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CHAPTER XIX.: FINANCIAL CAPITAL. - Karl Marx, Capital: A Critique of Political Economy. Volume III: The Process of Capitalist Production as a Whole 
Capital: A Critique of Political Economy. Volume III: The Process of Capitalist Production as a Whole, by Karl Marx. Ed. Federick Engels. Trans. from the 1st German edition by Ernest Untermann (Chicago: Charles H. Kerr and Co. Cooperative, 1909).
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THE purely technical movements performed by money in the process of circulation of industrial capital, and, as we may now add, of commercial capital, which assumes a part of the circulation movement of industrial capital as its own peculiar movement,—these movements, if individualised into an independent function of some particular capital that performs nothing but just this service, convert a capital into financial capital. In that case, one portion of the industrial capital, and of commercial capital, persists not only in the form of money, of money capital in general, but as money-capital, which performs only these technical functions. A definite part of the total social capital separates from the rest and individualises itself in the form of money-capital, whose capitalist function consists exclusively in performing the financial operations for the entire class of industrial and commercial capitalists. As in the case of the commercial capital, so in that of financial capital a portion of the industrial capital in process of function in circulation separates from the rest and performs these operations of the process of reproduction for all the other capital. These movements of such money-capital, then, are once more merely movements of an individualised part of industrial capital in the process of reproduction.
Capital appears as the first and last point of this movement only to the extent that capital is newly invested, as happens in accumulation. But for every capital, which is already in process, this first and last point appear merely as points of transit. To the extent that industrial capital, from the moment of its exit from the sphere of production to that of its return to it, passes through the metamorphosis C'—M—C, M represents merely the final result of one phase of this metamorphosis and becomes at once the starting point of its supplementing second phase, as we have already seen in the discussion of the simple circulation of commodities. And although the C—M of industrial capital signifies always M—C—M for the commercial capital, nevertheless the actual process for this last named capital, once that it has become engaged, is also C—M—C. But the commercial capital passes continually through and simultaneously through the acts C—M and M—C, that is to say, there is not only one capital in the stage C—M, while another is in the stage M—C, but the same capital buys continually and sells continually at the same time, on account of the continuity of the process of production. It is continually and simultaneously in both stages. While one of its parts is converted into money, to be reconverted later into commodities, another is simultaneously converted into commodities, to be reconverted into money.
Whether the money serves here as a means of circulation or of payment, depends on the form of the exchange of commodities. In both cases, the capitalist has to pay out money continually to many persons, and to receive money continually from many persons. This purely technical labor of paying money and receiving money constitutes an employment by itself, which necessitates the making of balances, the balancing of accounts, so far as money serves as a means of payment. This labor belongs to the expenses of circulation, it does not create any values. It is abbreviated by being organised as a special department of agents, or capitalists, who perform this work for all the rest of the capitalist class.
A definite portion of the capital must be continually available as a hoard, as potential money-capital. It constitutes a reserve of means of purchase, a reserve of means of payment, unemployed capital in the form of money waiting to be put to work. And one portion of the capital continually returns in this form. This requires not only the collecting, paying, and bookkeeping operations, but also the storing of a hoard, which constitutes an operation by itself. This work consists indeed in a continual conversion of a hoard into means of circulation and means of payment, and its restoration to the form of a hoard by means of money secured through sales and due payments. This continuous movement of that part of capital, which exists in the form of money, separated from the function of capital itself, this purely technical function causes its own labors and expenses, which belong to the expenses of circulation.
The division of labor brings it about, that these technical operations, which are conditioned on the functions of capital, should be performed as much as possible for the entire capitalist class by one class of agents, or capitalists, into whose hands it is concentrated as their exclusive function. We have here, as in the case of commercial capital, a division of labor in a twofold sense. It becomes a special business, and because it is performed as a special business for the money-mechanism of the whole class, it is concentrated and performed on a large scale. And then a further division of labor takes place within this special business, on one hand by a separation into various independent lines, on the other by a segmentation of the work within each office of these special lines. Large offices, many bookkeepers and cashiers, far going division of labor, disbursing of money, receiving of money, balancing of accounts, keeping of current accounts, storing of money, etc., all these things, separated from the acts that necessitate these technical operations, make of the capital advanced for these functions a financial capital.
The various operations, whose individualisation gives rise to special lines of financial business, follow from the different capacities of money itself and from its different functions, through which capital in its money-form must likewise pass.
I have pointed out on a previous occasion, that the money business in general developed originally from an exchange of products between different communes.43
The financial business, the trade with money as a commodity, developed first out of international commerce. As soon as different national coins exist, the merchants buying in foreign countries must exchange their national coins into foreign coins, and vice versa, or exchange different coins for uncoined pure silver or gold as international money. This gives rise to the business of money-exchange, which is one of the primitive foundations of modern financial business.44 Out of it developed the modern banks of exchange, in which silver (or gold) serve as world money—now called bank money or commercial money—as distinguished from current money. The business of money-exchange, so far as it consists merely of notes of payment to travelers from one money-exchanger in one country to another in another country, developed as early as Roman and Grecian times out of the simple money-exchange.
The trade with gold and silver as commodities (raw materials for the making of articles of luxury) forms the primitive basis of bullion trade, or of that trade, which promotes the functions of money as world money. These, functions, as previously explained (Volume I, chapter III, 3c), are twofold: A currency back and forth between the various national spheres of circulation for the purpose of balancing the international payments and for performing the migrations of capital in quest of interest; simultaneously with this movement, there is a movement of precious metals from their sources of production across the world market and a distribution of their supply over the various national spheres of circulation. In England, the goldsmiths still served as bankers during the greater part of the 17th century. The way in which the balancing of international accounts in the money trade is further developed, is not discussed here, any more than any points referring to the business of dealing in valuable papers, in short, we leave out of consideration all special forms of the credit system, since this does not yet concern us here.
In the shape of world money, national money strips off its local character; one national money is expressed in another, and thus all of them are finally reduced to their contents in gold or silver, while these two metals, being the two commodities circulating as world money, are simultaneously reduced to their mutual ratios, which change continually. The money trader makes this intermediate business his special occupation. Money changing and bullion trading are thus the primitive forms of the money trade, and they arise from the twofold functions of money as national money and world money.
The capitalist process of production, and commerce in general, even under precapitalist methods, imply:
1) The accumulation of money in the shape of a hoard, that is, in the present case, the accumulation of that part of capital, which must always be on hand in the form of money, as a reserve fund of means of payment and means of purchase. This is the first form of a hoard, such as it reappears under the capitalist mode of production, and as it forms in general with the development of merchants' capital, at least for the purposes of this capital. These remarks apply to national as well as international circulation. This hoard is in continuous flux, pours ceaselessly into circulation, and returns uninterruptedly from it. The second form of a hoard is now that of fallow, unemployed, capital in the form of money, including newly accumulated and not yet invested money-capital. The functions first required by this formation of a hoard are those of safekeeping, bookkeeping, etc.
Dealing in money is fully developed, even in its first stages, as soon as its ordinary functions of lending and borrowing are supplemented by the credit business. Of this more in the following part, which deals with interest-bearing capital.
The bullion trade itself, the transfer of gold or silver from one country to another, is merely the result of the trade in commodities. It is determined by the quotations of bills of exchange, which express the stand of the international payments and of the rate of interest on the different markets. The bullion trader as such acts but as an intermediary between results.
In discussing the way, in which the movements and forms of money develop out of the simple circulation of commodities, we have seen (Vol. I, chap. III), that the movements of the mass of money circulating as a means of purchase and payment are determined by the metamorphosis of commodities, by the volume and velocity of this metamorphosis. And we know now, that this metamorphosis is itself but a phase in the entire process of reproduction. As for the movement of the raw materials of money—gold and silver—from their places of production, it resolves itself in a direct exchange of commodities, an exchange of gold and silver as commodities for other commodities. Hence it is as much a phase of the exchange of commodities as the securing of iron or other metals by means of exchange. And so far as the movements of precious metals on the world-market are concerned (we leave aside at this point the consideration of their movements to the extent that they express the transfer of capital by loans, a transfer, which takes place also in the shape of commodity-capital), they are quite as much determined by the international exchange of commodities as the movements of money as a national means of purchase and payment are determined by the exchange of commodities on the home market. The emigrations and immigrations of precious metals from one national sphere to another, which are caused by a depreciation of national coins, or by a double standard, are extraneous to the circulation of money as such and represent merely corrections of deviations brought about arbitrarily by state decrees. And finally, as concerns the formation of hoards, which constitute reserve funds for means of purchase and payment, either for the home trade or for foreign trade, and likewise of hoards, which represent merely a form of capital temporarily unemployed, they are both necessary precipitates of the process of circulation.
Just as the entire circulation of money, in its volume, its forms, and movements, is purely a result of the circulation of commodities which in its turn represents from the capitalist point of view only the process of circulation of capital (including the exchange of capital for revenue, and of revenue for revenue, so far as the expenditure of revenue is realised in retail trade), so it is a matter of course, that the trade in money does not promote merely the circulation of money, a mere result and phenomenon of the circulation of commodities. This circulation of money itself, as a phase in the circulation of commodities, is a fundamental requisite for the trade in money. This trade promotes merely the technical operations of money-circulation, concentrating, abbreviating, simplifying them. The trade in money does not form the hoards, but supplies the technical means by which the formation of hoards may be reduced to its economical minimum (so far as it is voluntary, that is, so far as it is not an expression of unemployed capital or of disturbances of the process of reproduction). For if the reserve funds of means of purchase and payment are managed for the capitalist class as a whole, they need not be so large as they would have to be, did each capitalist manage his own. The trade in money does not buy the precious metals, but merely promotes their distribution, as soon as the trade in commodities has bought them. The trade in money facilitates the squaring of balances, so far as money serves as a means of payment, and reduces by the artificial mechanism of these compensations the amount of money required for this purpose. But it determines neither the connections, nor the volume, of the mutual payments. For instance, the bills of exchange and checks, which are exchanged for one another in banks and clearing houses, reflect quite independent transactions and are the results of real operations. It is merely a question of a better technical compensation of these results. So far as money serves as a means of purchase, the volume and number of purchases and sales are quite independent of the money trade. This trade cannot do anything but abbreviate the technical operations that go with buying and selling, and by this means it is enabled to reduce the amount of cash money required to turn the commodities over.
The money trade in its pure form, which we consider here, that is, the money trade not complicated by the credit system, is concerned only with the technique of a certain phase of the circulation of commodities, namely with the circulation of money and the different functions of money following from its circulation.
This distinguishes the money trade essentially from the trade in commodities, which promotes the metamorphosis of commodities and their exchange, or which gives even to this process the aspect of a process of a certain capital separated from the industrial capital. While, therefore, the commercial capital has its own form of circulation, M—C—M, in which the commodity changes hands twice and thereby recovers the money, in distinction from C—M—C, in which the money changes hands twice and thereby promotes the exchange of commodities, there is no such special form of circulation, which can be demonstrated in the case of financial capital.
To the extent that money-capital is advanced by a separate class of capitalists for the technical promotion of the circulation of money—a capital representing on a reduced scale the additional capital, which the merchants and industrial capitalists must otherwise advance themselves for these purposes—the general form of capital, M—M', is found also here. By the advance of M, the advancing capitalist secures M + 8Delta;M. But the promotion of the transaction M—M' does not concern itself in this case with the objective materials, but only with the technical processes of this metamorphosis.
It is evident, that the mass of money-capital, with which the money dealers have to operate, is the money-capital of the merchants and industrial capitalists in process of circulation, and that the operations of the money dealers are merely those originally performed by the merchants and industrial capitalist.
It is equally evident, that the profit of the money dealers is nothing but a deduction from the surplus-value, since they are operating merely with already realised values (even when they have been realised in the form of creditors' claims).
As in the trade with commodities, so in that with money a duplication of functions takes place. For a portion of the technical operations connected with the circulation of money must be carried out by the dealers and producers of commodities themselves.
[43.] Critique of Political Economy, p. 53.
[44.] "The great differences of coins themselves, as concerns their grain, and their coinage by many privileged princes and towns, necessitated the establishment of a business, which should enable merchants to use local money wherever any compensation between different coins was necessary. In order to be able to make cash payments, merchants who traveled to a foreign market provided themselves with uncoined pure silver, or perhaps with gold. In the same way they exchanged the money received by them in local markets for uncoined silver or gold, when they prepared to return home. The business of exchanging money, the exchange of uncoined precious metals for local coins, and vice versa, thus became a widespread and paying business." (Hullmann, Stadtewesen des Mittclalters. Bonn, 1826-29, I, p. 437.) "Banks of exchange do not owe their name to the fact that they issue bills of exchange,...but to the fact that they used to exchange coins. Long before the establishment of the Amsterdam Bank of Exchange in 1609, there existed in the Dutch merchant towns money changers and exchange houses, even exchange banks....The business of these money changers consisted in exchanging the numerous varieties of coin, that were brought into the country by foreign traders, for the current coin of the realm. Gradually their circle of activity extended....They became the bankers and cashiers of modern times. But the government of Amsterdam saw a danger in the combination of the cashier business with the exchange business, and in order to meet this danger, it was resolved to establish a large institution, which should be able to perform both the cashier and the exchange operations. This institution was the famous Amsterdam Bank of Exchange of 1609. In like manner, the exchange banks of Venice, Genoa, Stockholm, Hamburg, owe their origin to the continual necessity of changing money. Of all these, the Hamburg Exchange is the only one that is still doing business, because the need of such an institution is still felt in that merchants' town, which has no Mint of its own. Etc." (S. Vissering, Handboek van Praktische Staathuishoudkunde. Amsterdam, 1860, I, 247.)
[45.] "The institution of cashiers has probably nowhere preserved its original and independent character so pure as in the Dutch merchant towns (see on the origin of the cashier business in Amsterdam, E. Lusac, Hollands Rykdom, part III). Its functions partly coincide with those of the old Amsterdam Bank of Exchange. The cashier receives from the merchants, who employ his services, a certain amount of money, for which he opens a 'credit' for them in his books. Furthermore they send him their due bills, which he collects for them and credits to their account. On the other hand, he makes payments on their notes (Kassiers brieffes) and charges their accounts with their current bills. He charges a small provision for these credits and debits, which yields him a corresponding remuneration for his labor only by the amount of business, which he can turn over between them. If payments are to be balanced between two merchants, who both deal with the same cashier, then such payments are simply settled by booking them mutually, while the cashiers balance their mutual claims from day to day. The cashier's business, then, consists at bottom of this promotion of payments. Therefore it excludes industrial enterprises, speculations, and the opening of blank credits; for it must be a rule in this business that the cashier makes no payment to any one keeping an account with him above his credit." (Vissering, l. c., p. 134.) On the banking associations of Venice: "The requirements and locality of Venice, where the carrying of cash is more inconvenient than in other places, induced the large merchants of that town to found banking associations under due safeguards, supervision, and management. The members of such an association deposited certain sums, on which they drew checks for their creditors, whereupon the paid sum was deducted on the page of the debtor in the book kept for that purpose and added to the sum, which was credited in the same book to the creditor. This is the first beginning of the socalled giro banks. These associations are indeed old. But if they are attributed to the 12th century, they are confounded with the State Loan Institute, which was established in 1171." (Hüllmann, l. c. 550.)