of loan capital, then such a plethora of loanable money-cap- ital proves merely that capitalist production has its limits. The subsequent swindle with credit proves, that no positive obstacle stands in the way of the employment of this super- fluous capital. The obstacle is merely one immanent in its laws of self-expansion, namely the limits in which capital can expand itself as such. A plethora of money-capital does not necessarily indicate an overproduction, nor even a lack of spheres of investment for capital.
The accumulation of loan-capital consists simply in the fact that money is precipitated as loanable money. This proc- ess is very different from an actual transformation into cap- ital; it is merely the accumulation of money in a form, in wdiich it may be invested as capital. But this accumulation may, as we have shown, indicate facts, which are greatly dif- ferent from actual accumulation. So long as actual accumu- lation is continually expanding, this extended accumulation of money-capital may be partly its result, partly the result of circumstances, which accompany it but are quite different from it, partly also the result of impediments to actual accu- mulation. Since accumulation of loan-capital is swelled by such circumstances, which are independent of actual accumu- lation but nevertheless accompany it, there must be a plethora of money-capital in definite phases of the cycle for this rea- son alone, if for no other, and this plethora must develop with the organisation of credit. And simultaneously with it must also develop the necessity of driving the process of produc- tion beyond its capitalistic limits, by overproduction, exces- sive commerce, extreme credit. And this must take place in forms that call forth a reaction.
So far as accumulation of money-capital from ground rent, wages, etc., is concerned, it is superfluous to discuss that here. Only one thing must be mentioned, namely that the business of actual saving and abstinence (by people forming hoards), to the extent that it furnishes elements of accumulation, is left in the division of labor, which comes with the progress of capitalist production, to those who receive the smallest share of such elements, and who frequently enough lose even their I Money-Capital and Actual Capital. 597 savings, as do the laborers when banks fail. On the one hand the capital of the industrial capitalist is not " saved " by himself, but he has command of the savings of others in proportion to the magnitude of his capital; on the other hand the money-capitalist makes of the savings of others his own capital, and of the credit, which the reproductive capitalists give to one another, and which the public gives to them, a source for enriching himself. The last illusion of the cap- italist system, to the effect that capital is the fruit of ones own labor and saving, is thereby destroyed. Not only does profit consist of the appropriation of other people's labor, but the capital, with which this labor of others is set in motion and exploited, consists of other people's property, which the money-capitalist places at the disposal of the industrial cap- italist, at the same time exploiting the latter in his turn.
A few remarks remain to be made about credit-capital.
How often the same piece of money may figure as a loan capital, depends, as we have previously indicated.
1) On the question, how often it realises the values of commodities by sale or purchase, thereby transferring capital, and furthermore on the question, how often it realises rev- enue. How often it gets into other hands as a realised value, either of capital or of revenue, depends, therefore, obviously, upon the volume and mass of the actual transactions; 2) On the economy of payments and on the development and organisation of the credit-system; 3) On the concatenation and velocity of action of the credits, so that a deposit set down at one point starts off im- mediately as a loan at another.
Even assuming that the form, in which loan capital exists, is merely that of actual money, of gold or silver, of that com- modity whose substance serves as a measure of value, a large portion of this money-capital is necessarily purely fictitious, that is, a title to some value just as the tokens of value. So far as money functions in the cycle of capital, it forms indeed for the moment a money-capital; but it does not convert itself into loanable money-capital; it is rather exchanged for the elements of productive capital, or paid out as a medium of 59^ Capitalist Production.
circulation in the realisation of revenue, and cannot, there- fore, convert itself into loan capital for its owner. But so far as it is converted into loan capital, and the same money repeatedly represents loan capital, it is evident that it exists only at one point in the form of metallic money; at all other points it exists only in the form of titles on capital. The ac- cumulation of these titles, according to our analysis, arises from the actual accumulation, that is, from the transforma- tion of the values of commodity-capital, etc., into money; but nevertheless the accumulation of these titles as such differs from the actual accumulation, from which it arises, and from the future accumulation (the new process of produc- tion), which is promoted by the loaning of this money.
In the first instance loan capital exists always in the form of money,^°i later as a title on money, since the money, in which it originally existed, is now held in the hand of the borrower as actual money. For the lender it has been transformed into a title on money, a title of ownership. The same mass of actual money may, therefore, represent very different masses of money-capital. Mere money, whether it represent ^'i B. A. 1857. Testimony of Twells, banker. 4516. " As a banker, do you deal in capital or in money? "—" We deal in money."— 4517. "How are the deposits paid into your bank?"— "In money."— 4518. "How are they paid out? "— " In money."— " Might it be said, then, that they are anything else but money?"— Overstone (see chapter XXVI) 'tangles himself up continually between "capital" and " money." Value of money signifies with him also interest, in so far as it is determined by the mass of money; value of capital is supposed to be interest, so far as it is determined by the demand for productive capital and the profit made by It. He says, 4140. " The use of the term capital is very dangerous." — 4148. " The gold exports from England are a reduction of the quantity of money in the country, and this must naturally cause an increased demand in the money-market in general" [but not in the capital-market, according to this] — 4112. "In pro- portion as money leaves the country its quantity in the country is dimin- ished. This diminution of the quantity remaining in the country creates an increased value of this money " [this signifies originally in his theory an in- crease in the value of money as money through a contraction of the currency, as compared to the values of commodities; in other words, an increase in the value of money is the same as a fall in the value of commodities. But since meanwhile even he has been convinced beyond peradventure, that the mass of the circulating money does not determine prices, it is now the contraction of money as a medium of circulation, which is supposed to raise its value as interest bearing capital, and thus the rate of interest]. " And this increased value of the still remaining money checks the export and continues, until it has brought back as much money as is necessary to restore the equilibrium."— A continuation of Overstone's con- tradictions follows later.
Money-Capital and Actual Capital. 599 realised capital en* realised revenue, liecomes a loan capital through the simple act of loaning, by its conversion into a deposit, if we look upon the general form under a developed credit system. The deposit is a morey-capital for the de- positor. But in the hands of the banker it may be only a po- tential money-capital, which lies fallow in his strongbox in- stead of tliat of its owner. ^"^^ With the growth of material wealth gi'ows the class of money-capitalists; on one side the number and the wealth of retiring capitalists living on their incomes increases; on the other hand the development of the credit system is promoted, and with it the number of bankers, money lenders, financiers, etc.
With the development of the available money-capital grows also the mass of interest-bearing papers, government bonds, stocks, etc., as we have shown previously. At the same time grows also the demand for available money-capital, since the ^°-At this point the confusion starts in to the effect that both of these things are " money," namely the deposit as a claim to a payment from the banker, and the deposited money in the hands of the banker. Banker Twells, before the Committee on Bank Acts of 1857, takes the following ex- ample: " I start in business with 10,000 pounds sterling. With 5000 pounds sterling I buy commodities and place them in my stock. The other 5000 pounds sterling I deposit with some banker, in order to draw upon them as I need them. But 1 still consider the total as my capital, although 5000 pounds sterling exist in the form of a deposit or money." (4528) — This gives rise to the following nice debate. — 4531. " Well, you have given your 5000 pounds sterling in bank notes to somebody else " — " Yes, Sir." — 4532. " Then he has 5000 pounds sterling in deposits?" — "Yes, Sir." — 4533. "And you have 5000 pounds sterling in deposits?"- — "Quite right." — 4534. "He has 5000 pounds sterling in money, and you have 5000 pounds sterling in money?" — "Yes, Sir." — 4535. "But it is ultimately nothing but money? " — " No, Sir." This confusion is due, partly to the circumstance, that A, who has deposited 5000 pounds sterling, can draw on them and dispose of them as though he still had them. To that extent they serve him as a potential capital. In all cases, in which he draws on them, he destroys his deposit to that extent. If he draws out real money, and his own money has already been loaned to some one else, he is not paid with his own money, but with that of some other depositor. If he pays a debt to B with a check on his banker, and if banker of A has also a check on the banker of B, so that the two bankers merely e.xchange checks, then the money deposited by A has performed the func- tion of money twice; first, in the hands of him who received the money deposited by A; secondly, in the hands of A himself. In this second function it is a balancing of claims of indebtedness (the claim of A on his banker, and the claim of this banker on the banker of B) without the intervention of money. Here the deposit acts twice as money, namely on..e as real money, and then as a claim on money. Mere titles to money may take the place of money only by a balancing of claims of indebtedness.
6oo Capitalist Production.
jobbers, who speculate iu these securities, plaj a prominent role on the money-market. If all the purchases and sales of these papers were only an expression of actual investments of capital, it would be correct to say, that they can have no influence on the demand for loan capital, since, when A sells his paper, he draws exactly as much money as B puts into the paper. But even if the paper itself exists, though not the capital (at least not as money-capital) originally repre- sented by it, it always creates to that extent a demand for such money-capital. But at any rate it is then money-capital, which was previously at the disposal of B and is not at the command of A.
B. A. 1857. 'No. 4886. " Is it in your opinion a correct statement of the causes determining the rate of discount, when I say that it is regulated by the quantity of capital existing on the market, which is available for the discounting of com- mercial bills, as distingiiished from other kinds of securi- ties? " [Chapman]: *' No, I hold that the rate of interest is affected by all convertible securities of current character; it would be wrong to limit the question simply to the dis- counting of bills; for when there is a strong demand for money on consols [deposited] or even treasury notes, as was strongly the case of late, and at a much higher than the commer- cial rate of interest, it would be absurd to say that our com- mercial world is not influenced by it; it is very essentially touched by it." — 4890. "When good and current securities, such as bankers accept, are on the market, and the owners take up money on them, it has surely an effect on the commercial world; for instance, I cannot expect that a man should give me his money at 5% on a commercial bill, when he can lend this money out at the same time at 6% on consols, etc.; it affects us in the same way; nobody can expect of me that I should discount his bills at 5-|%, when I can lend my money out at 6%." — 4892. "Of people, who buy securities as fixed investments of capital for 2,000, or 5,000, or 10,000 pounds sterling, we do not speak as though they had any es- sential influence upon the money-market. When you ask me for the rate of interest on [a deposit of] consols, I speak Money-Capital and Actual Capital. 6oi of people, who transact business to the amount of hundreds of thousands, of so-called jobbers, who underwrite large amounts of public loans, or buy them on the market, and who must hold these papers until they can get rid of them at a profit; these people must take up money for this purpose."
With the development of the credit system great concen- trated money-markets are created, such as London, which are at the same time the main seats of trade in such securities. The bankers place the money-capital of the public in masses at the disposal of this unsavory crowd of dealers, and thus this breed of gamblers multiplies. " Money is generally cheaper at the stock exchange than anywhere else," says the incumbent of the Governor's chair of the Bank of England in 1848 before the secret Committee of Lords, C. D. 1848, In the discussion of the interest-bearing capital we have already shown, that the average interest for a long period of years, other circumstances remaining the same, is de- termined by the average rate of profit; this does not mean profits of enterprise, which are themselves nothing but profit minus interest.
It has also been mentioned, and will be further analysed in another place, that the variations of commercial interest, that is, of interest calculated by the money lenders for discounts and loans within the commercial world, meet in the course of the industrial cycle a phase, in which the rate of interest exceeds its minimum and reaches its average level, which it exceeds later, and that this movement is a result of a rise in profits.
However, two things must be noted here.
First: When the rate of interest stays up for a long time (we are speaking here of the rate of interest of a certain country, for instance England, where the average rate of inter- est is a fact for a certain long time, and presents itself also in the interest paid on loans for a long period, called private inter- est), it is an evident proof of the fact, that the rate of profit is high during this period, but it does not prove necessarily, that the rate of profits of enterprise is high. This last distinction 6o2 Capitalist Production.
is more or less removed for capitalists, who operate mainly with their own capital; they realise the high rate of profit, since they pay their owti interest. The possibility of a high rate of interest of long duration is present when the rate "of profit is high; this does not refer, however, to the phase of the actual stringency. But it is possible, that this high rate of profit may leave but a low rate of profit of enterprise, after the high rate of interest has been deducted. The rate of profit of enterprise may shrink, while the high rate of profit con- tinues. This is possible, because the enterprises must be con- tinued after they have once been started. During this phase operations are carried on to a large extent with a pure credit capital (capital of other people); and the high rate of profit may be speculative, prospective, in some places. A high rate of interest may be paid with a high rate of profit, while profit of enterprise is declining. It may be paid (and this is done in part during times of speculation), not out of the profit, but out of the borrowed capital of another, and this may con- tinue for a long time.
Secondly: The expression, that the demand for money- capital, and with it the rate of interest, grows, while the rate of profit is high, is not the same as that which is to the effect that the demand for industrial capital grows and with it the rate of interest is high.
In times of crisis the demand for loan capital, and with it the rate of interest, reach their maximum; the rate of profit, and with it the demand for industrial capital, are almost gone. In such times every one borroAvs only for the purpose of pay- ing, in order to settle previously contracted obligations. On the other hand, in times of renewed activity after a crisis loan capital is demanded for the purpose of buying, and for the purpose of transforming money-capital into productive and commodity-capital. And then it is in demand either by the industrial capitalist or the merchant. The industrial cap- italist invests it in means of production and in labor-power.
The rising demand for labor-power can never be by itself a cause for a rising rate of interest, so far as this is determined by the rate of profit. A higher wage is never a cause of Money-Capital and Actual Capital. 603 higher profits, although it may he one of the consequences of higher profits, in some particular phases of the industrial cycle.
The demand for labor-power may increase, because the ex- ploitation of labor takes place under especially favorable cir- cumstances, but the rising demand for labor-power, and thus for variable capital, does not in itself increase the profit; it rather lowers it to that extent. But the demand for variable capital may nevertheless increase with the demand for labor- power, and to that extent the demand for money-capital, and this may raise the rate of interest. The market price of labor-power then rises above its average, more than the average number of laborers are employed, and the rate of interest rises at the same time, because the demand for money-capital rises under such circumstances. The rising demand for la- bor-power makes this commodity dearer like any other, in- creases its price, but not the profit, which rests mainly upon the relative cheapness of just this commodity. But it raises under the given assumptions also the rate of interest, because it increases the demand for money-capital. If the money- capitalist, instead of loaning the money, should transform himself into an industrial capitalist, then the fact that he has to pay more for labor-power would not increase his profit, but would rather decrease it in proportion. The constellation of conditions may be such, that his profit may rise neverthe- less, but it will be in spite of the fact that he pays more for labor-power, and not because of it. This last circumstance, so far as it increases the demand for money-capital, is on the other hand sufficient to raise the rate of interest. If wages should rise for some reasons while the constellation is unfavor- able, then the rise in wages would lower the rate of profit, but raise the rate of interest in proportion as it would increase the demand for money-capital.
Leaving the question of labor aside, the thing called " de- mand for capital " by Overstone consists only in a demand for commodities. The demand for commodities raises their price, either because it may rise above the average, or be- cause the supply of commodities may fall below the average.
6o4 Capitalist Production.
If the industrial caj)italist or the merchant must now pay 150 pounds sterling for the same mass of commodities for which he used to pay 100 pounds sterling, he would have to borrow 150 pounds sterling whereas he had to borrow but 100 pounds sterling formerly, and if the rate of interest were 5%, he would now have to pay 7^ pounds sterling of interest as against 5 pounds sterling of former times. The mass of the interest to be paid by him would rise because he now has to borrow more capital.
The whole attempt of Mr, Overstone consists in pretending that the interests of loan capital and of industrial capital are identical whereas his Bank Acts are precisely calculated to exploit the difference of these interests for the benefit of money-capital.
It is possible, that the demand for commodities, in case tlieir supply has fallen below average, does not absorb any more money-capital than fonnerly. The same sum, or perhaps a smaller one, has to be paid for their total value, but a smaller quantity of use-values is received for the same sum. In this case the demand for loanable money-capital will remain the same, and the rate of interest will not rise, although the de- mand for commodities would have risen as compared to their supply, and consequently the price of commodities would have become higher. The rate of interest cannot be touched, unless the total demand for loan capital increases, and this is not the case under the above assumption.
The supply of an article may also fall below average, as it does in case of crop failures of com, cotton, etc., and the de- mand for loan capital may increase, because the speculation in these commodities calculates on a rise in their prices and the first means of making them rise is to curtail for a while a portion of their supply on the market. But in order to pay for the bought commodities without selling them, money is secured by means of the commercial bill system. In this case the demand for loan capital increases, and the rate of interest may rise in consequence of this attempt to prevent by artificial means the supply of this commodity to the market. The Money-Capital and Actual Capital. 605 higher rate of interest expresses in that case an artificial re- duction of the supply of commodity-capital.
On the other hand the demand for an article may rise, be- cause its supply has increased and the article stands below its average price.
In this case the demand for loan-capital may remain the same or may even fall, because more commodities can be had for the same sum of money. A speculative formation of a sup- ply might also occur, either for the purpose of taking advantage of a favorable moment for the ends of production, or in ex- pectation of a future rise in prices. In this case the demand for loan capital might grow, and the rise in the rate of in- terest would then be an expression of an investment of capi- tal in the formation of an extra supply of elements of produc- tive capital. We consider here merely that demand for loan capital, which is influenced by the demand and supply of commodity-capital. We have explained on a previous occa- sion, that the changing condition of the process of reproduc- tion in the phases of the industrial cycle has its effect upon the supply of loan capital. The trivial statement to the effect that the market rate of interest is determined by the supply and demand of (loan) capital, is shrewdly mixed up by Over- stone with his own assumption, according to which loan capital is identical with capital in general, and in this way he tries to transform the usurer into the only capitalist and his capital into the only capital.
In times of stringency the demand after loan capital is a demand for means of payment and nothing else; it is by no means a demand for money as a means of payment. The rate of interest may rise very high at the same time, regard- less of whether real capital, that is, productive and commod- ity-capital, exists in abundance or is scarce. The demand for means of payment is a mere demand for convertibility into money, to the extent that the merchants and producers can offer good security; it is a demand for money-capital in so far as it is not this other, in other words, so far as an ad- vance of means of payment gives them not merely the form 6o6 Capitalist Production.
of money, but also the equivalent which they lack for making payment in whatever form. This is the point, where both sides of the current theory are right and wrong in their opin- ion about crisis. Those who say that there is merely a lack of means of payment, have either the owners of bona fide se- curities alone in view, or they are fools who believe that it is the duty and power of banks to transform all bankrupt swindlers into solvent and solid capitalists by means of pieces of paper. Those who say that there is merely a lack of cap- ital, are either harping on words, since in such times there is a mass of inconvertible capital in consequence of over-im- ports and overproduction, or they are referring only to such knights of credit as are now placed in conditions, where they cannot any longer get other people's capital for their opera- tions, and who now demand that the bank should not only help them to pay for the lost capital, but also enable them to con- tinue their swindling.