demand upon the discount brokers from people who had bills of exchange to discount; the brokers began to inspect the bills of exchange more closely. The accommodation hitherto granted was seriously restricted, and weak houses failed. Those who relied wholly upon credit went to the wall. This increased the already marked unrest; bankers and others found, that they could not be as certain as formerly of transforming their bills of exchange and other securities into bank notes, in order to fulfill their obligations; they restricted the accommodation still more and frequently refused it altogether; they locked their bank notes up in many instances, in order to meet their own future obligations; tliey preferred not to let go of them at all. The unrest and confusion increased daily, and without the letter of Lord John Russel the general bankruptcy was imminent." (P. 74-75.) The letter of Russel suspended the Bank Acts. — The previously mentioned Charles Turner testifies: " Some firms had large means, but they were not available. Their entire capital was tied up in real estate in Mauritius, or in indigo or sugar factories. Once that they had contracted obligations for 5 or 600,000 pounds sterling, they had no means free for the payment of bills of exchange, and finally it was seen, that they could pay their bills of exchange only by means of credit, and so far as that went."
(P. 81.) — The aforesaid S. Gurney said: "At present (1848) there prevails a contraction of business and a great plethora of money. — No. 1763. I do not believe that it was a lack of capital, which drove the rate of interest so high; it was the alarm, the difficulty of obtaining bank notes."
In 1847 England paid at least nine million pounds sterling in gold to foreign countries for imported means of subsistence. Of this amount seven and a half millions came from the bank of England and one and a half million from other sources. (P. 245.) — Morris, the Governor of the Bank of England: " On October 23, 1847, the public funds and the canal and railroad stocks were already depreciated by 114,752,225 million pounds sterling." (P. 312.) The same Morris, when questioned by Lord G. Bentinck: " Is it not known to you that all capital invested in papers and products of all 492 Capitalist Production.
kinds was depreciated in the same way, that raw materials, cotton, silk, wool were sent to the continent at the same cut prices, and that sugar, coffee and tea were auctioned off in forced sales? " — " It was inevitable that the nation should make considerable sacrifices, in order to counteract the drain of gold caused by the enormous imports of means of subsistence." — " Don't you believe that it would have been better to touch the eight million pounds sterling stored in the vaults of the bank, instead of trying to recover the gold with such sacrifices? " — " I do not believe that." — Now to the commentaries on this heroism. Disraeli questions Mr. W. Cotton, the Director and former Giovernor of the Bank of England. " What was the dividend received by the stockholders of the bank in 1844? "— " It was 7% for that year."—" And the dividend for 1847?"— "Nine per cent."— " Does the bank pay the income tax for its stockholders in the current year?"— "Yes, Sir."— " Did it do so in 1844? "— " No, Sir." «^— " Then this Bank Act (of 1844) worked very much to the advantage of the stockholders...The result is, then, that since the introduction of the new Act the dividend of the stockholders has risen from 7% to 9%, and that the income tax is now also paid by the bank, while formerly it had to be paid by the stockholders? " — " That is quite right."
Concerning the formation of hoards in banks during the crisis of 1847, Mr. Pease, a provincial banker, has the following to say: 4605. " As the bank was compelled to raise its rate of interest more and more, the apprehension grew universally; the rural banks increased the quantities of money in their possession and likewise the amounts of their notes; and many of us, who would ordinarily carry only a few hundred pounds in gold or bank notes, stored up at once thousands in cash boxes and desks, since there was great uncertainty concerning the discount and the possibility of circulat- ^ In other words, formerly the dividend was first determined and then the income tax deducted on payment of the dividend to the individual stockholder; but after 1844 the income tax was first paid out of the total profit of the bank, and then the dividend paid " free of income tax." The same nominal percentages are therefore higher in the latter case by the amount of the tax. — F. EL Accumulation of Money-Capital. 493 ing bills of exchange on the market; and consequently a universal accumulation of hoards ensued." — A member of the Committee remarks: 4691. "Accordingly, whatever may have been the cause during the last 12 years, the result was certainly more in favor of the Jew and the money broker than in favor of the productive class in general."
To what extent a money broker exploits times of crisis, is revealed by Tooke: " In the metal ware business of Warwickshire and Staffordshire very many orders were rejected in 1847, because the rate of interest, which the manufacturer had to pay for discounting his bills of exchange, would have more than swallowed his entire profit." {No. 5451.)
Let us now take another report of Parliament, the Report of the Select Committee on Bank Acts, communicated from the Commons to the Lords, 1857 (quoted further along as B. C. 1857). In it Mr. Norman, Director of the Bank of England and a leading light among the champions of the Currency Principle, is questioned as follows: 3635. " You said you were of the opinion, that the rate of interest depends, not on the mass of bank notes, but on the demand and supply of capital. Would you state, what you comprise under the head of capital, outside of bank notes and hard cash? " — " I believe the general definition of capital is: Commodities or services used in production. — 3636. " Do you include all commodities in the term capital, when you speak of the rate of interest? " — " All commodities used in production." — 3637. " You include all that in the term capital, when you speak of tlie rate of interest?" — "Yes, Sir. Let us assume that a cotton manufacturer needs cotton for his factory, then he will probably secure it by obtaining an advance from his banker, and with the money so obtained he will go to Liverpool and buy. What he really needs is cotton; he does not need the bank notes or the money except as means of getting the cotton. Or he may need the means to pay his laborers; then he again borrows notes and pays the wages of his laborers with them; and the laborers on their part need food and shelter, and the money is a means of paying for them." — 3638. " But interest is paid for this 494 Capitalist Production.
money? " — " Yes, Sir, in the first instance; but take another case. Take it that he buys the cotton on credit, without getting any advance from the bank; tlien the difference between the price for cash payment and the price on credit at the time when payment is due is the measure of the interest. There would be interest even if no money existed."
This self-complacent rubbish is quite worthy of this pillar of the Currency Principle. First the brilliant discovery, that bank notes or gold are means of buying something, and that they are not borrowed for their o^^^l sake. And this is supposed to explain, that the rate of interest is regulated, by what? By the demand and supply of commodities, that were so far known to regulate only the market prices of commodities. But very different rates of interest are compatible with the same market prices of commodities. — But now take another look at this slyness. He hears the correct remark: " But interest is paid for this money? " and this, of course, implies the question: " What has the interest, which the banker receives, who does not deal in commodities at all, to do with these commodities? And do not manufacturers receive money at the same rate of interest, although they invest it in widely different markets, that is, in markets, in which widely different conditions of demand and supply prevail, so lar as the commodities used in production are concerned? " And all that this solemn genius has to say in reply to these questions, is tliat the manufacturer, who buys cotton on credit, pays interest, the measure of which is '' The difference between the price for cash payment and the price on credit at the time when payment is due." Vice versa.
The prevailing rate of interest, whose regulation the genius Xorman is asked to explain, is the measure of the difference between the cash price and the credit price to the time of due payment. First the cotton is to be sold to its cash price, and this is determined by the market price, which is itself regulated by the condition of supply and demand. Say that the price is 1,000 pounds sterling. This concludes the transaction between the manufacturer and the cotton broker, so far as buying and selling is concerned. Now a second transac- Accmniilation of Money-Capital. 495 tion is added. This takes place between the lender and the borrower. The value of 1,000 pounds sterling is advanced to the manufacturer in the shape of cotton, and he has to repay it in money, say, in three months. And the interest for 1,000 pounds sterling, determined by the market rate of interest, forms the addition over and above the cash price. The price of cotton is determined by supply and demand. But the price of the advance of the value of cotton, of 1,000 pounds sterling for three months, is determined by the rate of interest. And this fact, that the cotton itself is thus transformed into money-capital, proves to Mr. Norman that interest would exist, even if no money existed. If there were no money at all, there would certainly be no general rate of interest.
There is, in the first place, the vulgar conception of capital as " commodities used in production." So far as these commodities serve as capital, their value as capital compared to their value as commodities is expressed in the profit, which is made out of their productive or mercantile employment. And the rate of profit has under all circumstances something to do with the market price of the bought commodities and their supply and demand, although it is determined besides by circumstances of quite a different kind. And there is no doubt that the rate of interest is generally limited by the rate of profit. But Mr. l^orman is precisely asked to tell us how this limit is determined. It is determined by the supply and demand of money-capital as distinguished from the other forms of capital. Now one might ask furthermore: How are the demand and supply of money-capital determined? It is doubtless true, that a tacit connection exists between the supply of commodity-capital and the supply of money-capital, and also that the demand of the industrial capitalist for money-capital is determined by the actual conditions of real production. Instead of giving us information on this point, Norman offers us the sage opinion, that the demand for money-capital is not identical with the demand for money as such, and this wisdom is advanced for no other reason than that behind him. Above Overstone and other Currency proph- 496 Capitalist Prodiiclion.
ets always stands tlie bad conscience, which makes them aware that they are trying to make capital of the mere medium of circulation by the artificial method of legislative intereference and to raise the rate of interest.
Now to Lord Overstone, alias Samuel Jones I^yd, who is asked to explain, why he takes 10% for his " money," because the " capital " in the country is so scarce.
3653. " The fluctuations in the rate of interest arise from one of two causes: From a change in the value of capital " [excellent! Value of capital, generally speaking, signifies precisely the rate of interest! A change in the rate of interest is thus made to arise from a change in the rate of interest. The phrase ' value of capital ' never signifies anything else theoretically, as we have shown in another place. Or, if Lord Overstone means the rate of profit by the phrase ' value of capital,' then this deep thinker comes back to the position that the rate of interest is regulated by the rate of profit!] " or from a change in the sum of money available in the country. All great fluctuations of the rate of interest, great either in duration or in the extent of the fluctuations, may be clearly traced to changes in the value of capital.
There can be no more striking illustration of this fact than the rise ®f the rate of interest in 1847 and again in the two last years (1855-56); the lesser fluctuations of the rate of interest, which arise from a change in the quantity of the available money, are small in duration and extension. They are frequent, and the more frequent they are, the more effectively they accomplish their purpose." This purpose is no other than that of making bankers like Overstone rich. Friend Samuel Gurney expresses himself very naively on this point before the Committee of Lords, C. D. 1848. " Are you of the opinion, that the great fluctuations of the rate of interest, which took place last year, were advantageous to the bankers and money brokers, or not? " — "I believe they were advantageous to the money brokers. All fluctuations of business are advantageous to the knowing men." — 1325. " Should not the banker ultimately lose through the high rate of interest owing to the paujDerisation of his best customers? " — " No, Accumulation of Money-Capital. 497 Sir, I do not think that this result prevails to any appreciable degree." — There you can see what talk will do.
We shall recur to the question of the influence of the quantity of available money on the rate of interest later on.
But we must note right here that Overstone once again takes one thing for another in this case. The demand for moneycapital in 1847 (there was no worry on account of scarcity of money, or the " quantity of available money," as he called it, before October) increased for various reasons, such as the dearness of corn, rising cotton prices, unsaleable sugars through overproduction, railroad speculation and slumps, overcrowding of foreign markets with cotton goods, the above described forced export to and import from India for the purpose of mere swindling with bills of exchange. All these things, the overproduction in industries as well as the underproduction in agriculture, in other words, widely different causes, led to an increased demand for money-capital in the shape of credit and money. The increased demand for money-capital had its causes in tlie course of the productive process itself. But whatever may have been the causes, it was the demand for mone^/'capital which brought about the rise in the rate of interest, in the value of money-capital. If Overstone means to say that the value of money-capital rose because it rose, he is simply repeating himself. But if he means by " value of capital " a rise in the rate of profit which caused a rise in the rate of interest, we shall see immediately that this was not the case here. The demand for money-capital, and consequently the " value of capital," may rise even though the profit may decrease; as soon as the relative supply of moneycapital decreases, its " value " increases. Overstone wants to establish the fact that the crisis of 1847, and the high rate of interest going with it, had nothing to do with the " quantity of available money," that is, with the regulations of the Bank Acts of 1844 which he had inspired; but as a matter of fact this crisis had something to do with these things, so far as the fear of exhausting the bank reserve — a creation of Overstone — added a money panic to the crisis of 1847-48, But this is not the main point here. There was a dearth 2F 49^ Capitalist Production.
of money-capital, caused by the excessive volume of operations compared to the available means and brought to an eruption by disturbances in the process of production due to a crop failure, overcapitalisation of railroads, over-production, particularly of cotton goods, swindling practices in the Indian and Chinese business, speculation, superfluous imports of sugar, etc. What the people, who had bought corn at 120 shillings per quarter, lacked when it fell to 60 shillings, were the 60 shillings which they had paid too much and the corresponding credit for that amount in the Lombard advance on corn. It was by no means the lack of bank notes that prevented them from transforming their corn into money at its old price of 120 shillings. The same things applied to those who had bought sugar to such an excess that it became almost unsaleable. It applies likewise to the gentlemen who had tied up their floating capital in railroads and relied on credit to make up for it in their " legitimate " business. To Overstone all this is expressed in " a moral sense of the enhanced value of his money." But this enhanced value of moneycapital had its direct counterpart on the other side in the shape of the depreciated money-value of the real capital (commoditycapital and productive capital). The value of capital in one form rose, because the value of capital in the other forms fell. Overstone, however, seeks to identify these two kinds of value of different sorts of capital in one sole value of capital in general, and he does it by opposing both of them to a scarcity of the medium of circulation, of available money.
But the same amount of money-capital may be loaned with very different quantities of medium of circulation.
Take, for instance, his example of the year 1847. The official bank rate of interest stood at 3 to 3^% in January; 4 to 4|% in February. In March it was generally 4%. April (panic) 4 to 7|%. May 5 to ^%. June on the whole 5%. July 5%. August 5 to ~H%. September 5% with trifling variations of 5^, 5|, 6%. October 5, H, 1%. IsTovember 7 to 10%. December 7 to 5%.— In this case the interest rose, because the profits decreased and the money-values of commodities fell enormously. If Accumulation of Money-Capital. 499 Overstone sajs here that the rate of interest rose in 1847, because the value of capital rose, he cannot mean anything else by " value of capital " but the value of money-capital, and this is precisely the rate of interest and nothing else. But later the cloven hoof appears and the value of capital is identified with the rate of profit.
.As for the high rate of interest in 1856, Overstone was indeed ignorant of the fact that this was partially a symptom of the supremacy of credit jobbers, who paid interest, not from their profit, but with the capital of others; he maintained even a few months before the crisis of 1857 that " business is quite sound."
lie testifies furthermore: 3722. " The conception that the business profit is destroyed by raising the rate of interest is highly erroneous. In the first place, a rise in the rate of interest is rarely of long duration; in the second place, if it is of long duration and considerable, it is in the nature of things a rise in the value of capital, and why does the value of capital rise? Because the rate of profit has risen." — Here, then, we learn at last, what the meaning of " value of capital " is. We remark, by the way, that the rate of profit may hold itself at a high level for a long time, and yet the industrial capitalist's profit may fall and the rate of interest rise to a point where it swallows the greater portion of the profit.
3724. " The raise of the rate of interest was a result of the enormous expansion of business in our country, and of the great rise in the rate of profit; and if complaint is made, that the raised rate of interest destroys these two things, which were its own cause, it is a logical absurdity, which one does not know how to characterise." — This is just as logical as though he had said: The increased rate of profit was the result of the raise of prices by speculation, and if complaint is made, that the raise of prices destroys its own cause, namely speculation, it is a logical absurdity, etc. That anything can ultimately destroy its own cause, is a logical absurdity only for the usurer, who is in love with the high rate of interest. The greatness of the Romans was the cause of their conquests.
500 Capitalist' Production.
and their conquests destroyed their gLeatness. Wealth is the cause of luxury, and luxury has a destructive influence upon wealth. The wiseacre! The idiocy of the present bourgeois world cannot be characterised more markedly than by the respect, which the '' logic " of the millionaire, of this dunghill aristocrat, commanded in all England. By the way, even if high profits and an expansion of business may be the cause of a high rate of interest, a high rate of interest is for that reason by no means a cause of high profit. The' question is precisely, whether such a high rate of interest (as was seen actually during the crisis) did not continue, or even reach its climax, after the high rate of profit had long gone the way of the flesh.
3718. " As for a great increase of the rate of discount, it is a circumstance, which arises entirely from the increased value of capital, and the cause of this increased value of capital, I believe, may be discovered by every one wdth perfect clearness. I have already mentioned the fact, that during the 13 years, which this Bank Act was in force, the commerce of England grew from 45 to 120 million pounds. Consider all the events implied by this brief statement in figures, consider the enormous demand for capital, which such a gigantic increase of commerce carries with it, and consider at the same time, the natural source of this great demand, namely the annual savings of the country, have been consumed during the last three or four years by unprofitable expenditures for purposes of war. I confess, I am surprised, that the rate of interest is not much higher; or in other words, I am surprised, that the shortage of capital in consequence of these gigantic operations is not much more stringent, than you have found it to be."
What a wonderful mixture of words on the part of our logician of usury! Here he is again with his increased value of capital! He seems to imagine, that on one side this enormous expansion of the process of reproduction took place, an accumulation of real capital, and that on the other side a " capital " existed, for which an " enormous demand " arose, m order to accomplish this gigantic increase of commerce!
Was not this enormous mcrease of production itself this increase of capital, and if it created a demand, did it not also create the supply, including an increased supply of moneycapital? If the rate of interest rose so high, it did so merely because the demand for money-capital increased still more rapidly than its supply, which means, in other words, that the expansion of industrial production carried with it a greater volume of its transactions on a credit basis. That is to say, the actual industrial expansion caused an increased demand for " accommodation," and this last demand is evidently what our banker means by the " enormous demand for capital." It was surely not the expansion of this mere demand for capital, which raised the export business from 45 to 120 million pounds sterling. And again, what does Overstone mean when he says, that the annual savings of the country swallowed by the Crimean War form the natural source of the supply for this great demand? In the first place, how did England get its accumulations from 1792 to 1815, which was a far greater war than the little Crimean War? In the second place, if the natural source dries up, from what source did capital flow then? It is well known that England did not ask for any loans from foreign countries. But if there is an artificial source aside from the natural one, it would be a very peculiar method for a nation to utilise the natural source in war and the artificial one in business. But if only the old money-capital was available, could it double its effectiveness through a high rate of interest? Mr. Overstone thinks evidently that the annual savings of the country (which were sup* posed to have been consumed in this case) are converted onl;y into money-capital. But if no real accumulation, that is, n<5, real expansion of production and augmentation of the meann of production, took place, what good would the accumulation of debtor's claims in money on this production do?