of industrial capital; for that portion of the annual product, which is intended for consumption, does not become capital in any way. One portion of it replaces capital, namely the constant capital of the producers of means of consumption, but to the extent that it is actually converted into capital, it exists in the natural form of the revenue of the producers of this constant capital. The same money, which represents the revenue and serves merely for the pro- motion of consumption, is regularly transformed into loan- able money-capital, for a certain time. So far as this money represents wages, it is at the same time the money-form of the variable capital; and so far as it replaces the constant capital of the producers of means of consumption, it is the money-form temporarily assumed by their constant capital and serves for the purchase of the natural elements of the constant capital to be replaced by them. Xeither in the one nor in the other form does it express in itself any accumula- tion, although its mass increases with the volume of the proe- 2L 594 Capitalist Production.
ess of reproduction. But it performs temporarily the func- tion of loanable money, of money-capital. In this respect the accumulation of money-capital must reflect a gTeater ac- cumulation of capital than is actually existing, owing to the fact that the extension of individual consumption, being pro- moted by money, appears as an accumulation of money-cap- ital, whereby it furnishes the money-form for the actual accumulation of money opening new investments of capital.
The accumulation of money, then, expresses in part noth- ing else but the fact that all money, into which the industrial capital is transformed in the course of its cycle, assumes the form, not of money advanced by the reproductive capitalists, but of money harrowed by them; so that indeed the advance of money necessary in the process of reproduction appears as an advance of borrowed money. On the basis of commercial credit one capitalist loans indeed to another the money re- quired for the process of reproduction. But this assumes now the form of a transaction, in which the banker, who re- ceives the money as a loan from one portion of the reproduc- tive capitalists, lends it to another portion of these reproduc- tive capitalists, so that the banker appears in the role of a dispenser of blessings; at the same time the disposition of this capital drifts wholly into the hands of the banker in his capacity as a middleman.
A few special forms of accumulation of money-capital still remain to be mentioned. Capital is released, for instance, by a fall in the price of the elements of production, raw ma- terials, etc. If the industrial capitalist cannot expand his process of reproduction immediately, then a portion of his money-capital is expelled from the cycle as superfluous and converted into loanable money-capital. In the second place, capital in the form of money is released especially by the merchant, w^henever any interruption of his business takes place. If the merchant has disposed of a series of transac- tions and cannot begin a new series on account of such inter- ruptions until later, then his realised money represents for him but a hoard, superfluous capital. But at the same time it represents directly an accumulation of loanable money- Money-Capital and Actual Capital. 595 capital. In the first case, the accumulation of money-capital expresses a repetition of the process of reproduction under more favorable conditions, an actual release of a portion of formerly tied up capital, in other words, an opportunity for exjjanding the process of reproduction with the same amount of money. But in the other case it expresses merely an in- terruption in the flow of transactions. However, in both cases it is converted into loanable money-capital, represents its accumulation, influences equally the money-market and the rate of interest, although it expresses a promotion of the accumulation in the actual process in one case and its ob- struction in the other. Finally an accumulation of money- capital is brought about by that section of people, who have made their little pile and have withdrawn from reproduction. In proportion as more profits are made in the course of the industrial cycle, their number increases. In their case the accumulation of loanable money-capital expresses on the one hand an actual accumulation (considering its relative vol- ume), and on the other hand the extent of the transformation of industrial capitalists into mere money-capitalists.
As for the other portion of profit, which is not intended to be consumed as revenue, it is converted into money-capital only when it is not immediately able to find a place for in- vestment in the expansion of the productive sphere in which it has been made. This may be due to two causes. Either the sphere of production may be saturated with capital. Or it may be because accumulation must first have reached a cer- tain volume, before it can serve as capital, according to the proportions of the investment of new capital required in this particular sphere. Hence it is converted for a while into loanable money-capital and serves in the expansion of produc- tion in other spheres. Assuming all other circumstances to remain unaltered, the mass of profits required for reconver- sion into capital will depend on the mass of profits made and thus on the extension of the process of reproduction itself. But if this new accumulation meets with difficulties in its employment, through a lack of spheres for investment, due to the overcrowding of the lines of production and an oversupply 296 Capitalist Production.