*' The inhabitants of merchant towns imported refined manufactured goods and expensive articles of luxury from rich countries, and thus offered incentives to the vanity of the large landowners, who eagerly bought these goods and paid large quantities of raw materials from their lands for them. Thus the commerce of a large part of Europe during this period consisted in an exchange of the raw materials of one country for the manufactured products of some industrially developed country. As soon as this taste became general and created a considerable demand, the merchants, in order to save the expenses of freight, began to establish similar manufactures in their own countries. (Adam Smith, Book III, chapter III.)
388, Capitalist Production.
the profit of the merchant is made, in the first place, only within the jDrocess of circnlation, by the two transactions of buying and selling; and in the second place, it is realised in the last transactions, the sale. It is a profit upon alienation. At first sight, a pure and independent commercial profit seems impossible, so long as products are sold at their value. To buy. cheap in order to sell dear is the rule of trade. It is not supposed to be an exchange of equivalents. The conception of value is included in it only to the extent that the individual commodities all have a value and are to that extent money. In quality, they are all expressions of social labor. But they are not values of equal magnitude. The quantitative ratio, in which products are exchanged, is at first quite arbitrary. They assume the form of commodities inasmuch as they are exchangeable, that is, inasmuch as they may be expressed in terms of the same third thing. The continued exchange and the more regular reproduction for exchange reduces this arbitrariness more and more. But this applies not at once to the producer and consumer, but only to the mediator between them, the merchant, wdio.comjiares the money-prices and pockets their difl^erence. By his own movements he establishes the equivalence of commodities.
The merchants' capital is at first merely the intervening movement betw^een extremes not controlled by it and between premises not created by it.
Just as from the mere form of the circulation of commodities, C — M — C, money rises not only as a measure of value and medium of circulation, but also as the absolute form of the commodity and thus of wealth, in the form of a hoard, so that its conservation and accumulation as money become its life's purpose, so money, in the shape of a hoard, issues from the mere form of the circulation of merchants' capital, M — C — M', as something which is preserved and increased only by its alienation.
The trading nations of the ancients existed like the gods of Epicure in the intermediate worlds of the universe, or rather like the Jews in the pores of Polish society. The trade of the first independent and highly developed merchant towns and Historical Data. 389 trading nations rested as a pure carrying trade upon the barbarism of the producing nations between whom they intervened.
In the precapitalist stages of society, commerce rules industry. The^ reverse is true of modern society. Qf_course, commerce will have more or less of a reaction on the societies, between which it is carried on. It will subject production more and more to exchange value, by making enjoyments and subsistence more dependent on the sale than on the immediate / use of the products. Thereby it dissolves all old conditions. It increases the circulation of money. It seizes no longer merely upon the surplus of production, but corrodes production itself more and more, making entire lines of production dependent upon it. However, this dissolving effect depend^ to a large degree on the nature of the producing society.
So long as merchants' capital promotes the exchange of products between undeveloped societies, commercial profit does not only assume the shape of outbargaining and cheating, but also arises largely from these methods. Leaving aside the fact that it exploits the difference in the prices of production of the various countries (and in this respect it tends to level and fix the values of commodities), those modes of production bring it about that merchants' capital appropriates to itself the overwhelming portion of the surplus-product, either in its capacity as a mediator between societies, which are as yet largely engaged in the production of use-values and for whose economic organisation the sale of that portion of its product which is transferred to the circulation, or any sale of products at their value, is of minor importance; or, because under those former modes of production, the principal owners of the surplus-product, with whom the merchant has to deal, are the slave holder, the feudal landlord, the state (for instance,, the oriental despot), and they represent the wealth and luxury, which the merchant tries to trap, as Adam Smith correctly scented in that passage on feudal times, which I have quoted above. Merchants' capital in its supremacy everywhere stands \ for a system of robbery,^^ and its development, among the ■ *' " Now there is among merchants much complaint about the nobles or robbers, 390 Capitalist Production.
trading nations of old and new times, is always connected with plundering, piracy, snatching of slaves, conquest of colonies.
\ See Carthage, Eome, and later Venetians, Portuguese, Dutch, Vtc.
/ The development of commerce and merchants' capital brings / forth everywhere the tendency toward production of exchange / values, increases its volume, multiplies and monopolises it, dei velops money into world money. Commerce therefore has everywhere more or less of a dissolving influence on the pr(jducing organisations, which it finds at hand and whose different forms are mainly carried on with a view to immediate ase. To what extent it brings about a dissolution of the old mode of production, depends on its solidity and internal articvilation. And to what this process of dissolution will lead, in other words, what new mode of production will take the place of the old, does not depend on commerce, but on the character of the old mode of production itself. In the antique world the efi^ect of commerce and the development of merchants' capital always result in slave economy; or, according to what the point of departure may be, the result may simply turn out to be the transformation of a patriarchal slave system devoted because they must trade under great danger and run the risk of being kidnapped, beaten, blackmailed, and robbed. If they suffered these things for the sake of justice, the merchants would be saintly people...But since such great wrong and unchristian thievery and robbery are committed all over the world by merchants, and even among themselves, is it any wonder that God should procure that such great wealth, gained by wrong, should again be lost or stolen, and they themselves hit over their heads or made prisoners?...And the princes should punish such unjust bargains with due rigor and take care that their subjects shall not be so outrageously abused by merchants. Because they don't do so, God employs knights and robbers, and punishes through them the merchants for the wrongs committed, and uses them as his devils, just as he plagues Egypt and all the world with devils, or persecutes with enemies. In the same way he beats one boy through another, without thereby insinuating that knights are any the less robbers than merchants, although the merchants daily rob the whole world, while a knight may rob one or two once or twice in a year." "Go by the word of Esau: Thy princes have become the companions of robbers.
For they hang the thieves, who have stolen a gulden or a half gulden, but they associate with those, who rob all the world and steal with greater assurance than all others, that the proverb may remain true: Great thieves hang little thieves; and as the Roman senator Cato said: Mean thieves lie in prisons and stocks, but public thieves are clothed in gold and silks. But what will God say finally? He will do as he said to Ezekiel, he will amalgamate princes and merchants, one thief with another, like lead and iron, as when a city burns down, leaving neither princes nor merchants." (Martin Luther, Biicher vom Kaufhandel und Wucher. Vom Jahr, 1527.)
I Historical Data. 391 to the production of direct means of subsistence into a similar system devoted to the production of surplus-value. However, in the modern world, it results in the capitalist mode of pro-i duction. From these facts it follows, that these results were conditioned on quite other circumstances than the mere influence of the development of merchants' capital.
It follows from the nature of the case that as soon as town industry as such separates from agricultural industry, its products are from the outset commodities and require for their sale the intervention of commerce. The leaning of commerce upon the development of the towns, and, on the other hand, the dependence of the towns upon commerce, are to that extent intelligible. However, in what measure industrial development will keep step with this development, depends upon quite other circumstances. Already ancient Rome, in its later republican days, developed merchants' capital more highly than it had ever existed in the antique world, without any progress in the development of crafts, while in Corinth and in other Grecian towns of Europe and Asia Minor the development of commerce was accompanied by highly developed crafts. On the other hand, in direct opposition to the development of towns and its conditions, the trading spirit and the development of commerce are frequently found among unsettled nomadic peoples.
There is no doubt — and it is precisely this fact which has led to many wrong conceptions — that in the 16th and 17th centuries the great revolutions, which took place in com-' nierce with the through geographical discoveries and rapidly \ increased the development of merchants' capital, form one of,1 the principal elements in the transition from feudal to capi-.' talist production. The sudden expansion of the world market,; the multiplication of the circulating commodities, the zeal? displayed among the European nations in the race after the products of Asia and the treasures of America, the colonial system, materially contributed toward the destruction of the feudal barriers of production. However, the modern mode of production, in its first period, the manufacturing period, developed only in j)laces, where the conditions for it had been 392 Capitalist Production.
previously developed during medieval times. Compare, for instance, Holland with Portugal. ^*^ And, on the other hand, when in the 16th, and partially still in the 17th, century the sudden expansion of commerce and the creation of a new world market exerted an overwhelming influence on the overthrow of the old mode of production and the rise of the capitalistic one, this was accomplished on the basis of the already created capitalist mode of production. The world market forms itself the basis of this mode of production. On the other hand, the immanent necessity of this production to produce on an ever enlarged scale tends to extend the world market continually, so that it is not commerce in this case which revolutionises industry, but industry which continually revolutionises commerce. The commercial supremacy itself is now conditioned on the greater or smaller prevalence of the conditions for a large industry. Compare for instance, England and Holland.
The history of the decline of Holland as the ruling commercial nation is the history of the subordination of merchants' capital to industrial capital. The obstacles presented by the internal solidity and articulation of precapitalistic, national, modes of production to the corrosive influence of commerce is strikingly shown in the intercourse of the English with India and China. The broad basis of the mode of production is here /formed by the unity of small agriculture and domestic indus-(try, to which is added in India the form of communes resting \pon common ownership of the land, which, by the way, was likewise the original form in China. In India, the English exerted simultaneously their direct political and economic power as rulers and landlords, for the purpose of disrupting these small economic organisations.^^ The English commerce *" How overweening fishing, manufacture, and agriculture were as a basis in the development of Holland, aside from other circumstances, has already been explained by writers of the 18th century, for instance, by Massie. In contradistinction to the former view, which underrated the volume and importance of the commerce of Asia, of antiquity, and of the Middle Ages, it has now become the custom to overestimate it extraordinarily. The best remedy against this conception is a study of the imports and exports of England in the beginning of the 18th century and their comparison with modern imports and exports. And yet this 18th century commerce was incomparably greater than that of any former trading nation. (See Anderson, History of Commerce.)
" If any nation's history, then it is the history of the English management of Historical Data. 393 exerts a revolutionaiy influence on these organisations and tears tliem apart only to the extent that it destroys by the low prices of its goods the spinning and weaving industries, which are an archaic and integral part of this unity. And even so this work of dissolution is proceeding very slowly. It proceeds still more slowly in China, where it is not backed up by any direct political power on the part of the English. The great economy and saving in time resulting from the direct connection of agriculture and manufacture offer here the most dogged resistance to the products of great industries, whose prices are everywhere perforated by the dead expenses of their process of circulation. On the other hand, Russian commerce, unlike the English, leaves the economic basis of Asiatic production untouched.^^ The transition from the feudal mode of production takes tw;o roads. The^^xrodtwer becomes a merchant and capitalist, in contradistinction from agricultural natural economy and tha_guil_(^€ncircled handicrafts of medieval town industry. This is the really revolutionary way. Or, the merchant takes possession in a direct way o£_production. WhileJ;his way serves historically as a mode of transition — instance the English~cIothier of the 17th century, who brings tlie_ weavers, althougHjthey remain independently at work, under his control by selling^ wool to them and buying cloth from them — nevertheless it cannot by itself ^o much for the overthrow of the old iaode_oX,pxaduction, but rather preserves it and uses it as its/ premise. For example, even up to the middle of the 19tli century the manufacturer in the French silk industry and in the English hosiery and lace industries was but nominally a manufacturer, and merely a merchant in point of fact, who permitted the weavers to continue their Avork in the old un- India which is a string of unsuccessful and really absurd (and in practice infamous) experiments in economics. In Bengal they created a caricature of English landed property on a large scale; in southeastern India a caricature of small a'lotment property; in the Northwest they transformed to the utmost of their ability the Indian commune with common ownership of the soil into a caricature of itself.
'^ Since Russia has begun making frantic exertions to develop its own capitalist production, which is exclusively dependent upon its home market and the neighboring Asiatic states, this is also gradually changing.— F. E.
394 Capitalist Production.
organised way and exerted only the control of the merchant, for whom thej work in reality. ^^ This method is everywhere an obstacle to a real cajjitalist mode of production and declines with the development of the latter. Without revolutionising the mode of production, it deteriorates merely the condition of the direct producers, transforms them into mere wage workers and proletarians under worse conditions than those who have already been placed under the immediate control of capital and absorbs their surplus-labor on the basis of the old mode of production. The same conditions exist in a somewhat modified form in the London furniture industry, so far as it is carried on by handicrafts. Particularly in the Tower hamlets it is practised on a very extensive scale. The whole production is divided into numerous separate lines independent of one another. One business makes only chairs, another only tables, a third only bureaus, etc. But these lines of business themselves are run more or less like crafts, by one small master with a few journeymen. ^^Tevertheless the output is too large to work directly for private persons. The products are bought by owners of furniture stores. On Saturdays the master sees them and sells his product, and the transaction is closed with as much haggling as is done in a pawnshop over the loan on this or that piece. The masters need this weekly sale, were it for no other reason than to buy more raw materials for next week and pay wages. Under these circumstances, they are really only middlemen between their employes and the merchants. The merchant is the real capitalist, who pockets the largest share of the surplus-value.^^ A similar condition exists in the transition to manufacture from lines, which were formerly carried on as handicrafts or as sidelines to rural industries. According to the development ^^ The same is true of the ribhon and basting makers and silk weavers in the Rhine districts. Near Crefeld even a railroad has been built for the intercourse of these rural hand weavers with the "manufacturer" in the city, but has ' later been tied up, together with the handloom weavers themselves, by the mechanical weaving industry. — F. E.
"This system has been developed since 1865 on a still larger scale. Details concerning it are contained in the First Report of the Select Committee of the House of Lords on the Sweating System, London, 1S88. — F. E.
Historical Data.
of such small independent businesses — which may even employ machinery that admits of a craftslike operation — the transition to large scale industry takes place. The machine is driven by steam, instead of by hand. This is the case, for instance, of late in the English hosiery industry.
T4iere-J^^_jionsequently^_a^Jhreefoldjtransition. Eirat,^ the merchant becomes directly an industrial capitalist. This is the case in crafts conditioned on jwmrierce, especially industijes producing luxuries, which are^importeTlpy the merchants together with the raw materials and laborers _frqni foreign ' count ries^^as they were in Italy from Constantinople in the "^ 15th century. In the s^ond ^lace, tha mercliantjconsBrts the sniaTT masters into his middlemen or, perhajps^ buys direct from the self-producer, leaying_himjioininally independent and his mode_of production unchanged. In the third place, the industrial becomes' a merchant and produces immediately on a large scale for commerce.
In the Middle Ages, the merchant is merely the man who, as Poppe correctly says, " removes " the goods produced by the guilds or the peasants. The merchant becomes an industrial capitalist, or rather, he lets the craftsmen, particularly the small rural producers, work for him. On the other hand, the producer becomes a merchant. The mastiiiusEeayer, instead of receiving his wool in installments from the merchant ~HTrdr" working for-Wm witTi hia.40urnej[nien buys wool or yarn himself and sejjsjiis cloth to the merchant. The elements of production pass into~Tlis process of production as commodities bought by himself. And instead of producing for the individual merchant, or for definite customers, the master cloth; weaver produces for the commercial world. The producpar^s himself a merchant. The merchants' capital performs no longer anything but the process of circulation. Originally the commerce was the premise for the transformation of the crafts, rural domestic industries, and feudal agriculture into capitalist enterprises. It develops the products into commodities, either by creating a market for them, or by carrying new equivalents in the form of goods to them and supplying production with new raw and auxiliary materials. In this way 396 Capitalist Production.
it opens up new lines of production, which are based at the outset upon commerce, both as concerns the production for the home and world market and as concerns conditions of production originated by the world market. As soon as manufacture gains sufficient strength, and^till more large scale industrj7Tt~creates in its turn a market_for itself and captures it with its commodities. ISTow commerce becomes the servant of ind.ustrial production, and a continual expansion of the market_becomes a vital necessitj~fof^ industrial production. An ever more extended wholesale production floods the existing market and thereby works continually toward a still wider expansion of the market and a bursting of its bonds. What restricts this wholesale production, is not commerce (to the extent that it expresses the existing demand), but the magnitude of the employed capital and the developed productivity of labor. The industrial capitalist always has the world market before him, compares, and must continually compare, his own cost-prices with those of the whole world, not only with those of his home market. In former periods this comparison falls almost entirely upon the shoulders of the merchants, and thereby secures for merchants' capital the supremacy over industrial capital.
The first theoretical treatment of modem modes of production — the mercantile system — started out necessarily from the superficial phenomena of the process of circulation, which are presented in an independent form by the movements of merchants' capital. Therefore it grasped only the semblance of things. This^jwas partly due to the fact that merchants' capital is the first free mode of existence of capital in general. Qn_the^her hand, itjwas due to the overwhelming influence exerted by this capital during the first period of revolution of fejidaLpLroduction, the period of genesis of modern production. The real science of modern economy does not begin, until theoretical analysis passes from the process of circulation to the process of production. It is true, interest-bearing capital is likewise a very old form of capital. But we shall see later, why jnercantilism did not take its departure from it, but assumed a controversial attitude towards it.
PART V.
DIVISION OF PEOFIT INTO INTEEEST AND PEOFITS OE ENTEEPEISE.
THE INTEEEST-BEAEING' CAPITAL.
CHAPTEE XXI.
THE INTEREST-BEARING CAPITAL.
In our first discussion of the general, or average, rate of profit in Part II of this volume, we did not have this rate before us in its complete form, since the equalisation of profit appeared there only as an equalisation between the various industrial capitals invested in different spheres. This was further supplemented in the preceding Part, in which the participation of merchants' capital in this equalisation and the commercial profit were discussed. By this means the general rate of profit and the average profit presented themselves within more circumscribed limits than before. In the further process of our analysis it should be remembered, that any future reference to the general rate of profit or to the average profit means only this latter, completed, form of the average rate. Since this rate is now the same for the industrial and the mercantile capital, it is no longer necessary, so far as this average profit is concerned, to make any distinction between industrial and commercial profit. Wliether capital is invested industrially in the sphere of production, or commercially in the sphere of circulation, it yields the same average profit annually in proportion to its magnitude.
Money — which signifies here any independent expression of a certain amount of value, whether it exists actually as 398 Capitalist Production.
money or as commodities — may be converted into capital on the basis of capitalist production. By this conversion it is transformed from a given value to a self-expanding, increasing, value. It produces a profit, that is, it enables a capitalist to extract a certain amount of unpaid labor, surplus-products ani^ surplus-value, from the laborers and to appropriate it to himself. In this way it acquires, aside from its usevalue as money, an additionel use-value, namely that of serving as capital. Its use-value consists then precisely in the profit, which it produces when converted into capital. In this capacity of potential capital, of a means for the production of profit, it becomes a commodity, but a commodity of a peculiar kind. Or, what amounts to the same, capital a§ capital becomes a commodity.^^ Take it that the average rate of profit is 20%. In that case a machine, valued at 100 p.st., employed as capital under the prevailing average conditions and with an average exertion of intelligence and adequate activity, would yield a profit of 20 p.st. In other words, a man having 100 p.st. at his disposal, holds in his hand a power by which 100 p.st. may be turned into 120 p.st., or by which a profit of 20% may be produced. He holds in his hand a potential capital of 100 p.st. If this man relinquishes these 100 p.st. for one year to another man, who uses this sum actually as capital, he gives him the power to produce a profit of 20%, a surplus-value, which costs this other nothing, for which he pays no equivalent. If this man should pay, say 5 p.st. at the close of the year to the owner of the 100 p.st., out of the produced profit, he would be paying for the use-value of the 100 p.st., the usevalue of its function as capital, the function of producing 20 p.st. of profit. That part of the profit, which he pays to the owner, is called interest. It is merely another name, a special term, for a certain part of the profit, which capital in process of its function has to give up to its owner, instead of keeping it in its owti pockets.
*° At this place, some passages should be quoted, in which the economists conceive the matter in this way. " You (the Bank of England) are very large dealers in the commoditv capital? " is a Question presented to a director of this bank on the witness stana. Cbee Report on Sank Acvs, H. of C, 1857.)
It is evident, that the possession of 100 p.st. gives to their owner the power to absorb the interest, a certain portion of the profit produced by his capital. If he did not give the 100 p.st. to the other man, then this other could not produce any profit, and could not act in the capacity of capitalist at all with reference to these 100 p.st.^^ To speak in such a case of natural justice, as Gilbart is doing (see note), is nonsense. The justice of the transactions between the agents of production rests on the fact that these transactions arise as natural consequences from the conditions of production. The juristic forms, in which these economic transactions appear as activities of the will of the parties concerned, as expressions of their common will and as contracts which may be enforced by law against some individual party, cannot determine their content, since they are only forms. They merely express this content. This content is just, whenever it corresponds, and is adequate, to the mode of production. It is unjust, whenever it contradicts that mode. Slavery on the basis of capitalist production is unjust; likewise fraud in the quality of commodities.
The 100 p.st. produce the profit of 20 p.st. by functioning as capital, whether it be industrial or commercial. But the indispensable condition of this function as capital is that this money is used as capital, that this money is invested in the purchase of means of production (in the case of industrial capital), or of commodities (in the case of merchants' capital). But in order to be expended, it must be there. If A, the owner of the 100 p.st., were to spend them for his private expenses, or to keep them as a hoard, they could not be invested by B, in his capacity as a capitalist, as capital. B does riot invest his own capital, but that of A. But he cannot expend the capital of A without the consent of A, Therefore it is really A, who first expends these 100 p.st. as capital, although his whole function as a capitalist is limited to this expenditure of 100 p.st. as capital. So far ^^ " That a man, who borrows money with the intention of making a profit on it, should give a portion of the profit to the lender, is a self-understood principle of natural justice." (Gilbart, The History and Principles of Banking, London, 1834, 400 Capitalist Production.
as these 100 p.st. are concerned, B acts in the capacity of a capitalist only because A lends him this money and thus expends it as capital.
Let us first consider the peculiar circulation of interestbearing capital. Then we shall analyse in the second place the peculiar manner, in which it is sold as a cotnmodity, being merely lent instead of relinquished for good.
The point of departure is the money, which A advances to B. This may be done with or without security. However, the first named form is the more ancient, with the exception of advances on commodities or on certificates of indebtedness, such as bills of exchange, bonds, etc. These special forms do not concern us here. We are dealing here wdth interest-bearing capital in its ordinary form.
In the hand of B, the money is actually converted into capital, passes through the process M — C — M', and returns as M' to A, as M + increment of M, where the increment of M represents the interest. For the sake of simplicity we leave out of consideration the case, in which capital stays in the hands of B for a long term and interest is paid at periodical intervals.
The movement, then, is M — M — C — M' — M'. What appears duplicated here is 1) the expenditure of the money as capital, 2) its reflux as realised capital, as M', or as M -fincrement of M.