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CHAPTER XXX.: MONEY-CAPITAL AND ACTUAL CAPITAL, I. - 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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MONEY-CAPITAL AND ACTUAL CAPITAL, I.
THE only difficult questions, which we are now approaching in the matter of the credit system, are the following:
First: The accumulation of the money-capital strictly so-called. To what extent is it, and is it not, an indication of an actual accumulation of capital, that is, of reproduction on an enlarged scale? The so-called plethora of capital, an expression used only with reference to the interest-bearing capital, is it only a peculiar way of expressing industrial overproduction, or does it constitute a separate phenomenon alongside of it? Does this plethora, or this excessive supply of money-capital, coincide with the existence of stagnating masses of money (bullion, gold coin and bank notes), so that this superfluity of actual money is an expression and phenomenon of that plethora of loan capital?
Secondly: To what extent does a stringency of money, that is, a scarcity of loan capital, express a real lack of actual capital (commodity-capital and productive capital)? To what extent does it coincide, on the other hand, with a lack of money as such, a lack of currency?
So far as we have hitherto considered the peculiar form of accumulation of money-capital and of money wealth in general, it resolved itself into an accumulation of claims of ownership upon labor. The accumulation of the capital of the national debt has been revealed to mean merely an increase of a class of state creditors, who have the privilege of a first claim upon the revenues.98
In these facts, by which even an accumulation of debts may appear as an accumulation of capital, the perfection of the reversal accomplished by the credit system becomes apparent. These certificates of indebtedness, which are issued in place of the originally loaned and long spent capital, these paper duplicates of destroyed capital, serve for their owners as capital to the extent that they are salable commodities and may, therefore, be reconverted into capital.
The titles of ownership upon company business, railroads, mines, etc., are indeed, as we have seen, titles on actual capital. But they do not imply any control of this capital. It cannot be called in. They merely convey legal titles to a portion of the surplus-value to be produced by it. But these titles become likewise paper duplicates of the actual capital, as though a bill of lading were to acquire a value separate from the cargo and simultaneously with it. They become nominal representatives of a capital that does not exist. For the actual capital exists simultaneously and does not change hands by the transfer of those duplicates. They assume the form of interest-bearing capital, because they not only safeguard a certain income, but also make it possible to secure possession of their capital-value in the shape of a return-payment when sold. To the extent that the accumulation of these papers expresses the accumulation of railroads, mines, steamships, etc., it indicates the expansion of the actual process of reproduction, just as the expansion, say, of a tax list indicates the expansion of the taxed objects, for instance, of movable property. But as duplicates serving themselves as commodities for sale and this circulating as capital-values they are illusory, and their value may fall or rise independently of the value of the actual capital, upon which they represent a claim. Their value, that is, their quotation at the Stock Exchange, necessarily has a tendency to rise with a fall in the rate of interest, so far as this fall, independently of the peculiar movements of money-capital, is due merely to the tendency of the rate of profit to fall; so that this imaginary wealth, which has originally a nominal value for each of its aliquot parts, expands for this reason alone in the course of capitalist production.99
Gain and loss through fluctuations in the price of these titles of ownership, and their centralisation in the hands of railroad kings, etc., naturally becomes more and more a matter of gambling, which takes the place of labor as the original method of acquiring capital and also assumes the place of direct force. This sort of imaginary money wealth does not merely constitute a very considerable part of the money wealth of private people, but also of banking capital, as we have already indicated.
In order to settle this point without delay, we mention the idea, that one might also mean by the accumulation of money-capital the accumulation of wealth in the hands of bankers (money lenders by profession), acting as middle men between private money-capitalists on one side and the state, communities, and reproducing borrowers on the other. For the entire vast extension of the credit system, and of all credit in general, is exploited by them as though it were their private capital. These fellows possess capital and incomes always in the form of money or of direct claims upon money. The accumulation of the wealth of this class may proceed in a direction very different from actual accumulation, but it proves at any rate, that this class pockets a good deal of the real accumulation.
Let us reduce the inquiry to narrower limits. Government bonds, like stocks and other securities of all kinds, are spheres of investment for loanable capital, for capital intended to bear interest. They are forms of loaning such capital. But they are not the loan capital itself, which is invested in them. On the other hand, so far as credit plays a direct role in the process of reproduction: what the industrial capitalist or the merchant need when wishing to have a bill discounted or a loan granted is neither stocks nor government bonds. What they need is money. They pawn or sell those securities, when they cannot secure money in any other way. It is the accumulation of this loan capital, with which we have to deal here, and more particularly of the loanable money-capital. We are not here concerned in the loans of houses, machines, or other fixed capital. Nor are we concerned in loans, which industrials and merchants make to one another in the shape of commodities and within the circle of the process of reproduction. We must, indeed, investigate this point still farther before we proceed. But we are concerned exclusively in loans of money, which are made by bankers, as middle men, to industrials and merchants.
Let us, then, analyse first the commercial credit, that is, the credit which the capitalists engaged in reproduction give to one another. It forms the basis of the credit system. Its representative is the bill of exchange, a certificate of indebtedness whose payment is due at a certain date, a document of deferred payment. Every one gives credit with one hand and takes it with the other. Let us leave aside, for the present, the banking credit, which constitutes another, quite different, element. To the extent that these bills in their turn circulate among the merchants as means of payment, by endorsement from one to another, without the intervention of discount, it is merely a transfer of a claim of indebtedness from A to B, and does not alter anything in the general connection. It merely places one man into the position of another. And even in this case the liquidation may take place without the intervention of money. The spinner A, for instance, has to pay a bill of exchange to the cotton broker B, and he has to pay a bill to the importer C. Now, if C also exports yarn, which happens often enough, he may buy yarn from A on a bill of exchange, and the spinner A may guarantee the broker B with the broker's own bill paid by C to A, whereby at best a balance may have to be settled. The entire transaction then promotes merely the exchange of cotton and yarn. The exporter represents but the spinner, the cotton broker the cotton planter.
In the cycle of this commercial credit we must note two things:
First: The settlement of these mutual claims of indebtedness depends upon the reflux of capital, that is, of C—M, which is merely deferred. If the spinner has received a bill of exchange from a cotton goods manufacturer, then this manufacturer can pay, when he has sold the cotton goods, which he has on the market. If the corn speculator has made out a bill of exchange on his dealer, then the dealer can pay the money, if the corn has meanwhile been sold at the expected price. These payments, then, depend upon the smooth run of the reproduction, that is, the process of production and consumption. But since the credits are mutual, the solvency of one depends upon the solvency of another; for in making out his bill of exchange every one may have counted either on the reflux of the capital in his own business or on the reflux of the capital in anothers business, who has to pay him for a bill of exchange drawn in the meantime. Aside from the prospect of returns, the payment is possible only by means of reserve capital, which the writer of the bill has at his command, in order to meet his obligations in case the returns should be delayed.
Secondly: This credit system does not do away with the necessity of cash payments. For a large portion of the expenses must always be paid in cash, such as wages, taxes etc. Furthermore, capitalist B, who has received from C a bill of exchange in place of cash payment, may have to pay his own due bill to D before the bill of C becomes due, and so he must have ready cash. A rotation of such completeness as that assumed above in the reproduction from cotton planter to cotton spinner and vice versa will be an exception; as a rule reproduction will be infringed at many points. We have seen in the discussion of the process of reproduction, volume II, Part III, that the producers of constant capital exchange partly constant capital among each other. In such a case the bills of exchange may be balanced against one another more or less. The same may be the case in the ascending line of production, where the cotton broker draws on the cotton spinner, the spinner on the manufacturer of cotton goods, the manufacturer on the exporter, the exporter on the importer (who may be an importer of cotton). But the cycle of these transactions is not completed simultaneously, and the series of claims is not turned around backward in the same way. For instance, the claim of the spinner on the weaver is not settled by the claim of the coal dealer on the machine builder. The spinner never has any counterclaims in his business on the machine manufacturer, because his product, yarn, never enters as an element into the process of reproduction of the machine maker. Such claims must, therefore, be settled by money.
The limits of this commercial credit, considered by itself, are 1), the wealth of the industrials and merchants, that is, their command of reserve capital in case of delayed returns; 2) these returns themselves. These may be delayed in time or the prices of commodities may fall in the meantime or the commodities may become momentarily unsalable through a clogging of the markets. The longer the bill runs, the larger must be the reserve capital, and the greater is the possibility of an infringement or retardation of the returns through a fall of prices or an overstocking of markets. And, furthermore, the returns are so much less secure, the more the original transaction was conditioned upon speculation on the rise or fall of the prices of commodities. But it is evident, that with the development of the productive power of labor, and thus of production on a large scale, 1) the markets expand and move a greater distance from the place of production; 2) that credits must be prolonged in consequence; 3) that the speculative element must thus more and more dominate the transactions. Production on a large scale and for distant markets throws the total product into the hands of commerce; but it is impossible, that the capital of a nation should be doubled in such a way, that commerce by itself would be able to buy up the entire national product with its own capital and to sell it again. Credit is, therefore, indispensable here. Credit must grow in volume with the growing volume of value in production, and it must grow in the matter of time with the increasing distance of the markets. A mutual interaction takes place here. The development of the process of production extends the credit, and credit leads to an extension of industrial and commercial operations.
Looking upon this credit separate from banking credit, it is evident that it grows with an increasing volume of industrial capital itself. Loan capital and industrial capital are here identical. The loaned capitals are commodity-capitals, intended either for ultimate individual consumption, or for the replacement of the constant elements of productive capital. What appears as loan capital in this case is always capital existing in some definite phase of the process of reproduction, but passing through sale and purchase from one hand to the other, while its equivalent is not paid to the buyer until later at some stipulated time. For instance, the cotton passes into the hands of the spinner in exchange for a bill of exchange, the yarn into the hands of the manufacturer of cotton goods in exchange for another bill, the cotton goods into the hands of the merchant for another bill, from the hands of the merchant into those of the exporter for another bill, from the hands of the exporter for another bill into those of some merchant in India, who sells the goods and buys indigo instead, etc. During this passage from hand to hand the cotton accomplishes its metamorphosis into cotton goods, and the cotton goods are finally transported to India and exchanged for indigo, which is shipped to Europe and enters there into the reproductive process. The various phases of the process of reproduction are here promoted by the credit, without any payment on the part of the spinner for the cotton, on the part of the manufacturer of cotton goods for the yarn, on the part of the merchant for the cotton goods, etc. In the first acts of this process the commodity, cotton, goes through its different phases of production, and this transition is promoted by credit. But as soon as the cotton has received its ultimate form as a commodity, the same commodity-capital passes on through the hands of different merchants, who promote its transportation to distant markets, and the last of the merchants finally sells these commodities to the consumer and buys other commodities in their stead, which passes either into consumption or into the process of reproduction. Here, then, we have to distinguish two sections: In the first, credit promotes the actual successive phases in the production of the same article; in the second, it promotes merely the passage of the finished article from the hands of one merchant into those of another, including its transportation, in other words, the act C—M. Yet the commodity is even here at least in a process of circulation, that is, in a phase of the process of reproduction.
It follows, then, that it is never unemployed capital, which is loaned here, but capital, which must change its form in the hands of its owner and which exists in such a form, that it is merely commodity-capital for him, that is, capital which must be reconverted into its original form, and for the present, at least, into money. It is, therefore, the metamorphosis of the commodity, which is here promoted by credit; not merely C—M, but also M—C and the actual process of reproduction. Much credit within the reproductive cycle does not signify (banker's credit excepted) much unemployed capital, which is offered for loans and looking for profitable investment. It means rather much employment for capital in the process of reproduction. Credit promotes here, 1) so far as the industrial capitalists are concerned, the transition of industrial capital from one phase into another, the connection of the related and dove-tailing spheres of production; 2) so far as the merchants are concerned, it promotes the transportation and the passage of commodities from one hand to another until their definite sale for money or their exchange for other commodities.
The maximum of credit is here identical with the fullest employment of industrial capital, that is, the utmost exertion of its reproductive power without regard to the limits of consumption. These limits of consumption are extended by the exertions of the process of reproduction itself. On one hand this increases the consumption of revenue on the part of laborers and capitalists, on the other it is identical with an exertion of productive consumption.
So long as the process of reproduction is in flow and the reflux assured, this credit lasts and extends, and its extension is based upon the extension of the process of reproduction itself. As soon as a stoppage takes place, in consequence of delayed returns, overstocked markets, fallen prices, there is a superfluity of industrial capital, but it is in a form, in which it cannot perform its functions. It is a mass of commodity-capital, but it is unsalable. It is a mass of fixed capital, but largely unemployed through the clogging of reproduction. Credit is contracted, 1) because this capital is unemployed, that is, stops in one of its phases of reproduction, not being able to complete its metamorphosis; 2) because confidence in the continuity of the process of reproduction has been shaken; 3) because the demand for this commercial credit decreases. The spinner, who restricts his production and has a mass of unsold yarn in stock, does not need to buy any cotton on credit; the merchant does not need to buy any commodities on credit, because he has more than enough of them.
Hence, if this expansion is disturbed, or even the normal exertion of the process of reproduction infringed, credit also becomes scarce; it is more difficult to get commodities on credit. It is particularly the demand for cash payment and the caution observed toward sales on credit which are characteristic of that phase of the industrial cycle, which follows a crash. In the crisis itself, when every one has things to sell, cannot sell them, and yet must sell them, if he would secure means of payment, it is not the mass of the unemployed and investment seeking capital, but rather the mass of capital tied up in his process of reproduction, that is greatest just when the lack of credit is most felt (and the rate of discount highest in banking credit). The hitherto invested capital is then, indeed, unemployed, because the process of reproduction lags. Factories are closed, raw materials accumulate, finished products swamp the market as commodities. Nothing is more erroneous, therefore, than to blame a scarcity of productive capital for such a condition. It is precisely at such times that there is a superabundance of productive capital, partly so far as the normal, but temporarily contracted, scale of reproduction is concerned, partly with regard to the paralysed consumption.
Let us suppose that the whole society is composed only of industrial capitalists and wage workers. Let us furthermore make exceptions of fluctuations of prices, which prevent large portions of the total capital from reproducing themselves under average conditions and which, owing to the general interrelations of the entire process of reproduction, such as are developed particularly by credit, must always call forth general stoppages of a transient nature. Let us also make abstraction of the bogus transactions and speculations, which the credit system favors. In that case, a crisis could be explained only by a disproportion of the consumption of the capitalists and the accumulation of their capitals. But as matters stand, the reproduction of the capitals invested in production depends largely upon the consuming power of the non-producing classes; while the consuming power of the laborers is handicapped partly by the laws of wages, partly by the fact that it can be exerted only so long as the laborers can be employed at a profit for the capitalist class. The last cause of all real crises always remains the poverty and restricted consumption of the masses as compared to the tendency of capitalist production to develop the productive forces in such a way, that only the absolute power of consumption of the entire society would be their limit.
A real lack of productive capital, at least among capitalistically developed nations, can be said to exist only in times of general crop failures, either in the principal means of subsistence, or in the principal raw materials of industry.
However, in addition to this commercial credit we have the money credit strictly so-called. The loans of the industrials and merchants among one another go hand in hand with loans made to then by the banker and money lender in the form of money. In the discounting of bills of exchange the loan is but nominal. A manufacturer sells his product for a bill of exchange and gets this bill discounted at some bill broker's. In reality this broker loans only the credit of his banker, and this banker loans to the broker the money of his depositors, made up of the industrial capitalists and merchants themselves, of drawers of ground rent and other unproductive classes, but also of laborers (in saving banks). In this way every industrial manufacturer and merchant gets around the necessity of keeping a large reserve fund and being dependent upon his actual returns. On the other hand the whole process becomes so complicated, partly by the making of bogus checks, partly by operations with commodities for the mere purpose of writing bills of exchange, that the semblance of a solid business and a smooth run of returns may persist even after returns come in only at the expense of swindled money lenders or swindled producers. Thus the business appears almost too sound just on the eve of a crash. The best proof of this is furnished, for instance, by the Reports on Bank Acts of 1857 and 1858, in which all bank directors, merchants, in short, all the summoned experts, with Lord Overstone at their head, congratulated one another on the prosperity and soundness of business—just one month before the eruption of the crisis of August, 1857. And, queer enough, Tooke in his History of Prices passes through the same illusion as the historian of every crisis. Business is always thoroughly sound and the campaign in full swing, until the collapse suddenly overtakes them.
We revert now to the accumulation of money-capital.
Not every augmentation of loanable capital indicates a real accumulation of capital or expansion of the process of reproduction. This becomes most evident in the phase of the industrial cycle following immediately after a crisis, when loanable capital lies fallow in masses. In such moments, in which the process of production is restricted (production in the English industrial districts was reduced by one-third after the crisis of 1847), prices of commodities at their lowest level, the spirit of enterprise paralysed, the rat of interest is low, and it indicates then merely an increase of loanable capital precisely because the industrial capital has been laid lame. It is quite obvious, that less currency is required, when the prices of commodities have fallen, the number of transactions decreased, and the capital invested in wages contracted; that, on the other hand, additional money is required for the function of world money after the debts to foreign countries have been settled either by the exportation of gold or by bankruptcies; that, finally, the volume of the business of discounting bills diminishes with the number and amounts of bills of exchange. Hence the demand for loanable capital, either in the form of means of circulation or of means of payment (the investment of new capital being out of the question for a while), decreases and it becomes relatively abundant. At the same time, the supply of loanable capital increases also positively under such circumstances, as we shall see later.
Thus "a reduction of transactions and a great super-abundance of money" prevailed after the crisis of 1847 (Commercial Distress, 1847-48, Evidence No. 1664.) The rate of interest was very low on account of the "almost complete annihilation of commerce and nearly utter absence of a possibility of investing money" (1. c., p. 45, Testimony of Hodgson, Director of the Royal Bank of Liverpool). What nonsense those gentlemen concocted (and Hodgson is one of the best of them) in order to explain these facts, may be seen from the following phrase: "The stringency (1847) arose from an actual reduction of the money-capital in the country, caused partly by the necessity of paying for the imports from all quarters of the globe in gold, and partly by the conversion of floating capital into fixed." How the conversion of circulating capital into fixed capital should reduce the money-capital of a country is unintelligible. For in the case of railroads, e.g., in which capital was mainly invested at that time, neither gold nor paper are used up for viaducts and rails, and the money for the railroad stocks, to the extent that it had been deposited for subscriptions, performed exactly the same functions as any other money deposited in banks and even increased the loanable money-capital temporarily, as shown above. But to the extent that it had been spent for construction, it circulated in the country as a means of circulation and payment. Only so far as fixed capital cannot be exported, so that with the impossibility of its export the available capital secured by returns from exported articles is eliminated, including the returns in bullion or cash, might the money-capital be affected. But English export articles were likewise piled up in masses on the foreign markets without being salable. It is true, the floating capital of the merchants and manufacturers of Manchester, etc., who had tied up a portion of their normal business capital in railroad stocks and were therefore dependent upon loan capital for the continuation of their business, had become fixed, and they had to put up with the consequences. But it would have been the same, if the capital belonging to their business, but withdrawn from it, had been invested, say, in mines instead of railroads, mining products like iron, coal, copper being themselves floating capital.
The actual reduction of available money-capital through crop failure, corn imports, and gold exports constituted an event that had nothing to do with the railroad swindles.—"Nearly all commercial firms had begun to starve their business more or less, in order to invest the money in railroads."—The very extensive loans, which were made to railroads by commercial firms, misled the latter to depend far too much through the discounting of bills upon the banks and to carry on the commercial business in this way" (the same Hodgson, 1. c., p. 67). "In Manchester immense losses were sustained through speculation in railroads" (R. Gardner, previously mentioned in volume I chapter XV, 3, c, p. 449, American edition, and in other places, Evidence No. 4877, 1. c.).
One of the principal causes of the crisis of 1847 was the colossal overcrowding of the markets and the unbounded swindle in the East Indian trade with commodities. But there were also other circumstances, which bankrupted very rich firms in this line: "They had plenty of means, but these could not be made available. Their entire capital was tied up in real estate in Mauritius, or in indigo and sugar factories. After they had assumed obligations to the tune of 5-600,000 pounds sterling, they had no means at hand to pay their bills of exchange, and finally it was found that, in order to pay their bills, they would have to rely entirely upon credit" (Ch. Turner, great East Indian merchant in Liverpool, No. 730, 1. c.).—See furthermore Gardner, No. 4872, 1. c.: Immediately after the Chinese treaty such great prospects for a tremendous extension of our trade with China were held out to this country, that many large factories were built expressly for this business, for the purpose of manufacturing the cotton goods mainly demanded in the Chinese markets, and these were added to all our already existing factories."—4874. "How did this business come out?"—"Most disastrously, so that it defies almost every description; I do not believe, that of all the shipments to China in 1844 and 1845 more than two-thirds of the amount have ever returned; tea being the principal article of return export, and such great prospects having been held out to us, we manufacturers counted without fail on a large reduction of the tea tax."—And now, naively expressed, comes the characteristic confession of faith of the English manufacturer: "Our trade with a foreign market is not limited by its capacity of consuming our products, it is rather limited here at home by our capacity of consuming the products, which we receive in return for our industrial products." (The relatively poor countries, with whom England trades, are supposed to be able to pay for and consume any amount of English products, but unfortunately wealthy England cannot digest the products sent in return.)—4876. "At first I shipped a few commodities out, and these were sold at a loss of about 15% in the full conviction that the price, at which my agents could buy tea, would yield so large a profit through its sale here, that this loss would be made good; but instead of making a profit, I lost sometimes 25% and even as much as 50%."—4877. "Did the manufacturers export for their own account?"—"Principally; the merchants, it seems, saw very soon that they did not make anything, and they encouraged the manufacturers to make consignments rather than to participate in them themselves."—In 1857, on the other hand, the losses and failures fell mainly upon the merchants, since the manufacturers left to them the task of overcrowding the foreign markets "for their own account."
An expansion of the money-capital arising from the fact that in consequence of the expansion of the banking business a former private hoard or coin reserve may be converted into loanable capital for a short while, does not indicate a growth of the productive capital any more than the increasing deposits of the London stock banks, as soon as they began to pay interest on deposits. (See the example of Ipswich farther along, where in the course of a few years immediately preceding 1857 the deposits of the capitalist farmers were quadrupled.) So long as the scale of production remains the same, this expansion leads only to an abundance of the loanable money-capital compared to the productive. Hence the rate of interest is low.
After the process of reproduction has again reached that state of prosperity, which precedes that of overexertion, the commercial credit once more arrives at a great expansion, which has then indeed for its "sound" basis a flow of easy returns and more extended production. In this state the rate of interest is still low, although it rises above its minimum. This is in fact the only time, of which it may be said, that a low rate of interest, and consequently a relative abundance, of loanable capital, coincide with a real expansion of industrial capital. The facility and regularity of the returns, together with an extensive commercial credit, secures the supply of loan capital in spite of the increased demand for it, and prevents the level of the rate of interest from rising. Moreover, those knights now appear in large numbers, who work without any reserve capital, or even without any capital at all and operate wholly on a credit basis. To this is added the great expansion of the fixed capital of all forms, and the inauguration of vast masses of new enterprises of wide scope. The interest now rises to its average level. It arrives once more at its maximum, as soon as the new crisis comes in, when credit suddenly stops, payments are suspended, the process of reproduction is delayed, and a superabundance of industrial capital is unemployed, with the above-mentioned exceptions, while there is an almost absolute lack of loan capital.
On the whole, then, the movements of loan capital, as expressed in the rate of interest, tend in a direction opposite to that of industrial capital. That phase in which a low rate of interest rising just above its minimum coincides with an "improvement" and a growing confidence after a crisis, and particularly that phase, in which the rate of interest reaches its average level, midway between its minimum and maximum, are the only two periods in which an abundance of loan capital is available simultaneously with a great expansion of industrial capital. But at the beginning of the industrial cycle a low rate of interest coincides with a contraction, and at the end of an industrial cycle a high rate of interest coincides with a superabundance, of industrial capital. The low rate of interest, which indicates an "improvement," shows that commercial credit requires the assistance of banking credit but to a slight degree, because it still stands on its own legs.
The industrial cycle is of such a character, that the same cycle must periodically reproduce itself, once that the first impulse has been given.100
In the condition of lassitude production sinks below the level, which it had reached in the preceding cycle, and for which the technical basis has now been laid. During prosperity, the middle period, it continues to develop on this basis. In the period of overproduction and swindle it exerts the productive forces to the utmost, even beyond the capitalistic limits of the process of production.
That means of payment are scarce during the period of crisis, goes without saying. The convertibility of bills of exchange has substituted itself for the metamorphosis of commodities themselves, and so much more so at such times, as a portion of the firms operates purely on credit. An ignorant and mistaken legislation, such as that of 1844-45, may intensify a money crisis. But no manner of bank legislation can abolish a crisis.
In a system of production, in which the entire connection of the process of reproduction rests upon credit, a crisis must obviously occur through a tremendous rush for means of payment, when credit suddenly ceases and nothing but cash payment goes. At first glance, therefore, the whole crisis seems to be merely a credit crisis and money crisis. And in fact it is but a question of the convertibility of bills of exchange into cash money. But the majority of these bills represent actual sales and purchases, and it is the extension of these far beyond the demands of society which is at the bottom of the whole crisis. At the same time an enormous quantity of these bills represents mere swindles, and this becomes apparent now, when they burst. There are furthermore unlucky speculations made with the money of other people. Finally there are commodity-capitals, which have either become depreciated or unsalable or returns that can never more be realized. This entire artificial system of forced expansion of the process of reproduction cannot, of course, be remedied by having some bank, like the Bank of England, give to the swindlers the needed capital in the shape of paper notes and buy up all the depreciated commodities at their old nominal values. Moreover, everything appears turned upside down here, since no real prices and their real basis appear in this paper world, but only bullion, metal coin, notes, bills of exchange, securities. Particularly in the centers, in which the whole money business of the country is crowded together, like London, this reversion becomes apparent; the entire process becomes unintelligible. It is not quite so in the industrial centers.
By the way, we make the following remarks about the superabundance of industrial capital, which shows itself during crises: The commodity-capital is in itself also a money-capital, that is, a definite sum of money expressed in the price of the commodities. As a use-value it is a definite quantity of useful objects, and there is a superfluity of them at the time of the crisis. But as a money-capital in itself, as a potential money-capital, it is subject to continual expansion and contraction. On the eve of a crisis, and during its sway, commodity-capital in its capacity as a potential money-capital is contracted. It represents less money-capital for its owner and his creditors (likewise as a security for bills of exchange and loans), than it did at the time when it was bought and when the discounts and loans made on it were transacted. If this is the meaning of the contention, that the money-capital of a country is reduced in times of stringency, it is identical with the statement, that the prices of commodities have fallen. Such a collapse of prices merely balances their inflation in preceding periods.
The incomes of the unproductive classes and of those, who live on fixed incomes, remain for the greater part stationary during the inflation of prices going hand in hand with an overproduction and overspeculation. Hence their consuming capacity diminishes relatively, and with it their ability to reproduce that portion of the total reproduction, which should enter normally into consumption. Even though their demand should remain nominally the same, it decreases actually.
With reference to the imports and exports we remark, that all countries become successively implicated in a crisis, and that then it becomes evident, that all of them, with few exceptions, have exported and imported too much, so that there is a balance of payment against all of them. The trouble, therefore, is not with the balance of payment. For instance, England suffers from an export of gold. It has imported too much. But at the same time all other countries are overcrowded with English goods. They have also imported too much, or too much have been imported into them. (There is, indeed, a difference between that country, which exports on credit, and those countries, which export little or nothing on credit. But in that case, these last countries import on credit; and this is not the case only when commodities are sent to them on consignment.) The crisis may first break out in England, in that country which gives most of the credit and takes least of it, because the balance of payment due, which must be squared immediately, is against it, even though the general balance of trade is for it. This is explained partly by the credit which it has granted, partly by the mass of capitals loaned to foreign countries, so that a large quantity of returns come back to it in the shape of commodities, aside from actual trade returns. (However, the crisis broke out sometimes in America, that country in which most of the trade and capital credit is taken from England.) The crash in England, introduced and accompanied by an export of gold, settles England's balance of payment, partly by a bankruptcy of its importers (about which more is said farther on), partly by throwing off a portion of its commodity-capital at cut prices to foreign countries, partly by the sale of foreign securities, the purchase of English securities, etc. Now it is the turn of some other country. The balance of payment was momentarily in its favor. But now the time normally allowed between the balance of payment and balance of trade has been reduced by the crisis or entirely abolished. All payments are now supposed to be made immediately. The same thing is now repeated here. England now has a return of gold, the other country an export of gold. What appears in one country as excessive imports, appears in the other as excessive exports, and vice versa. But overimports and overexports have taken place in all countries (we are not alluding now to any crop failures, but to a general crisis); that is, there has been a general overproduction, promoted by credit and the inflation of prices that goes with it.
In 1857, the crisis broke out in the United States. An export of gold from England to America followed. But as soon as the inflation in America collapsed, the crisis broke out in England and the gold export went from America to England. The same took place between England and the continent. The balance of payment is in times of general crisis against every nation, at least against every commercially developed nation, but always the one succeeding the other, like firing in squads, as soon as the turn of each comes for making payments. And once the crisis has broken out, say, in England, it compresses the succession of these terms of payment into a very short period. It then becomes evident, that all these nations have simultaneously overexported (and overproduced) and overimported (and overtraded), that prices were inflated in all of them, and credit overdrawn. And the same collapse follows in all of them. The phenomenon of gold exports then shows itself successively in all of them, and proves by this very generality, 1), that the gold exports are but an evidence of a crisis, not its cause; 2), that the succession, in which the gold exports take place in different countries, indicates only the time when their turn has come to settle their affairs, the time when the crisis seizes them and causes an eruption of its latent forces.
It is characteristic for the English economic writers—and the economic literature worth mentioning since 1830 resolves itself mainly into a literature on currency, credit, crisis—that they look upon the exports of precious metals in times of crisis, in spite of the alteration of quotations on bills, merely from the standpoint of England, as a purely national phenomenon, and completely close their eyes against the fact, that all other European banks raise their rate of interest, when their own bank raises its in times of crisis, and that, when the cry of distress over the exports of gold is raised in their country today, it is taken up in America tomorrow and in Germany and France the day after.
In 1847, "the obligations of England had to be fulfilled" [mostly for corn]. "Unfortunately they were mostly fulfilled by bankruptcies." [The wealthy England got its breath by bankruptcies in its obligations toward the Continent and America.] "But so far as they were met by bankruptcies, they were fulfilled by the export of precious metals." (Report of Committee on Bank Acts, 1857.) In other words so far as a crisis is intensified by bank legislation, this legislation is a means of cheating the corn-exporting countries in periods of famine, robbing them first of their corn and then of the money for the corn. A prohibition of the export of corn in such periods and in such countries, which are themselves suffering more or less from stringencies, is, therefore, a very rational measure to thwart the above plan of the Bank of England for "meeting obligations on corn imports by bankruptcies." It is in that case much better that the corn producers and speculators should lose a portion of their profit for the good of their own country than their capital for the good of England.
It follows from the above, that the commodity-capital largely loses its capacity of representing potential money-capital during a crisis, and during periods of business depression in general. The same is true of fictitious capital, interest-bearing papers, so far as they circulate in the stock exchanges as money-capital. Their price falls with a rise of interest. It falls furthermore through a general lack of credit, which compels their owner to throw them in masses on the market, in order to secure money. It falls, finally, in the case of stocks, partly in consequence of the spurious character of the enterprises which they represent, partly in consequence of a decrease of the revenues, for which they constitute drafts. The fictitious capital is enormously reduced in times of crisis, and with it the power of its owners to loan money on it in the market. However, the reduction of the money denomination of these securities in the stock exchange quotations has nothing to do with the actual capital which they represent, but very much indeed with the solvency of their owners.
[98.] The public funds are nothing else but an imaginary capital, which represents that portion of the annual revenue, which is set aside to pay the debt. A capital of the same amount has been spent; it is this which serves as a denominator for the loan, but it is not this which is represented by the public funds; for this capital does not exist any longer. However, new wealth must be created by the work of industry; a portion of this wealth is annually set aside in advance for those, who have loaned that wealth, which has been spent; this portion is taken by means of taxes from those who produce it, and is given to the creditors of the state, and, according to the customary proportion between capital and interest in this country, an imaginary capital is assumed of the same magnitude as that which could give rise to the annual income which these creditors are to receive. Sismondi, Nouveaux Principles, II, p. 230.
[99.] A portion of accumulated loanable money-capital is indeed merely an expression of the industrial capital. For instance, when England, in 1857, had invested 80 million pounds sterling in American railroads and other enterprises, this investment was transacted almost throughout by the export of English commodities for which the Americans did not have to make payment in return. The English exporter drew bills of exchange for these commodities on America, the English stock subscribers bought these bills and used them to pay the amount of their stock subscriptions to America.
[100.] [I have already stated in another place, that a change has taken place in the character of commercial crises since the last great universal one. The acute form of the periodical process, with its former decennial cycle, seems to have given way to a more chronic, long drawn, alternation between a relatively short and slight business improvement and a relatively long, undecided, depression, both of them differently distributed over the various industrial countries. But perhaps it is merely a matter of a prolongation of the duration of the cycle. In the childhood of world commerce, 1815-1847, it can be shown that a crisis occurred about every fifth year; from 1847-1867 the cycle is decidedly decennial; is it possible, that we are now in the preparatory stage of a new world crash of unparalleled vehemence? Many things seem to indicate this. Since the last great universal crisis of 1867 many profound changes have taken place. The colossal extension of the means of transportation and communication—seagoing steamers, railroads, electric telegraphs, the Suez Canal—have made a real world market a fact. The former monopoly of England in industry has been matched by a number of competing industrial countries; infinitely greater and varied fields have been opened in all parts of the world for the investment of superfluous European capitals, so that it is far more distributed, and local overspeculation may be more easily overcome. By means of these things, the old breeding grounds of crises and opportunities for the growth of crises have been eliminated or strongly reduced. At the same time competition in the internal markets recedes before Kartels and trusts, while it is restricted in the international market by protective tariffs, with which all great industrial countries, England excepted, surround themselves. But these protective tariffs are nothing but preparations for the ultimate general industrial war, which shall decide the supremacy on the world market. Thus every element, which works against a repetition of the old crises, carries the germ of a far more tremendous future crisis in itself.—F. E.]