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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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’.

 * * *

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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