We have still not finished with the question of how far the accumulation of capital in the form of money capital for loan coincides with genuine accumulation, the expansion of the reproduction process.
The transformation of money into money capital for loan is a far simpler matter than the transformation of money into productive capital. But we must distinguish here between two different things:
(1) the mere transformation of money into loan capital;
(2) the transformation of capital or revenue into money that is transformed into loan capital.
It is only the latter point which is related to the genuine accumulation of industrial capital, and only this can involve a positive accumulation of capital for loan.
We have already seen how a pile-up or over-abundance of loan capital, which is related to productive accumulation only by standing in inverse proportion to it, can arise. This is the case in two phases of the industrial cycle, firstly at the time when industrial capital in the two forms of productive capital and commodity capital has contracted, i.e. at the beginning of the cycle after the crisis; and secondly at the time when improvement sets in but commercial credit still has little need for bank credit. In the first case the money capital that was formerly applied to production and trade appears as unoccupied loan capital; in the second case it is applied on an increasing scale but at a very low rate of interest, since it is now the industrial and commercial capitalists who set terms to the money capitalist. The surplus of loan capital expresses in the first case the stagnation of industrial capital, and in the second case the relative independence of commercial credit from bank credit, resting on the fluidity of returns, short terms of credit and operations predominantly conducted with one’s own capital. The speculators who rely on the credit capital of others have not yet appeared on the scene; while people who operate with their own capital are still far removed from anything like pure credit operations. In the first phase, the surplus of loan capital expresses the exact opposite of genuine accumulation. In the second phase it coincides with the renewed expansion of the reproduction process: it accompanies it without causing it. The surplus of loan capital is already on the decline and is still only relative to the demand. In both cases the expansion of the accumulation process proper is promoted, because the low rate of interest, which coincides in the first case with low prices, and in the second case with slowly rising prices, increases the portion of the profit that is transformed into profit of enterprise. This is all the more so when interest rises to its average level during the height of the prosperity period; although it has risen, it has not done so in relation to profit.
We have seen on the other hand how an accumulation of loan capital may take place without any genuine accumulation, by purely technical means such as the expansion and concentration of the banking system, saving on the circulation reserve or even on private individuals’ reserve funds or means of payment, which are in this way transformed into loan capital for short periods. Although this loan capital, which is therefore known also as floating capital, only ever receives the form of loan capital for short periods (and thus should only be used for short-term discounting), it is constantly flowing back and forth. If one person withdraws it, someone else puts it in. The amount of money capital for loan (and here we are not referring at all to loans for several years, but simply to short-term loans against bills of exchange and deposits) thus actually grows quite independently of genuine accumulation.
Bank Committee, 1857. Question 501. ‘What do you mean by “floating capital”?’ – (Answer of Mr Weguelin, Governor of the Bank of England:) ‘It is capital applicable to loans of money for short periods… (502) The Bank of England notes… the country banks circulation, and the amount of coin which is in the country.’ – (Question:) ‘It does not appear from the returns before the Committee, if by floating capital you mean the active circulation’ (of the notes of the Bank of England), ‘that there is any very great variation in the active circulation?’ (Though it is a very major distinction as to who it is that advances the active circulation, the money-lender or the reproductive capitalist himself. Weguelin’s answer:) ‘I include in floating capital the reserves of the bankers, in which there is a considerable fluctuation.’
This means, therefore, that a major fluctuation takes place in the portion of deposits which the bankers have not lent out again but which figures rather as their reserves, though a lot of it also figures as the reserve of the Bank of England, with which their reserves are deposited. The same gentleman finally says that floating capital may be bullion, including metal money (503). It is truly amazing how all the categories of political economy take on a new meaning and form in this credit gibberish of the money market. Floating capital here is the expression for circulating capital, which is of course something completely different, and money is capital, and bullion is capital, and banknotes are circulation, and capital is a commodity, and debts are commodities, and fixed capital is money invested in paper that is hard to sell!
‘The joint-stock banks of London… have increased their deposits from £8,850,774 in 1847 to £43,100,724 in 1857… The evidence given to your Committee leads to the inference that of this vast amount, a large part has been derived from sources not heretofore made available for this purpose; and that the practice of opening accounts and depositing money with bankers has extended to numerous classes who did not formerly employ their capital(!) in that way. It is stated by Mr Rodwell, the Chairman of the Association of the Private Country Bankers’ (distinguished from joint-stock banks), ‘and delegated by them to give evidence to your Committee, that in the neighbourhood of Ipswich this practice has lately increased four-fold among the farmers and shopkeepers of that district; that almost every farmer, even those paying only £50 per annum rent, now keeps deposits with bankers. The aggregate of these deposits of course finds its way to the employments of trade, and especially gravitates to London, the centre of commercial activity, where it is employed first in the discount of bills, or in other advances to the customers of the London bankers. That large portion, however, for which the bankers themselves have no immediate demand passes into the hands of the billbrokers, who give to the banker in return commercial bills already discounted by them for persons in London and in different parts of the country, as a security for the sum advanced by the banker’ (Bank Committee, 1858, p. [v, para.] 8).
Since the banker makes advances to the billbroker on the bill that the broker has already once discounted, he actually rediscounts it; but in actual fact very many of these bills have already been rediscounted by the billbroker, and with the same money that the banker uses to rediscount the bills presented by the bill-broker, the broker rediscounts new bills. This leads to the following situation: ‘Extensive fictitious credits have been created by means of accommodation bills, and open credits, great facilities for which have been afforded by the practice of joint-stock country banks discounting such bills, and rediscounting them with the billbrokers in the London market, upon the credit of the bank alone, without reference to the quality of the bills otherwise’ (ibid. [p. xxi, para. 54]).
The following passage from The Economist sheds an interesting light on this rediscounting, and on the assistance that this purely technical increase in the money capital for loan provides for credit swindles:
‘For some years past capital’ (namely, loanable money-capital) ‘has accumulated in some districts of the country more rapidly than it could be used, while, in others, the means of employing capital have increased more rapidly than the capital itself. While the bankers in the purely agricultural districts throughout the kingdom found no sufficient means of profitably and safely employing their deposits in their own districts, those in the large mercantile towns, and in the manufacturing and mining districts, have found a larger demand for capital than their own means could supply. The effect of this relative state of different districts has led, of late years, to the establishment and rapid extension of a new class of houses in the distribution of capital, who, though usually called billbrokers, are in reality bankers upon an immense scale. The business of these houses has been to receive, for such periods, and at such rates of interest as were agreed upon, the surplus-capital of bankers in those districts where it could not be employed, as well as the temporary unemployed moneys of public companies and extensive mercantile establishments, and advance them at higher rates of interest to bankers in those districts where capital was more in demand, generally by rediscounting the bills taken from their customers… and in this way Lombard Street has become the great centre in which the transfer of spare capital has been made from one part of the country, where it could not be profitably employed, to another, where a demand existed for it, as well as between individuals similarly circumstanced. At first these transactions were confined almost exclusively to borrowing and lending on banking securities. But as the capital of the country rapidly accumulated, and became more economized by the establishment of banks, the funds at the disposal of these “discount houses” became so large that they were induced to make advances first on dock warrants of merchandise’ (storage bills on commodities in docks), ‘and next on bills of lading, representing produce not even arrived in this country, though sometimes, if not generally, secured by bills drawn by the merchant upon his broker. This practice rapidly changed the whole character of English commerce. The facilities thus afforded in Lombard Street gave extensive powers to the brokers in Mincing Lane, who on their part… offered the full advantage of them to the importing merchant; who so far took advantage of them, that, whereas twenty-five years ago, the fact that a merchant received advances on his bills of lading, or even his dock warrants, would have been fatal to his credit, the practice has become so common of late years that it may be said to be now the general rule, and not the rare exception, as it was twenty-five years ago. Nay, so much further has this system been carried, that large sums have been raised in Lombard Street on bills drawn against the forthcoming crops of distant colonies. The consequence of such facilities being thus granted to the importing merchants led them to extend their transactions abroad, and to invest their floating capital with which their business has hitherto been conducted, in the most objectionable of all fixed securities – foreign plantations – over which they could exercise little or no control. And thus we see the direct change of credit through which the capital of the country, collected in our rural districts, and in small, amounts in the shape of deposits in country banks, and centres in Lombard Street for employment, has been, first, made available for the extending operations in our mining and manufacturing districts, by the rediscount of bills to banks in those localities; next, for granting greater facilities for the importation of foreign produce by advances upon dock warrants and bills of lading, and thus liberating the “legitimate” mercantile capital of houses engaged in foreign and colonial trade, and inducing to its most objectionable advances on foreign plantations’ (The Economist, 1847, p. 1334).
That is the ‘nice’ way to devour credits. The rural depositor imagines he is simply depositing with his banker, and also imagines that when the banker makes loans it is to private individuals whom he knows. He does not have the remotest suspicion that the banker puts his deposit at the disposal of a London billbroker, over whose operations neither of them have the slightest control.
We have already seen how major public undertakings, such as railway construction, can temporarily increase loan capital, in that the sums paid up always remain for a certain while in the hands of the banks and are at their disposal until they are actually spent.
*
The volume of loan capital, moreover, is completely different from the quantity of circulation. By quantity of circulation, here, we mean the sum of all banknotes in circulation in a particular country, together with all metal money, including precious metal in the form of bullion. A part of this quantity forms the banks’ reserve and is constantly fluctuating in size.
‘On November 12,1857’ (the date of the suspension of the Bank Act of 1844), ‘the entire reserve of the Bank of England was only £580,751 (including London and all its branches); their deposits at the same time amounting to £22,500,000; of which near six and a half million belonged to London bankers’ (Bank Acts, 1858, p. lvii).
Variations in the rate of interest (setting aside those taking place over longer periods, or the differences between interest rates in different countries; the first kind being conditioned by variations in the general rate of profit, and the second by differences in profit rates and in the development of credit) depend on the supply of loan capital (all other factors, the state of confidence, etc., taken as equal), i.e. of capital lent in the form of money, in metal or notes; as distinct from industrial capital that is lent as such, in the commodity form, by commercial credit among the reproductive agents themselves.
But the volume of this loanable money capital is still different from and independent of the quantity of money in circulation.
If £20 is lent five times in the course of a day, a money capital of £100 is lent altogether, and this would equally mean that this £20 had functioned at least four times as means of purchase or payment; for if it were without the mediation of purchase and payment, so that it had not represented the transformed form of capital (commodities, including labour-power) at least four times, it would not constitute a capital of £100 but simply five claims of £20 each.
In countries where credit is highly developed, we may assume that all money capital available for loan exists in the form of deposits with banks and money-lenders. This at least holds good for business as a whole. On top of this, in times of good business, before speculation properly so called gets going, the greater part of the circulatory functions will be performed, with credit easy and confidence growing, simply through a credit transfer, without the intervention of metal or paper money.
The very possibility that large sums will be deposited while the amount of means of circulation is relatively small depends entirely on:
(1) the number of purchases and payments that the same piece of money performs;
(2) the number of return migrations in which it comes back to the banks as a deposit, so that its repeated function as means of purchase and payment is mediated by its renewed transformation into a deposit. A retail trader, for instance, may deposit £100 a week with his banker in money; the banker uses this to pay out a part of the manufacturer’s deposit; the latter pays this to his workers, and they use it to pay the retailer, who deposits it again with the bank. The £100 deposited by the retailer has thus to serve firstly to pay out a deposit of the manufacturer’s, secondly to pay the workers, thirdly to pay the retailer himself and fourthly to deposit a further part of the same retailer’s money capital; for at the end of twenty weeks, if he did not have to draw on this money himself, he would have deposited £2,000 in the bank, using the same £100.
The extent to which this money capital is unoccupied is shown only in the ebb and flow of the banks’ reserve funds. This is why Mr Weguelin, Governor of the Bank of England in 1857, concludes that the gold in the Bank of England is the ‘only’ reserve capital:
‘ 1258. Practically, I think, the rate of discount is governed by the amount of unemployed capital which there is in the country. The amount of unemployed capital is represented by the reserve of the Bank of England, which is practically a reserve of bullion. When, therefore, the bullion is drawn upon, it diminishes the amount of unemployed capital in the country, and consequently raises the value of that which remains.’ – ‘1364. The reserve of bullion in the Bank of England is, in truth, the central reserve, or hoard of treasure, upon which the whole trade of the country is carried on… And it is upon that hoard or reservoir that the action of the foreign exchanges always falls’ (Report on Bank Acts, 1857).
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One measure for the accumulation of genuine capital, i.e. productive and commodity capital, is provided by the statistics of exports and imports. And there it is constantly apparent that for the period over which English industry moved in ten-year cycles (1815–70), the maximum for the final period of prosperity before the crisis reappeared as the minimum for the period of prosperity that followed next, only to rise then to a new and much higher maximum.
The real or declared value of products exported from Great Britain and Ireland in the prosperous year of 1824 was £40,396,300. With the crisis of 1825, the volume of exports fell below this sum, and fluctuated between an annual total of £35 and £39 million. With the return of prosperity in 1834, it rose above the earlier peak to £41,649,191, and in 1836 reached a new maximum of £53,368,571. In 1837 it fell again to £42 million, so that the new minimum was already higher than the maximum of the previous cycle, and it subsequently fluctuated between £50 and £53 million. The return of prosperity raised the 1844 export total to £58 1/2 million, already exceeding the 1836 maximum by far. In 1845 the total for the year reached £60,111,082; it then fell back to somewhat over £57 million in 1846, almost £59 million in 1847, and almost £53 million in 1848, rising in 1849 to £65 1/2 million, in 1853 to almost £99 million, 1854 £97 million, 1855 £94 1/2 million, 1856 almost £116 million, and reaching a maximum in 1857 of £122 million. In 1858 it fell to £116 million, but had already risen in 1859 to £130 million, in 1860 to almost £136 million, in 1861 to only £125 million (here again the new minimum is higher than the previous cycle’s maximum), and in 1863 to £146 1/2 million.
The same thing can of course also be shown for imports, which indicate the expansion of the market. Here we are concerned only with the scale of production. (This is of course true for England only for the period of its effective industrial monopoly; but it is true in general for the totality of countries with modern large-scale industry, as long as the world market is still expanding. – F. E.)
Here we are considering the accumulation of money capital in so far as this does not express a stagnation in the flow of commercial credit, or saving either on the actual circulating medium or on the reserve capital of the agents engaged in reproduction.
Leaving aside these two cases, accumulation of money capital may arise through an exceptional influx of gold, as happened in 1852 and 1853 as a result of the new gold mines in Australia and California. This gold was deposited in the Bank of England. The depositors accepted notes in return, which they did not directly deposit again with bankers. In this way, the circulating medium underwent an extraordinary increase. (Evidence of Weguelin, B. A. 1857, no. 1329.) The Bank tried to valorize these deposits by reducing its discount rate to 2 per cent. In the course of six months in 1853, the quantity of gold piled up in the Bank grew to some £22–£23 million.
All money-lending capitalists obviously accumulate directly in the money form, while we have seen that real accumulation by industrial capitalists occurs as a rule through an increase in the elements of reproductive capital itself. The development of the credit system and the tremendous concentration of the money-lending business in the hands of big banks must therefore already accelerate in and of itself the accumulation of loanable capital, as a form separate from genuine accumulation. This rapid development of loan capital is therefore a result of the genuine accumulation, as an effect of the development of the reproduction process, and the profit that forms the source of accumulation for these money capitalists is simply a deduction from the surplus-value that the reproductive agents extract (aswell as an appropriation of part of the interest on the savings of others). Loan capital accumulates at the expense of both the industrial and commercial capitalists. We have seen how, in the bad phases of the industrial cycle, the rate of interest may rise so high that it temporarily swallows up profits entirely for some branches of business, particularly those unfavourably located. At the same time, the prices of government paper and other securities fall. This is the moment when money capitalists buy up this devalued paper on a massive scale, as it will soon go up again in the later phases, and even rise above its normal level. They will then sell it off, thereby appropriating a part of the public’s money capital. Those securities that are not sold off yield a higher interest, since they were bought below their price. But all the profit which the money capitalists make, and which they turn back into capital, they transform first of all into money capital for loan. Thus we already have an accumulation of this money capital as distinct from the genuine accumulation – even if the accumulation of its off-shoot – when we simply consider the money capitalists, bankers, etc. themselves, as the accumulation of this particular class of capitalists. And this must grow with each extension of the credit system, as it accompanies the genuine expansion of the reproduction process.
If the rate of interest is low, this devaluation of money capital falls principally on the depositors and not on the banks. Before the development of joint-stock banking, three-quarters of all bank deposits in England did not receive any interest. And where interest is now paid, this is at least 1 per cent less than the market rate.
As far as the monetary accumulation of the remaining classes of capitalist is concerned, we ignore here the part that is invested in interest-bearing paper and accumulates in this form. We shall simply consider the portion that is placed on the market as money capital for loan.
Here we have firstly the section of profit that is not spent as revenue, being rather designed for accumulation, but which the industrial capitalists concerned do not have any immediate employment for in their own businesses. This profit exists first of all in commodity capital, making up a portion of its value, and is realized in money together with it. If it is not then transformed back into the commodity capital’s elements of production (we leave aside here for the time being the merchant, whom we shall deal with later more specifically), it must persist for a certain period in the money form. Its amount rises with the volume of the capital itself, even given a declining rate of profit. The part to be spent as revenue is gradually consumed, but in the meantime it constitutes loan capital as a deposit with the banker. And so even the growth of the part of the profit spent as revenue is expressed in a gradual and constantly repeated accumulation of loan capital. Similarly, too, the other part, which is designed for accumulation. With the development of the credit system and its organization, the rise in revenue, i.e. in the consumption of the industrial and commercial capitalists, is thus itself expressed as an accumulation of loan capital. And this holds good of all revenues, in so far as they are only gradually consumed – i.e. ground-rent, the higher forms of salary, the incomes of the unproductive classes, etc. All of these assume for a time the form of money revenue and can hence be converted into deposits and thereby into loan capital. It is true of all revenue, whether designed for consumption or for accumulation, that as soon as it exists in any kind of monetary form it is a portion of value of the commodity capital that is transformed into money, and is therefore the expression and result of genuine accumulation, though not productive capital itself. If a spinner has exchanged his yarn for cotton, save for the part that forms revenue and is exchanged for money, the actual existence of his industrial capital is the yarn that has passed into possession of the weaver, or perhaps even into that of the private consumer; and this yarn, moreover, whether it serves for reproduction or for consumption, is the existence of both capital value and of the surplus-value contained in it. The amount of surplus-value transformed into money depends on the amount of surplus-value contained in the yarn. But as soon as it is transformed into money, this money is simply the value existence of that surplus-value. And as such it becomes an element of loan capital. No more is needed for this than that it should be transformed into a deposit, if it has not already been lent out by its owner. To be transformed back into productive capital, on the other hand, it must already have reached a certain minimum limit.