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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The question Marx addresses now (and will pursue over the next three chapters) is the relation between the accumulation of money capital on the one hand the accumulation of real capital on the other. There are two (evidently related) aspects to the problem.

First, to what degree is ‘the accumulation of money capital as such […] an index of genuine capital accumulation, i.e. of reproduction on an expanded scale? Is the phenomenon of a “plethora” of capital […] simply a particular expression of industrial overproduction, or does it form a separate phenomenon […]?’

Second, to what degree ‘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?’

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I  The components of banking capital (I)

Banking capital consist of (1) cash, in the form of gold or notes; and (2) securities; in turn further divided into bills of exchange (‘commercial paper’) and other securities (government bonds, treasury bills, stocks of all kinds, mortgages – ‘in short interest-bearing paper’).

Banking capital may also be conceived of being divided into the banker’s own capital, and depositors’ deposits (i.e. other people’s capital).

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Marx now returns to, as Engels puts it, ‘the […] “confusion” about what was money on the money market and what was capital.’ The two positions he deals with are these:

Tooke (Inquiry into the Currency Principle):

The business of bankers […] may be divided into two branches […] [:] transactions between dealers and dealers, and between dealers and consumers. One branch of the bankers’ business is to collect capital from those who have not immediate employment for it, and to distribute or transfer it to those who have. The other branch is to receive deposits of the incomes of their customers, and to pay out the amount, as it is wanted for expenditure by the latter in the objects of their consumption […] the former being a circulation of capital, the latter of currency. [The first is] the concentration of capital on the one hand and the distribution of it on the other [; the latter] ‘administering the circulation for local purposes of the district’.

Fullarton (On the Regulation of Currencies):

A demand for capital on loan and a demand for additional circulation are quite distinct things, and not often found associated. […] It is a great error, indeed, to imagine that the demand for pecuniary accommodation [i.e. for the loan of capital] is identical with a demand for additional means of circulation, or even that the two are frequently associated. Each demand originates in circumstances peculiarly affecting itself, and very distinct from each other. It is when everything looks prosperous, when wages are high, prices on the rise, and factories busy, that an additional supply of currency is usually required to perform the additional functions inseparable from the necessity of making larger and more numerous payments; whereas it is chiefly in a more advanced stage of the commercial cycle, when difficulties begin to present themselves, when markets are overstocked, and returns delayed, that interest rises, and a pressure comes upon the Bank for advances of capital. It is true that there is no medium through which the Bank is accustomed to advance capital except that of its promissory notes; and that to refuse the notes, therefore, is to refuse the accommodation. But the accommodation once granted, everything adjusts itself in conformity with the necessities of the market; the loan remains, and the currency, if not wanted, finds its way back to the issuer. Accordingly, a very slight examination of the Parliamentary Returns may convince anyone, that the securities in the hands of the Bank of England fluctuate more frequently in an opposite direction to its circulation than in concert with it, and that the example, therefore, of that great establishment furnishes no exception to the doctrine so strongly pressed by the country bankers, to the effect that no bank can enlarge its circulation, if that circulation be already adequate to the purposes to which a banknote currency is commonly applied; but that every addition to its advances, after that limit is passed, must be made from its capital, and supplied by the sale of some of its securities in reserve, or by abstinence from further investment in such securities.

As we proceed, we need to bear in mind the following. What determines the quantity of circulating medium necessary, as we have seen, is, first, the volume of commodity exchanges, and, second, the circulating medium’s velocity. Demand for money as means of circulation is not the same as, or reducible to, the demand for money as capital. And, as Marx has repeatedly stated, money is money, and capital is capital; money capital is capital not in virtue of being money, but in virtue of being capital, value that is valorised.

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