Marx summarises where we are in our discussion of the credit system so far.

1  The development of the credit system is necessary ‘to bring about the equalisation of the profit rate or the movement of this equalisation, on which the whole of capitalist production depends.’

Marx says two things here. First, that the credit system is necessary for the movement towards the equalisation of the rate of profit (examined in chapter 10); and, second, that this latter is fundamental to the operation of capitalist production. Put another way: the basis of the whole capitalist system depends for its operation on the existence of the credit system: without the latter, the capitalist system could not function. These are big claims; we cannot yet examine them in detail, but we should bear them in mind as we proceed.

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This chapter is one of the more underwritten of this section; in his introduction to the volume, Engels comments thus on the difficulties he had in reconstructing this part of the book:

There [...] followed, in the manuscript, a long section headed ‘The Confusion’, consisting simply of extracts from the parliamentary reports on the crises of 1848 and 1857, in which the statements of some twenty-three businessmen and economic writers, particularly on the subjects of money and capital, the drain of gold, over-speculation, etc., were collected, with the occasional addition of brief humorous comments. Here, in one way or another, more or less all views then current on the relationship between money and capital were represented, and Marx intended to deal in a critical and satirical manner with the ensuing ‘confusion’ about what was money on the money market and what was capital. After several attempts, I came to the conclusion that it was impossible to produce this chapter; the material in question has been put in where the context provided the opportunity, especially the material with Marx’s own comments.

This chapter is evidently composed principally of material from ‘The Confusion’.

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Given that Marx will direct a good part of his attention to the 1844 Bank Act (which granted to the Bank of England the sole right to print new banknotes, and set limits, in function of bullion held and state debt, to the quantity of banknotes allowed to circulate) it will be of use to reproduce here comments made by Marx on the Act and the circumstances of its appearance made elsewhere.

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Marx states his intention to deal only with ‘commercial and bank credit’, and not to deal with the credit system in detail, nor the ‘instruments this creates (credit money, etc.)’, nor ‘the development of state credit’.

He notes that in volume 1 (chapter 3) he had showed ‘how the function of money as means of payment develops out of simple commodity circulation, so that a relationship of creditor and debtor is formed.’ Let us remind ourselves of his argument.

In ‘direct’ commodity circulation money fulfils the function of means of purchase, i.e. it has to be present at the same time and the same place as the sale. But this is not essential for commodity exchange. With the development of commodity production arise circumstances in which the alienation of the commodity and the realisation of its price become separated in time: maybe, one type of commodity requires a longer, another shorter, time for its production; maybe one is sold locally, another far away; maybe, when the same people repeatedly carry out the same transactions, the synchronisation of money and commodity becomes unnecessarily bothersome; in other circumstances, the use of certain commodities is sold for a definite time period only (housing, for example): only after the expiry of the lease does the buyer receive the use-value of the commodity (and one of the more important commodities which is not paid for until after it has been fully delivered is labour-power).

When buying and paying become separated, money functions as a means of payment, rather than a means of purchase. Money now acts as a measure of value through the determination of the price of the commodity to be sold; and as a notional means of purchase, in the form of a promise to pay, itself sufficient to cause the commodity to change hands.

The function of money as means of payment prompts the development of credit-money, certificates of debts owed for already purchased commodities which circulate to pass on those debts to others.

Hence, with the development of capitalist production (i.e. production for the sake of circulation), and with it trade, money comes increasingly to function as means of payment: commodities are not bought with money as such but with ‘promises to pay’. Until their expiry these promises (essentially bills of exchange) circulate as means of payment and function as actual money, even though to the degree that the bills cancel each other out as debts and claims they are never actually transformed into ‘real’ money. These circulating bills form the basis of credit money, money ‘not based on monetary circulation, that of metallic or government paper money, but rather on the circulation of bills of exchange.’

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The circuit of capital is here M – M’ ,money producing more money, literally self-valorising value. ‘In interest-bearing capital, the capital relationship reaches its most superficial and fetishised form.’ Although in the case of commercial capital, M – C – M’ ,profit appears as profit upon alienation (i.e. in circulation), at least the general form of the capitalist movement is present: profit ‘presents itself as the product of a social relation, not the product of a mere thing.’

In the form of interest-bearing capital, capital appears immediately […] unmediated by the production and circulation processes. Capital appears as a mysterious and self-creating source of interest, of its own increase. The thing (money, commodity, value) is now already capital simply as a thing; the result of the overall reproduction process appears as a property devolving on a thing in itself; it is up to the possessor of money, i.e. of commodities in their ever-exchangeable form, whether he wants to spend this money as money or hire it out as capital. In interest-bearing capital, therefore, this automatic fetish is elaborated into its pure form, self-valorising value, money breeding money, and in this form it no longer bears any marks of its origin. The social relation is consummated in the relationship of a thing, money, to itself. Instead of the actual transformation of money into capital, we have here only the form of this devoid of content. […] [I]t becomes as completely the property of money to create value, to yield interest, as it is the property of a pear tree to bear pears.

Marx notes that there is a ‘further distortion’. Really, interest is a part of surplus-value; with the appearance of interest-bearing capital it now appears as capital’s specific fruit. Profit of enterprise – also, really, a part of surplus-value – on the other hand, appears as ‘a mere accessory and trimming’. ‘The fetish character of capital and the representation of this capital fetish is now complete.’

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If the product of capital is surplus-value, manifested as profit, for the (industrial or commercial) capitalist who operates with borrowed capital, the profit she accrues is not profit but profit minus interest. This – actually accruing profit – ‘appears [...] as the product of capital in its actual functioning [...].’ This (part of the) profit, which takes the form of industrial or commercial profit, we shall call ‘profit of enterprise’.

If interest is to be paid, the capital used by the industrial/commercial capitalist is borrowed: she is not, therefore, its owner. The part of gross profit that accrues to her appears as the function of capital in its operation, in the process of reproduction, ‘especially [...] the functions that [s]he performs as an entrepreneur in industry or trade.’ Interest, on the other hand, presents itself as a property of the ownership of capital – rather than its operation. Hence, in the division of gross profit into profit of enterprise and interest a ‘quantitative division [...] is transformed [...] into a qualitative one [...].’

This is, moreover, no mere illusion:

[T]his qualitative separation is in no way merely the subjective conception of the money capitalist on the one hand and the industrial capitalist on the other. It rests on objective fact, for interest accrues to the money capitalist, the lender, who is simply the owner of the capital and thus does represent mere property in capital before the production process and outside it; while profit of enterprise accrues to the merely functioning capitalist, who is not the owner of capital.

Thus, the division between interest and profit of enterprise, rather than presenting itself as different portions of total profit, distributed to different people, appears as that between two different categories of profit, in a process that Marx describes as the ‘mutual ossification and autonomisation of the two parts of the gross profit’. Interest now appears as a property of  money capital itself, independently of whether it is borrowed for productive or unproductive consumption.

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Marx begins with a warning.

The object of this chapter, like the various phenomena of credit that we shall be dealing with later, cannot be investigated in detail. Competition between lenders and borrowers, and the resulting short-term fluctuations in the money market, fall outside the scope of our discussion. The circuit which the rate of interest describes during the industrial cycle can only be dealt with after the cycle itself. Nor can we go into the latter here. The same applies for the approximate equalisation of the rate of interest, more or less, on the world market. All that we are concerned with here is the independent form of interest-bearing capital and the way that interest acquires autonomy vis-à-vis profit.


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In the first presentation of the average rate of profit this was taken to be the equalised profit of industrial capitals; now, we have to see it as the equalised profit of industrial and commercial capitals: ‘[w]hether capital is invested industrially in the sphere of production, or commercially in that of circulation, it yields the same annual average profit in proportion to its size.’

Now, money (‘the independent expression of a sum of value’), if transformed into capital, is transformed from a fixed magnitude into one capable of apparent self-expansion. Money acquires, in addition to its use-value as money, a use-value as capital, a use-value which ‘consists precisely in the profit that it produces when transformed into capital.’

Imagine a rate of profit of 20 % ; a machine with a value of £100 applied as capital will yield a profit of £20. An individual who holds £100 has at her disposal the power of turning £100 into £120; has, in other words, in her hands a ‘potential capital’ of £100. If this £100 passes to a second individual, who uses it as actual capital, the latter realises an actual profit of £20, ‘a surplus-value that costs him nothing and for which he does not pay any equivalent.’ If this second individual then pays the first a sum (say £5) out of this profit, what she pays for is ‘the use-value of the £100, the use-value of its capital function’. Thus sum is interest, ‘which is thus nothing but a particular name, a special title, for a part of the profit which the actually functioning capitalist has to pay to the capital’s proprietor, instead of pocketing it himself.’

The possession of the £100 gives its owner the power to draw interest. But interest derives from profit: the £100 must therefore pass from its owner to another to be deployed as capital (be this industrial or commercial). But to be deployed as capital it first has to exist: its owner cannot use it for her own private consumption, or hoard it. Thus, although it is the second individual who spends the £100, either on means of production (as industrial capital) or commodities (commercial capital), it is really the owner who originally spends it as capital, even if her role is a capitalist is exclusively restricted to this act of expenditure.

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