Chapter 30: Money Capital and Real Capital: I

Firstly, the accumulation of money capital as such. How far is it, and how far is it not, an index of genuine capital accumulation, i.e. of reproduction on an expanded scale? Is the phenomenon of a ‘plethora’ of capital, an expression used only of interest-bearing capital, i.e. money capital, simply a particular expression of industrial overproduction, or does it form a separate phenomenon alongside this? Does such a plethora, an over-supply of money capital, coincide with the presence of stagnant sums of money (bullion, gold coin and banknotes), so that this excess of actual money is an expression and form of appearance of this plethora of loan capital?

And secondly, to what extent does monetary scarcity, i.e. a shortage of loan capital, express a lack of real capital (commodity capital and productive capital)? To what extent, on the other hand, does it coincide with a lack of money as such, a lack of means of circulation?

In as much as we have so far considered the specific form of accumulation of money capital, and of money wealth in general, this reduces itself to the accumulation of proprietary claims to labour. Accumulation of capital in the form of the national debt, as we have shown, means nothing more than the growth of a class of state creditors with a preferential claim to certain sums from the overall proceeds of taxation.6 In the way that even an accumulation of debts can appear as an accumulation of capital, we see the distortion involved in the credit system reach its culmination. These promissory notes which were issued for a capital originally borrowed but long since spent, these paper duplicates of annihilated capital, function for their owners as capital in so far as they are saleable commodities and can therefore be transformed back into capital.

As we have seen, the ownership titles to joint-stock companies, railways, mines, etc. are genuinely titles to real capital. Yet they give no control over this capital. The capital cannot be withdrawn. They give only a legal claim to a share of the surplus-value that this capital is to produce. But these titles similarly become paper duplicates of the real capital, as if a bill of lading simultaneously acquired a value alongside the cargo it refers to. They become nominal representatives of non-existent capitals. For the actual capital exists as well, and in no way changes hands when these duplicates are bought and sold. They become forms of interest-bearing capital because not only do they assure certain revenues but the capital values invested in them can also be repaid by their sale. In so far as the accumulation of these securities expresses an accumulation of railways, mines, steamships, etc., it expresses an expansion of the actual reproduction process, just as the expansion of a tax list on personal property, for example, indicates an expansion of this property itself. But as duplicates that can themselves be exchanged as commodities, and hence circulate as capital values, they are illusory, and their values can rise and fall quite independently of the movement in value of the actual capital to which they are titles. Their values, i.e. their listings on the stock exchange, have a necessary tendency to rise with the fall in the rate of interest, in so far as this is a simple result of the tendential fall in the rate of profit, independent of the specific movements of money capital, so that this imaginary wealth, which according to its value expression gives each person his aliquot share of a definite original nominal value, already expands for this reason as capitalist production develops.7

Profits and losses that result from fluctuations in the price of these ownership titles, and also their centralization in the hands of railway magnates etc., are by the nature of the case more and more the result of gambling, which now appears in place of labour as the original source of capital ownership, as well as taking the place of brute force. This kind of imaginary money wealth makes up a very considerable part not only of the money wealth of private individuals but also of banking capital, as already mentioned.

One point which we mention here only to get it quickly out of the way is that the accumulation of money capital might also be taken to mean the accumulation of wealth in the hands of bankers (money-lenders by profession), as intermediaries between the private money capitalists on the one hand, and the state, local authorities and borrowers engaged in the process of reproduction on the other; for the entire immense extension of the credit system, and credit as a whole, is exploited by the bankers as their private capital. These fellows have their capital and revenue permanently in the money form or in the form of direct claims to money. The accumulation of wealth by this class may proceed in a very different way from that of actual accumulation, but it proves in any case that they put away a good proportion of the latter.

To reduce the question at issue here to narrower limits. Government bonds, shares and other securities of all kinds are all spheres of investment for loanable capital, for capital that is designed to be interest-bearing. They are forms for lending it out. But they are not themselves the loanable capital that is invested in them. On the other hand, in so far as credit plays a direct role in the reproduction process, what the industrialist or merchant needs when he wants to have bills discounted or take out a loan is neither shares nor government stock. What he needs is money. That is why he pledges or sells these securities if he cannot obtain money in any other way. It is this accumulation of loan capital that we have to deal with here, and, moreover, the accumulation of loanable money capital in particular. What is involved here is not the lending of houses, machines or other fixed capital. Nor is it the advances that industrialists and merchants make to one another in commodities within the ambit of the reproduction process, although we shall also have to investigate that point in more detail. What we are concerned with here is exclusively the monetary loans that the bankers, as intermediaries, make to the industrialists and merchants.

Two things should be noted about this circuit of purely commercial credit.

Firstly, the settlement of these reciprocal claims depends on the reflux of the capital; i.e. C–M, which is simply delayed. If the spinner has received a bill from a manufacturer of cotton goods, the manufacturer is able to pay when the goods he has on the market have meanwhile been sold. If the speculator in corn has given a bill of exchange on his factor, the factor is able to pay the money after the corn has been sold at the expected price. These payments thus depend on the fluidity of reproduction, i.e. of the production and consumption process. But since the credits are reciprocal, the ability of each person to pay depends at the same time on the ability of another to pay; for, when drawing a bill, the drawee can have counted either on the return of capital in his own business or on a return in the business of a third party who has to pay him a bill in the intervening period. Apart from the prospective return, payment is possible only by means of reserve capital which the person drawing the bill has at his disposal, in order to meet his obligations in case returns are delayed.

Secondly, this credit system does not obviate the need for cash payments. For a start, a large proportion of expenses must always be paid in cash – wages, taxes, etc. But if for example B, who accepts a bill from C in lieu of immediate payment, has himself to pay a bill that falls due to D before the former bill falls due to him, he must also have cash for this. A complete circuit of reproduction such as was assumed above, from the cotton planter to the cotton spinner and vice versa, can only be an exception, and must always be broken in several places. We have seen in connection with the reproduction process (Volume 2, Part Three [pp. 498–501]) how the producers of constant capital exchange part of their constant capital with one another. In this case, the bills may more or less balance. The same thing happens when production is on an ascending curve, and the cotton broker draws on the spinner, the spinner on the cotton-goods manufacturer, the latter on the exporter, and he on the importer (perhaps again an importer of cotton). But the circuit of transactions and consequent doubling back of the series of claims are not one and the same thing. The spinner’s claim on the weaver, for example, is not settled by the claim of the coal supplier on the machine-builder; the spinner never makes counter-claims on the machine-builder in the course of his business, since his product, yarn, never becomes an element in the machine-builder’s reproduction process. Claims of this kind must therefore be settled in money.

The limits of this commercial credit, considered by itself, are (1) the wealth of the industrialists and merchants, i.e. the reserve capital at their disposal in case of a delay in returns; (2) these returns themselves. They may be delayed in time, or commodity prices may fall in the meantime, or again the commodities may temporarily become unsaleable as a result of a glut on the market. The longer bills run for, the greater the reserve capital needed and the greater the possibility that returns may be diminished or delayed as a result of a fall in price or an excess of supply on the market. Returns are that much less certain, moreover, the more the original transaction was inspired by speculation on a rise or fall in commodity prices. It is clear, however, that with the development of labour productivity and hence of production on a large scale, (1) markets expand and become further removed from the point of production, (2) credit must consequently be prolonged, and (3) as a result, the speculative element must come more and more to dominate transactions. Large-scale production for distant markets casts the entire product into the arms of commerce; but it is impossible for the nation’s capital to double, so that commerce would purchase the entire national product with its own capital before selling it again. Credit is thus indispensable here, a credit that grows in volume with the growing value of production and grows in duration with the increasing distance of the markets. A reciprocal effect takes place here. The development of the production process expands credit, while credit in turn leads to an expansion of industrial and commercial operations.

If we consider this credit in separation from banker’s credit, it is evident that it grows with the scale of industrial capital itself. Loan capital and industrial capital are identical here; the capitals loaned are commodity capitals designed either for final individual consumption or to replace constant elements of productive capital. So what appears here as loaned capital is always capital that exists in a certain phase of the reproduction process, but is transferred from one hand to another by. purchase and sale while the equivalent for it is paid by the buyer only later, after the stipulated interval. Cotton, for instance, is transferred to the spinner against a bill of exchange, yarn to the merchant against a bill of exchange, from the merchant to the exporter against a bill of exchange, from the exporter to a merchant in India, again against a bill of exchange, the merchant selling it and buying indigo, and so on. During this transfer from one hand to another, the cotton is undergoing its transformation into finished goods, and these goods are ultimately shipped to India and exchanged for indigo, which is shipped to Europe and goes into the reproduction process once again. The different phases of reproduction are mediated here by credit. The spinner has not paid for the cotton, nor the cotton-goods manufacturer for the yarn, nor the merchant for the cotton goods, etc. In the first acts of the process, the commodity, cotton, goes through its various phases of production, and its transfer is mediated by credit. But once the cotton has received its final form as a commodity in the course of production, the same commodity capital still has to go through the hands of various merchants, who effect its transport to a distant market and buy other commodities in exchange, these going either into consumption or into the reproduction process. There are thus two sections to be distinguished here: in the first section credit mediates the actual successive phases in the production of the article in question; in the second, it simply mediates the transfer from the hands of one merchant to those of another, which includes transport – the act C–M. But here, too, at least the commodity is permanently engaged in the act of circulation, i.e. in a phase of the reproduction process.

What is loaned here, therefore, is never unoccupied capital but rather capital that must change its form in the hands of its owner, that exists in a form in which it is simply commodity capital for him, i.e. capital that must be transformed back and in the first instance at least converted into money. Thus it is the metamorphosis of the commodity that is mediated here by way of credit; not only C-M, but also M-C and the actual production process. A great deal of credit in the reproduction circuit – leaving aside banker’s credit – does not mean a great deal of unoccupied capital which is offered for loan and seeks profitable investment, but rather a high level of employment of capital in the reproduction process. What credit mediates here is therefore (1) as far as the industrial capitalists are concerned, the transition of industrial capital from one phase to another, the connection of spheres of production that belong together and mesh into one another; (2) as far as the merchants are concerned, the transport and transfer of commodities from one hand to another until their definitive sale for money or their exchange with another commodity.

The maximum of credit is the same thing here as the fullest employment of industrial capital, i.e. the utmost taxing of its reproductive power irrespective of the limits of consumption. These limits to consumption are extended by the stretching of the reproduction process itself; on the one hand this increases the consumption of revenue by workers and capitalists, while on the other it is itself identical with the stretching of productive consumption.

As long as the reproduction process is fluid, so that returns remain assured, this credit persists and extends, and its extension is based on the extension of the reproduction process itself. As soon as any stagnation occurs, as a result of delayed returns, overstocked markets or fallen prices, there is a surplus of industrial capital, but in a form in which it cannot accomplish its function. A great deal of commodity capital; but unsaleable. A great deal of fixed capital; but in large measure unemployed as a result of the stagnation in reproduction. Credit contracts, (1) because this capital is unoccupied, i.e. congealed in one of its phases of reproduction, because it cannot complete its metamorphosis; (2) because confidence in the fluidity of the reproduction process is broken; (3) because the demand for this commercial credit declines. The spinner who restricts his production and has a lot of unsold yarn in store does not need to buy cotton on credit; the merchant does not need to buy any goods on credit, as he already has more than enough.

So if there is a disturbance in this expansion, or even in the normal exertion of the reproduction process, there is also a lack of credit; it is more difficult to obtain goods on credit. The demand for cash payment and distrust of credit selling is especially characteristic of the phase in the industrial cycle that follows the crash. In the crisis itself, since everyone has goods to sell and cannot sell, even though they have to sell in order to pay, the quantity of capital blocked in its reproduction process, though not of unoccupied capital to be invested, is precisely at its greatest, even if the lack of credit is also most acute (and hence, as far as bank credit goes, the discount rate at its highest). Capital already invested is in fact massively unemployed, since the reproduction process is stagnant. Factories stand idle, raw materials pile up, finished products flood the market as commodities. Nothing could be more wrong, therefore, than to ascribe such a situation to a lack of productive capital. It is precisely then that there is a surplus of productive capital, partly in relation to the normal though temporarily contracted scale of reproduction and partly in relation to the crippled consumption.

Let us conceive the whole society as composed simply of industrial capitalists and wage-labourers. Let us also leave aside those changes in price which prevent large portions of the total capital from being replaced in their average proportions, and which, in the overall context of the reproduction process as a whole, particularly as developed by credit, must recurrently bring about a situation of general stagnation. Let us likewise ignore the fraudulent businesses and speculative dealings that the credit system fosters. In this case, a crisis would be explicable only in terms of a disproportion in production between different branches and a disproportion between the consumption of the capitalists themselves and their accumulation. But as things actually are, the replacement of the capitals invested in production depends to a large extent on the consumption capacity of the non-productive classes; while the consumption capacity of the workers is restricted partly by the laws governing wages and partly by the fact that they are employed only as long as they can be employed at a profit for the capitalist class. The ultimate reason for all real crises always remains the poverty and restricted consumption of the masses, in the face of the drive of capitalist production to develop the productive forces as if only the absolute consumption capacity of society set a limit to them.

The only case in which we can speak of a genuine lack of productive capital, at least in the case of developed capitalist countries, is that of a general harvest failure, affecting either the staple foodstuffs or the principal raw materials for industry.

But on top of this commercial credit we also have monetary credit proper. Advances between industrialists and merchants fuse together with the advancing of money to them by bankers and money-lenders. In the discounting of bills of exchange, the advance is purely nominal. A manufacturer sells his product for a bill of exchange and discounts this bill with a billbroker. But in actual fact the latter only advances his banker’s credit, and the banker in turn advances the money capital of his depositors, who consist of the industrialists and merchants themselves, though also including workers (by means of savings banks) as well as landlords and other unproductive classes. As far as each individual manufacturer or merchant is concerned, then, both the need for a strong reserve capital and dependence on actual returns are dispensed with. On the other hand, however, this is so much complicated by simple bill-jobbing, and by dealing in commodities with no other purpose than that of fabricating bills of exchange, that the appearance of very solid business with brisk returns can merrily persist even when returns have in actual fact long since been made only at the cost of swindled money-lenders and swindled producers. This is why business always seems almost exaggeratedly healthy immediately before a collapse. The best proof of this is provided by the Reports on Bank Acts of 1857 and 1858, for example, in which bank directors, merchants, in short a whole series of experts summoned to give evidence, with Lord Overstone at their head, all congratulated one another on the blooming and healthy state of business –just one month before the crisis broke out in August 1857. It is particularly striking how Tooke, as the historian of all these crises, falls victim to the illusion once again in his History of Prices. Business is always thoroughly sound, and the campaign in fullest swing, until the sudden intervention of the collapse.

Not every increase in money capital for loan is an index of genuine capital accumulation or an expansion of the reproduction process. This is shown most clearly in the phase of the industrial cycle immediately after the crisis, when loan capital lies idle on a massive scale. At these moments, when the production process has undergone a contraction (and after the crisis of 1847, production in the English industrial districts was cut by a third), when commodity prices stand at their lowest point, and when the entrepreneurial spirit is crippled, there is a low rate of interest, which in this case simply indicates an increase in loanable capital precisely as a result of the contraction and paralysis of industrial capital. It is obvious enough that less means of circulation are required with lower commodity prices, fewer dealings and a contraction in the capital laid out on wages; that after the settlement of debts abroad, partly by a drain of gold and partly by bankruptcies, no additional money is required to carry out the function of world money; and finally that the scale of the discount business also declines with the number and amount of bills of exchange to be discounted. The demand for loanable money capital therefore declines, both for means of circulation and for means of payment (there is no question yet of new capital investment), so that this capital becomes relatively abundant. But the supply of loanable money capital also undergoes a positive increase in conditions such as these, as we shall show later on.

After the crisis of 1847, for example, there was ‘a limitation of transactions and a great superabundance of money’ (Commercial Distress, 1847–8, Evidence, no. 1664). The rate of interest was very low on account of the ‘almost perfect destruction of commerce and the almost total want of means of employing money’ (ibid., p. 45, evidence of Hodgson, Director of the Royal Bank of Liverpool). The nonsense that these gentlemen concocted to explain the situation (and Hodgson, moreover, is one of the best of them) can be seen from the following sentence: ‘The pressure’ (1847) ‘arose from the real diminution of the moneyed capital of the country, caused partly by the necessity of paying in gold for imports from all parts of the world, and partly by the absorption of floating into fixed capital.’

We are not told how the absorption of floating capital into fixed is supposed to reduce the money capital in a country. In the case of railways, for example, which were the principal sphere of investment for capital at that time, no gold or paper is used to make viaducts and rails, and the money for railway shares, in so far as it is deposited simply for payments, functions just like all other money deposited with the banks, and even temporarily increases the loanable money capital, as we have already shown; to the extent that it is actually spent on construction, it circulates in the country as means of purchase and payment. It is only in so far as fixed capital is not exportable, i.e. in so far as its export is actually impossible, so that no capital is obtained by way of returns for articles exported, including returns in cash or bullion, that the money capital can be affected. But English export goods, too, were at that time stockpiled and unsaleable on a massive scale in foreign markets. For the merchants and manufacturers in Manchester, etc. who had tied up a part of their normal working capital in railway shares and were therefore dependent on borrowed capital to conduct their business, their floating capital really had been fixed, and they had to bear the consequences of this. But it would have been the same thing if they had invested the capital that rightly belonged to their business, but had been withdrawn, in mines, for example, instead of in railways, even though the products of mining are floating capital again themselves – iron, coal, copper, etc. The real reduction in available money capital as a result of harvest failure, the import of corn and export of gold, was of course an occurrence that had nothing to do with the railway swindle.

‘Almost all mercantile houses had begun to starve their business more or less… by taking part of their commercial capital for railways.’ – ‘Loans to so great an extent by commercial houses to railways induced them to lean too much upon… banks by the discount of paper, whereby to carry on their commercial operations’ (the same Hodgson, op. cit., p. 67). ‘In Manchester there have been immense losses in consequence of the speculation in railways’ (R. Gardner, the man quoted previously in Volume 1, Chapter 15, 3, c [pp. 535–6], and in several other places; Evidence, no. 4884, op. cit.).

One major cause of the 1847 crisis was the colossal saturation of the market and the boundless fraud in the East Indian trade. Other factors, too, however, contributed to the downfall of very wealthy firms in this sector. ‘They had large means, but not available. The whole of their capital was locked up in estates in the Mauritius, or indigo factories, or sugar factories. Having incurred liabilities to the extent of £500,000–600,000, they had no available assets to pay their bills, and eventually it proved that to pay their bills they were entirely dependent upon their credit’ (Charles Turner, big East India merchant in Liverpool, no. 730, op. cit.).

Gardner, too (no. 4872, op. cit.): ‘Immediately after the China treaty, so great a prospect was held out to the country of a great extension of our commerce with China, that there were many large mills built with a view to that trade exclusively, in order to manufacture that class of cloth which is principally taken for the China market, and our previous manufactures had the addition of all those.’ – ‘4874. How has that trade turned out? – Most ruinous, almost beyond description; I do not believe, that of the whole of the shipments that were made in 1844 and 1845 to China, above two-thirds of the amount have ever been returned; in consequence of tea being the principal article of repayment and of the expectation that was held out, we, as manufacturers, fully calculated upon a great reduction in the duty on tea.’

Then we have the characteristic credo of the English manufacturer, in a naïve version: ‘Our commerce with no foreign market is limited by their power to purchase the commodity, but it is limited in this country by our capability of consuming that which we receive in return for our manufactures.’

(The relatively poor countries with which England trades can of course pay for and consume any amount of English manufactures, but unfortunately rich England cannot assimilate the products sent in return.)

‘4876. I sent out some goods in the first instance, and the goods sold at about 15 per cent loss, from the full conviction that the price, at which my agents could purchase tea, would leave so great a profit in this country as to make up the deficiency… but instead of profit, I lost in some instances 25 and up to 50 per cent.’ – ‘4877. Did the manufacturers generally export on their own account? – Principally; the merchants, I think, very soon saw that the thing would not answer, and they rather encouraged the manufacturers to consign than take a direct interest themselves.’

In 1857, on the other hand, the losses and bankruptcies fell principally on the merchants, as this time the manufacturers left them with the task of flooding the foreign markets ‘on their own account’.

If the reproduction process has reached the flourishing stage that precedes that of over-exertion, commercial credit undergoes a very great expansion, this in turn actually forming the ‘healthy’ basis for a ready flow of returns and an expansion of production. In this situation, the rate of interest is still low, even if it has risen above its minimum. This is actually the only point in time at which it may be said that a low rate of interest, and hence a relative abundance of loanable capital, coincides with an actual expansion of industrial capital. The ease and regularity of returns, combined with an expanded commercial credit, ensures the supply of loan capital despite the increased demand and prevents the interest level from rising. This is also the point when jobbers first enter the picture on a notable scale, operating without reserve capital or even without capital at all, i.e. completely on money credit. Added to this too is a great expansion of fixed capital in all forms and the opening of large numbers of new and far-reaching undertakings. Interest now rises to its average level. It reaches its maximum again as soon as the new crisis breaks out, credit suddenly dries up, payments congeal, the reproduction process is paralysed and, save for the exceptions mentioned earlier, there is an almost absolute lack of loan capital alongside a surplus of unoccupied industrial capital.

By and large, therefore, the movement of loan capital, as expressed in the rate of interest, runs in the opposite direction to that of industrial capital. The phase in which the low but above minimum rate of interest coincides with the ‘improvement’ and growing confidence after the crisis, and particularly the phase in which it reaches its average level, the mid-point equidistant between its minimum and maximum–only these two phases show a combination of abundant loan capital and a big expansion in industrial capital. At the beginning of the industrial cycle, however, a low rate of interest coincides with a contraction of industrial capital, and at the end of the cycle a high rate of interest coincides with an over-abundance of industrial capital. The low rate of interest that accompanies the ‘improvement’ phase expresses the fact that commercial credit only needs a small amount of bank credit, since it still stands on its own two feet.

This industrial cycle is such that the same circuit must periodically reproduce itself, once the first impulse has been given.8 In the slack phase, production falls below the level it attained in the previous cycle and for which the technical basis is now laid. In the phase of prosperity – the middle period – it develops further on this basis. In the period of overproduction and swindling, the productive forces are stretched to their limit, even beyond the capitalist barriers to the production process.

The reason for the lack of means of payment in the crisis period is self-evident. The convertibility of bills of exchange has replaced the metamorphosis of the actual commodities, and all the more so at such a time in so far as one group of firms is operating purely on credit. Ignorant and confused banking laws, such as those of 1844–5, may intensify the monetary crisis. But no bank legislation can abolish crises themselves.

In a system of production where the entire interconnection of the reproduction process rests on credit, a crisis must evidently break out if credit is suddenly withdrawn and only cash payment is accepted, in the form of a violent scramble for means of payment. At first glance, therefore, the entire crisis presents itself as simply a credit and monetary crisis. And in fact all it does involve is simply the convertibility of bills of exchange into money. The majority of these bills represent actual purchases and sales, the ultimate basis of the entire crisis being the expansion of these far beyond the social need. On top of this, however, a tremendous number of these bills represent purely fraudulent deals, which now come to light and explode; as well as unsuccessful speculations conducted with borrowed capital, and finally commodity capitals that are either devalued or unsaleable, or returns that are never going to come in. It is clear that this entire artificial system of forced expansion of the reproduction process cannot be cured by now allowing one bank, e.g. the Bank of England, to give all the swindlers the capital they lack in paper money and to buy all the depreciated commodities at their old nominal values. Moreover, everything here appears upside down, since in this paper world the real price and its real elements are nowhere to be seen, but simply bullion, metal coin, notes, bills and securities. This distortion is particularly evident in centres such as London, where the monetary business of an entire country is concentrated; here the whole process becomes incomprehensible. It is somewhat less so in the centres of production.

It should also be remarked in passing, in connection with the over-abundance of industrial capital that appears during crises, that commodity capital is inherently already money capital, i.e. a certain sum of value expressed in the commodity’s price. As a use-value it is a certain quantity of particular useful objects, and these are present in excess at the moment of crisis. But as inherently moneycas inherently money apital, potential money capital, it is subject to constant expansion and contraction. On the eve of the crisis, and during it, the commodity capital is contracted in its capacity as potential money capital. It represents less money capital for its owner and his creditors (also as security for bills of exchange and loans) than at the time it was bought and when the discounts and loans made with it as security were concluded. If this is the supposed sense of the contention that the money capital of a country is reduced in times of pressure, it is identical with saying that commodity prices have fallen. Such a collapse in prices, incidentally, only balances their earlier inflation.

The incomes of the unproductive classes, and of those who live on fixed incomes, remain for the most part stationary during the price inflation that goes hand in hand with overproduction and over-speculation. Their consumption power thus undergoes a relative decline, and with this also their ability to replace the portion of the total reproduction that would normally go into their consumption. Even if their demand remains nominally the same, it still declines in real terms.

As regards the question of imports and exports, it should be noted that all countries are successively caught up in the crisis, and that it is then apparent that they have all, with few exceptions, both exported and imported too much; i.e. the balance of payments is against them all, so that the root of the problem is actually not the balance of payments at all. England, for example, suffers from a drain of gold. It has imported too much. But at the same time every other country is overburdened with English goods. They too have imported too much, or been made to import too much. (There is a distinction, however, between the country that exports on credit, and those that do not, or only a little. The latter then import on credit; and this is only not the case if the goods in question are sent out on consignment.) The crisis may break out first of all in England, the country that gives the most credit and takes the least, because the balance of payments, i.e. the balance of payments due, which must be settled immediately, is against it, even though the overall balance of trade is in its favour. This fact is partly to be explained in terms of the credit given by England and partly in terms of the amount of loaned capital sent abroad, which means that a large quantity of returns flows back to England in commodities, in addition to trading returns in the strict sense. (Sometimes the crisis breaks out first of all in America, the country that takes the most credit for trade and capital from England.) The crash in England, introduced and accompanied by a drain of geld, settles England’s balance of payments, partly by bankrupting its importers (on which more below), partly by driving part of its commodity capital abroad at low prices, and partly by the sale of foreign securities, the purchase of English ones, etc. The sequence now reaches another country. The balance of payments was temporarily in its favour; but now the normal interval between the balancing of payments and the balancing of trade is abolished or at least cut short by the crisis; all payments have to be settled at once. The same situation then repeats itself here. England now has a reflux of gold, the other country a drain. What appears in one country as excessive importing appears in the other as excessive exporting, and vice versa. But excessive importing and exporting has taken place in every country (here we are not referring to harvest failures, etc., but rather to a general crisis); i.e. overproduction, fostered by credit and the accompanying general inflation in prices.

In 1857 the crisis broke out in the United States. This led to a drain of gold from England to America. But as soon as the American bubble burst, the crisis reached England, with a drain of gold from America to England. Similarly between England and the Continent. In times of general crisis the balance of payments is against every country, at least against every commercially developed country, but always against each of these in succession – like volley firing – as soon as the sequence of payments reaches it; and once the crisis has broken out in England, for example, this sequence of dates is condensed into a fairly short period. It is then evident that all these countries have simultaneously over-exported (i.e. over-produced) and over-imported (i.e. over-traded) and that in all of them prices were inflated and credit overstretched. In every case the same collapse follows. The phenomenon of a drain of gold then affects each of them in turn, and shows by its very universality: (1) that the drain of gold is simply a phenomenon of the crisis, and not its basis; (2) that the sequence in which this drain of gold affects the different countries simply indicates when the series reaches them, for a final settlement of accounts; when their own day of crisis comes and its latent elements in turn emerge in their own case.

It is characteristic of the English economic writers – and the economic literature worth mentioning since 1830 principally boils down to writing on currency, credit and crises – that they consider the export of precious metal that occurs in times of crisis, despite the turn in the exchange rates, simply from the English standpoint, as a purely national phenomenon, and resolutely close their eyes to the fact that, if their bank raises the interest rate in times of crisis, all other European banks do the same thing, and that, if they raise a cry of distress about the drain of gold today, this is echoed tomorrow in America and the day after that in Germany and France.

In 1847, ‘the engagements running upon this country had to be met’ (mostly for corn). ‘Unfortunately, they were met to a great extent by failures’ (wealthy England obtained a breathing space for itself by defaulting on its obligations vis-à-vis the Continent and America), ‘but to the extent to which they were not met by failures, they were met by the exportation of bullion’ (Report of Committee on Bank. Acts, 1857).

Thus in so far as a crisis in England is intensified by the banking legislation, this legislation is also a means of cheating the corn-exporting countries in times of famine, first of their corn and then of the money for their corn. A ban on the export of corn in times such as these, in the case of countries that are themselves suffering to a greater or lesser extent from rising prices, is thus a very rational defence against this plan by the Bank of England, ‘to meet engagements’ for corn imports ‘by failures’. Far better that the corn producers and speculators should lose a part of their profits for the good of their own country than their capital for the good of England.

We conclude from what has been said here that commodity capital largely loses its capacity to represent potential money capital in time of crisis, and generally when business stagnates. The same is true of fictitious capital, interest-bearing paper, in as much as this itself circulates as money capital on the stock exchange. As the interest rate rises, its price falls. It falls further, owing to the general lack of credit, which compels the owners of this paper to unload it onto the market on a massive scale in order to obtain money. In the case of shares, finally, their price falls partly as a result of a decline in the revenues on which they are claims and partly as a result of the fraudulent character of the enterprises which they very often represent. This fictitious money capital is enormously reduced during crises, and with it the power of its owners to use it to borrow money in the market. The reduction in the money value of these securities on the stock-exchange list, however, has nothing to do with the real capital that they represent. As against this, it has a lot to do with the solvency of their owners.