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 a 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 Money-Capital and Actual Capital. 5^5 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 yam, on the part of the merchant for the cotton goods, etc. In the first acts of this process the commodity, cotton, goes 566 Capitalist Prodncthn.
throiigli its different phases of production, and this transition is promoted by credit. But as soon as the cotton has received its ultimate fonn as a commodity, the same commodity-capital passes on through the hands of different marchants, 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 forai 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 sigTiify (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 Money-Capital and Actual Capital. 567 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 tlie 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 imemployed and investment seeking capital, but rather the mass of capital tied up in his process of reproduction, that is greatest just Avhen the lack of credit is most felt (and the rate of discount highest in banking credit). The hitherto 568 Capitalist Production.
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. Xothing 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 production in various branches, and 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.
T^wever, in addition to this commercial credit we have the Money-Capital and Actual Capital. 569 money credit strictly so-called. The loans of the industrials and merchants among one another go hand in hand with loans made to them by the banker and money lender in the fonn 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 savings 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 570 Capitalist Production.
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 bj one-third after the crisis of 1847), prices of commodities at their lowest level, the spirit of enterprise paralysed, the rate of interest is low, and it indicates then merelj an increase of loanable capital precisely because the industrial capital has been laid lame. It is quite obvious, that less currency is required, Avhen the prices of commodities have fallen, the numbor of transactions decreased, and tlie capital invested in wages contracted; that, on the other hand, no 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 ni;mber 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 superabundance of money " prevailed after the crisis of 1847 (Commercial Distress, 1847-48, Evidence No. 1664.) The rate of interest was very low en 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 Eoyal 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 Money-Capital and Actual Capital. 571 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 he 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, — " iSTearly 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=^ 572 Capitalist Production.
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.
Money-Capital and Actual Capital. 573 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 veiy 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 otlier 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 tlian 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, 574 Capitalist Production. -M and prevents the level of the rate of interest from rising, ^i! Moreover, those knights now appear in large numbers, who work without any reserve capital, or even without any capital at all and operate Avholly 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 w^ith 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, ^°*^ *"** [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 Money-Capital and Actual Capital. 575 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 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.]
576 Capitalist Production.
the extension of these far beyond the demands of society which is at the bottom of tlie whole crisis. At the same time an enormous quantity of these bills represents mere swindles, and this becomes ajDparent 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 caj^acity 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 Money-Capital and Actual Capital. 577 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.