The monetary system is essentially Catholic, the credit system essentially Protestant. ‘The Scotch hate gold.’ As paper, the monetary existence of commodities has a purely social existence. It is faith that brings salvation. Faith in money value as the immanent spirit of commodities, faith in the mode of production and its predestined disposition, faith in the individual agents of production as mere personifications of self-valorising capital. But the credit system is no more emancipated from the monetary system as its basis than Protestantism is from the foundations of Catholicism.

Given the fragmentary nature of this part of the book, it may be useful to take a step back from the text and try to set out the key ideas in Marx’s (and Engels’) presentation in synthetic form.


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We first need to be clear as to the distinction between money, on the one hand, and capital on the other. Money as money is the independent expression of a sum of value. Capital is value whose value is augmented in magnitude, is valorised. Money as capital – capital in money form – is thus money with the capacity of valorisation. But money as capital is only capital in virtue of what makes it capital, not in virtue of being money; and although capital may take the form of money, not all money is capital. The failure of the political economists of his time to grasp this distinction evidently infuriates Marx.

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I  The pre-capitalist origins of usurer’s capital

Both interest-bearing capital (i.e. usurer’s capital) and merchant’s capital long predate the capitalist mode of production.

Usurer’s capital requires nothing more for its existence than that at least a portion of the products is transformed into commodities and that money in its various functions develops concurrently with trade in commodities.

The development of usurer’s capital is bound up with that of merchant’s capital, and particularly with that of money-dealing capital. In ancient Rome, from the latter phases of the Republic onwards, although manufacture stood at a much lower level than the average for the ancient world, merchant’s capital, money-dealing capital and usurer’s capital – in the ancient form – were developed to their highest point.

The appearance of money necessarily leads to hoard formation; the hoarder becomes important as a money-lender. (The merchant, in turn, borrows money to make a profit with it, i.e. to use it as capital, and stands in the same relationship to the money-lender as does the producing capitalist.)

Pre-capitalist usurer’s capital has existed historically in two forms. First, in that of lending money to elites (essentially landed proprietors); second, in that of lending money to small producers – artisans, and, especially, peasants.  Through these two operations (‘the ruining of rich landed proprietors […] and the impoverishment of the small producers’), large money capitals are formed.

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Marx begins by noting that despite the intention that the Bank Act of 1844 transform the bullion reserve into means of circulation by seeking to compensate for a drain of gold by contracting the means of circulation and for an influx by expanding the means of circulation, it has never been successful in doing this. In the crisis of 1857 the quantity of notes in circulation exceeded the gold reserve by a daily average of £488,830; in all other occasions since 1844, however, the quantity of notes in circulation has never reached the maximum that the Bank was authorised to issue.

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With regard to the international movement of precious metals, Marx makes the following points.

1 One needs to distinguish between the international trade in precious metals between countries, and that trade resulting from the movement of metal from where it is produced.
2 Among the non-producing countries, precious metals flow constantly back and forth. Any ultimate inflow or outflow is thus a net balance. ‘The matter is always conceived as if an excess import or export of precious metal were simply the effect and expression of the import and export relationship for commodities, whereas it also expresses a relationship between the import and export of precious metal that is independent of commodity trade.’
3 In general, the balance of preponderance of imports over exports is reflected by changes in the central bank’s metal reserves. This, however, depends on the extent of the centralisation of the banking system, on, in other words, to what degree the central bank’s reserves consist of the total amount of stockpiled metal; it also depends on the degree to which imported metal is used for purposes of circulation, or for luxury use.
4 ‘An export of metal takes the form of a “drain” if the movement of decline persists for a long period, so that the decline presents itself as a general tendency and the national bank’s metal reserve is significantly depressed below its average level, until something like its average minimum is reached.’
5 The metal reserve of a central bank has the following functions. First, it is a reserve fund for international payments (what Marx calls ‘a reserve fund of world money’); second, a reserve fund for expanding and contracting domestic metal circulation; and, third, a reserve fund for payment of deposits and convertibility of notes. ‘It can therefore also be affected by conditions that bear on only one of these three functions.’
6 Marx notes that business-cycle crises (presumably in Britain) tend to occur after a drain in gold has occurred, and then stopped.
7 Once a business crisis has passed, gold and silver are once again distributed in their previously existing proportions (the relative size of each country’s hoard being dependent on that country’s position in the world market). Once this redistribution is established, there occurs (again presumably in Britain) first a growth in the reserve, and then a drain.
8 ‘A drain of metal is generally the symptom of a change in the state of foreign trade, and this change is in turn an advance warning that conditions are again approaching a crisis.’

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Marx begins by summarising Ricardo’s theory of the value of metal money (also dealt with by Marx in the 1859 Contribution), which formed the theoretical basis for the 1844-5 Bank Acts. According to Ricardo:

[T]he value of (metal) money is determined by the labour-time objectified in it, but only as long as the quantity of money stands in the right proportion to the quantity and price of the commodities to be exchanged. If the quantity of money rises above this proportion, its value falls and commodity prices rise; if it falls below the right proportion, its value rises and commodity prices fall – as long as other factors remain the same. In the first case, the country which has this surplus of gold will export the gold that has fallen below its value and import commodities; in the second case gold will flow into the countries where it is priced above its value, while the under-valued commodities from there will flow to other markets, where they can obtain normal prices. Since on these assumptions ‘even gold in the form of coin or bullion can become a value-token representing a larger or smaller value than its own,  it is obvious that any convertible banknotes that are in circulation must share the same fate. Although banknotes are convertible and their real value accordingly corresponds to their nominal value, “the aggregate currency consisting of metal and of convertible notes” may appreciate or depreciate if, for reasons described earlier, the total quantity either rises above or falls below the level which is determined by the exchange-value of the commodities in circulation and the metallic value of gold.’

This understanding of the relation between the value of money and commodity prices forms the basis of the banking legislation operative in Marx’s day in this way. If the remedy with regard to metallic currency and falling or rising prices is to import or export precious metals, then, in the case of paper money, banks have now to effect a similar influence on prices by adjusting the quantity of banknotes (convertible into gold) in circulation in function of the flow of gold into or out of the country.

If gold is flowing in from abroad, it is a proof that there is an insufficient amount of currency, that the value of money is too high and commodity prices too low, and banknotes must therefore be thrown into circulation in accordance with the newly imported gold. On the other hand, banknotes must be taken out of circulation in accordance with an outflow of gold from the country. In other words the issue of banknotes must be regulated according to the import and export of the precious metals, or according to the rate of exchange. Ricardo’s wrong assumption that gold is simply specie and that consequently the whole of the imported gold is used to augment the money in circulation thus causing prices to rise, and that the whole of the gold exported represents a decrease in the amount of specie and thus causes prices to fall – this theoretical assumption is now turned into a practical experiment by making the amount of specie in circulation correspond always to the quantity of gold in the country.

The school of thought associated with these theories confuses, first, the demand for money capital and the demand for ‘capital’ in general (i.e. commodities); two, the relationship between commodity prices and the presence of money, and, hence, three, the relationship between international flow of bullion and commodity prices; and, finally and therefore, what determines the prevailing rate(s) of interest.

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Very little happens in this chapter, which is composed almost entirely of quotations from parliamentary committee proceedings.

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Marx repeats that the development of credit affects an economy in terms of the quantity of money in circulation (i.e. acting as means of purchase); the quantity of money in circulation in turn being a function of its quantity on the one hand and its velocity of movement on the other. ‘The speed with which […] a note circulates […] is mediated by the speed with which it returns time after time to someone or other […].’ Credit effects an increase in the velocity of money.

[I]f A […] buys from B, B from C, C from D, D from E, and E from F, […] its [i.e. the sum of money in question] transition from one hand to the other is mediated simply by actual purchases and sales. But if B deposits the money received in payment from A with his banker, who passes it to C in discounting a bill of exchange, C buying from D, D depositing it with his banker and the latter lending it to E, who buys from F, then even its velocity as a mere means of circulation (means of purchase) is mediated by several credit operations: B’s depositing with his banker and the latter’s discounting for C, D’s depositing with his banker and the latter’s discounting for E; four credit operations in all. Without these credit operations, the same piece of money would not have performed five purchases successively in a given period of time. The fact that it changed hands without the mediation of actual purchase and sale – as a deposit and by discounting – means that its change of hands in the series of real transactions is accelerated.

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I Money capital

Marx here (edited by Engels, of course) continues directly from where he left off in the previous chapter.

All revenue (including industrial profit), as we have seen, whether designed for consumption or for accumulation, becomes available as loan capital (as a bank deposit) as soon as it exists in monetary form and is not immediately spent. All that is needed is that it form a deposit. ‘The massive nature of the sum of money which has to be transformed back into capital in this way is the result of the massive scale of the reproduction process; but considered for itself, as money capital for loan, it is not itself a sum of reproductive capital. What does Marx mean?

That part of the surplus-value produced destined for unproductive consumption, although it is therefore not capital, exists, because it exists in money form, for certain temporary periods, as loanable money capital; that part of the realised commodity product destined to replace capital also exists for a period in money form and is also available, for a temporary period, as loanable money capital.

Neither in one form nor the other does it in itself represent accumulation, even though its volume grows with the scale of the reproduction process. But it temporarily performs the function of money for loan, i.e. of money capital. In this respect, therefore, the accumulation of money capital must always reflect a greater accumulation of capital than is actually taking place, in so far as the expansion of individual consumption, because mediated by money, appears as an accumulation of money capital, since it supplies the money form for genuine accumulation, for money that initiates new capital investments.

Regarding that part of profit (surplus-value) destined to be accumulated, this too is transformable into money capital if it cannot be directly and immediately relaid out: either because the sector in question is ‘saturated’ with capital; or because it must reach a certain volume, given the technical conditions of production,  in order to be so relaid out.

It may turn out that the accumulation of loanable money may exceed spheres of investment. Then we have a ‘plethora’ of loan capital. ‘[T]his […] [overaccumulation of money available for loan] proves nothing more than the barriers of capitalist production. The resulting credit swindling demonstrates that there is no positive obstacle to the use of this excess capital. But there is an obstacle set up by its own laws of valorisation, by the barriers within which capital can valorise itself as capital.’

It is important to grasp this. Money available for loan unable to find an outlet as productive capital will find a use elsewhere, as the existence of speculation, bubbles and the like demonstrates. But in this form it does not necessarily  contribute to, and may even positively hinder, the process of capitalist reproduction.

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‘Loan capital’ is money available to be used as interest-bearing capital. Marx now turns his attention to where this comes from. To do this, however, we need to differentiate between, on the one hand, ‘the mere transformation of money into loan capital’, and, on the other, ‘the transformation of capital or revenue into money that is transformed into loan capital.’ ‘It is only the latter […] which is related to the genuine accumulation of industrial capital, and only this can involve a positive accumulation of capital for loan.’

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