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 has 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 ex- 5/8 Capitalist Production.
port 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 commoditycapital 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 suj)ix)sed 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 ovei-produced) and overimported (and overtraded), that prices were inflated in all of them, and credit overdrawn. And the same collapse follow^s 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 differ- Money-Capital and Actual Capital. 579 ent 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 tlieir 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." {Be port of Committee on Bank Ads, 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 com 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 moneycapital during a crisis, and during periods of business depression in general. The same is true of fictitious capital, 580 Capitalist Production.
interest-bearing papers, so far as they circulate in the stock exchanges as monej-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.
CHAPTEK XXXI.
MONEY-CAPITAL AND ACTUAL CAPITAL. II.
(Continued.)
We have not yet come to the end of the question, to what extent the accumulation of capital in the form of loanable money-capital coincides wdth the actual accumulation, the expansion of the process of reproduction.
The conversion of money into loanable money-capital is a far simpler matter than the transformation of money into productive capital. But two things should be distinguished here.
1). The mere conversion of money into money-capital; 2. ) The conversion of capital or revenue into money, which is turned into loan capital.
It is only the last named point, which can imply a positive accumulation of loan capital connected with an actual accumulation of industrial capital.
Money-Capital and Actual Capital. 581 1. Conversion of Money into Loan Capital.
We have already seen, that an accumulation of loan capital to the point of oversaturation may take place, which is connected with productive accumulation only to the extent that it stands in the opposite proportion to it. This is the case in two phases of the industrial cycle, namely first during the time, when the industrial capital in both its forms of productive and commodity-capital is contracted, that is, at the beginning of the cycle after a crisis; and secondly at the time, when the improvement begins without, however, demanding as yet very much bank credit for commercial capital. In the first case the money-capital, which was formerly employed in production and commerce, appears as unemployed loan capital; in the second case it appears employed to an increasing degree, but at a very low rate of interest, because then the industrial and commercial capitalist prescribes the conditions for the money capitalist. The superabundance of loan capital expresses in the first case a stagnation of industrial capital, and in the second a relative independence of commercial credit from banking credit, based on the fluidity of the returns, a short term of credit, and a preponderance of operations with one's o^^ti capital. The speculators, who count on the credit capital of other people, have not yet appeared upon the field; the people, who work with their own capital, are still far removed from an approximation to operations based purely on credit. In the first named phase the superfluity of loan capital is the direct opposite of the expression of actual accumulation. In the second- phase it coincides with a renewed expansion of the process of reproduction, accompanies it, but is not its cause. The superabundance of loan capital is already decreasing, is only a relative one compared to the demand. In both cases the expansion of the actual process of accumulation is promoted by it, since the low interest, which coincides in the first case with low prices, in the second with slowly rising prices, increases that portion of the profit, which is transformed into profits of enterprise. This takes place still more when in- 582 Capitalist Production.
terest rises to its average level during the height of the period of prosperity, when it has grown, but not in the same proportion as profit.
We have seen, on the other hand, that an accumulation of loan capital may take place without any actual accumulation, by mere technical means, such as an expansion and concentration of the banking system, a saving in the currency reserve, or in the reserve fund of private means of payment, which are then always converted into loan capital for a short time. Although this loan capital, which is also called floating capital for this reason, retains the form of loan capital only for short periods (and discount is supposed to be given for short periods only), it flows continually back and forth. If one withdraws it, another brings it along. The mass of loanable money-capital grows thus quite independently of the actual accumulation (we speak here quite generally of shortlived loans on bills and deposits, not of loans for a number of years).
B. C. 1857. Question 501. " Wliat do you mean by floating capital? " — Answer of Mr. Weguelin, Governor of the Bank of England: " It is capital available for money loans on short time."...(502) I^otes of the Bank of England...of the provincial banks, and the amount of money existing in the country. — Question: ^' It does not seem, from the testimony submitted to this Committee, provided you mean by floating capital the active circulation " [of the notes of the Bank of England] " as though there were any very considerable fluctuation in this active circulation? " [But there is a gi^eat difl'erence, whether this active circulation is loaned by the money lender or advanced by the reproductive capitalist himself.] Weguelin's answer: "I include in the floating capital the reserves of the bankers, in which there is considerable fluctuation." — That is to say, there is considerable fluctuation in that portion of the deposits, which the bankers have not loaned out again, but which figures as their reserve, and for the greater part also as the reserve of the Bank of England, where they are deposited. Finally the same gentleman says that floating cap- Money-Capital and Actual Capital. 583 ital is bullion, that is, bullion and hard cash (503). — It is truly wonderful, what a different meaning and different form all economic categories receive in this credit jargon of the money market. Floating capital is there the term for circulating capital, which is, of course, quite another thing, money is capital, bullion is capital, bank notes are currency, capital is a commodity, debts are commodities, and fixed capital is money invested in papers that are salable with difficulty!
'' The stock banks of London...have increased their deposits from 8,850,774: pounds sterling in 1847 to 43,-100,724 pounds sterling, in 1857...The evidences and testimonies placed before tliis Committee permit the conclusion, that a great part of this immense amount is derived from sources, which were formerly not available for this purpose; and that the custom of opening an account with the banker and depositing money with him has extended to numerous classes, that formerly did not invest their capital (!) in this manner. Mr. Rodwell, President of the Association of Provincial Private Banks " [distinguished from stock banks] " and delegated by it to testify before this Committee, states that in the region of Ipswich this custom has quadrupled of late among the capitalist farmers and small business men of that district; that nearly all faraiers, even those paying only 50 pounds sterling of rent annually, now have deposits in banks. The mass of these deposits, of course^ finds its way to employment in business, and gravitates particularly toward London, the center of commercial activity, where they are first employed in discoimting bills and in making other loans to the customers of London bankers. But a large portion of thenij which the bankers themselves cannot use immediately, pass into the hands of bill brokers, who give to the bankers commercial bills in their stead, which they have already discounted once before for people in London and in the provinces." (B. C. 1858, p. 8.)
In giving loans to the bill broker on bills which this broker has discounted once, the banker practically discounts them again; but in reality very many of these bills have already 584 Capitalist Production.
been rediscounted by the bill broker, and he rediscounts new bills with the very same money, with which the banker rediscounts the bills of the bill broker. What this leads to is shown by the following passage; "' Extensive fictitious credits have been created by accommodation bills and blank credits, and this was very much facilitated by the procedure of the provincial stock banks, that discounted such bills and then had them rediscounted by bill brokers in the London market, and at that solely on the strength of the bank's credit, without regard to the further quality of the bills." (L. c.)
Concerning this rediscounting and the help which these purely technical increase of loanable capital lends to credit swindlers, the following extract from the "Economist " is instructive: " During many years capital " [namely loanable money-capital] " accumulated in some districts of the country more rapidly than it could be employed, while in others the means of its investment grew faster than the capital itself. While the bankers in the agricultural districts thus found no opportunity to invest their deposits profitably and safely in their own region, those in the industrial districts and the commercial cities had more demand for capital than they could supply. The effect of these different conditions in the various districts has led in recent years to the rise and startlingly rapid extension of a new class of firms engaged in the distribution of capital, who, although generally called bill brokers, are in reality bankers on the very largest scale.
The business of these firms is to assume, for definitely agreed periods and at definitely fixed interest, the surplus-capital of the banks in districts in which it could not be employed, just like the temporarily idle funds of stock companies and great commercial firms, and to loan this money at a higher rate of interest to the banks in districts where capital is more in demand; as a rule by rediscounting the bills of their customers...In this way Lombard Street became the great center, in which the transfer of unemployed capital takes place from one part of the country, where it cannot be usefully employed, to another where it is in demand; and this applies to the different parts of the country as well as to Money-Capital and Actual Capital. 585 similarly situated individuals. Originally these transactions were almost exclusively limited to borrowing and lending on collateral acceptable to banks. But in proportion as the capital of the country increased rapidly and was more and more economised by the erection of banks, the funds at the disposal of discounting firms became so large that they undertook to make advances, first on dock warrants (storage bills on commodities in docks) and then also on bills of lading representing products that had not even arrived, although sometimes, if not regularly, bills of exchange had already been drawn against them at the produce brokers. This practice soon changed the entire character of the English business. The facilities thus offered by Lombard Street gave to the produce brokers in Mincing Lane a greatly enforced position; these gave in turn the entire advantage to the importing merchants; these last took so much advantage of it that, wdiereas 25 years previous a taking of credit on his bills of lading or even his dock warrants would have ruined the credit of a merchant, this practice became so general, that it may be considered as the rule, and no longer, as 25 years ago, as a rare exception. Yea, this system has been extended so far, that large sums have been taken up in Lombard Street on bills of exchange drawn against the still groiving crops of distant colonies. The result of such accommodations was, that the import merchants expanded their foreign transactions and tied up their floating capital, with which they had hitherto carried on their business, in the most execrable of investments, colonial estates, over which they could exert little or no control. Thus we see the direct concatenation of credits.
The capital of the country, which is collected in our agricultural districts, is laid down in small amounts as deposits in country banks, and centralised for investment in Lombard Street. But it has been utilised, first, for the extension of business in our mining and industrial districts by rediscounting bills on banks there; furthermore also for granting greater accommodations to importers of foreign products by loans on warrants and bills of lading, whereby the ' legitimate ' merchants' capital of firms in foreign and colonial business was 586 Capitalist Production.
released and made available for the most abominable kinds of investment in transmarine estates." {Economist, 1847, This is the '' beautiful concatenation of credits." The rural depositor imagines to deposit only with his banker, and imagines furthermore that, when his banker lends to others, it is done to private persons whom he knows. He has not the slightest suspicion, that this banker places his deposit at the disposal of some London bill broker, over whose operations neither of them have the slightest control.
How great public enterprises, such as railroads, may momentarily increase the loan capital, owing to the circumstance that the deposited amounts always remain at the disposal of the bankers for a certain time until they are really used, we have already seen.
By the way, the mass of the loan capital is quite different from the quantity of the currency. By the quantity of the currency we mean here the sum of all bank notes and all hard cash existing and circulating in a country, including the bullion of precious metals. One portion of this quantity forms the reserves of the banks, an ever changing magnitude.
" On November 12, 1857 " [the date of the suspension of the Bank Acts of 1844], "the total reserve of the Bank of England, including all branch banks, amounted to only 580,-751 pounds sterling; the sum of the deposits amounted at the same time to 22,500,000 pounds sterling, of which nearly 6,500,000 pounds sterling belonged to London bankers."
The variations of the rate of interest (aside from those occurring in long periods, or from the difference of the rate of interest in different countries; the first named are conditioned in variations of the general rate of profit, the last named on differences in the rates of profit and on the development of credit) depend upon the supply of loan capital (all other circumstances, state of confidence, etc., being equal), that is, of the capital loaned in the form of money, hard cash, Money-Capital and Actual Capital. 587 and notes; this is distinguished from industrial capital, which in the shape of commodities is loaned by means of commercial credit among the agents of reproduction themselves.
However, the mass of this loanable capital is different from and independent of the mass of the circulating money.
If 20 pounds sterling were loaned five times per day, a money-capital of 100 pounds sterling would be loaned, and this would imply at the same time that these 20 pounds sterling would besides have to serve at least four times as means of purchase or payment; for if this were to take place without the intervention of purchase and payment, so that this sum would not represent at least four times the converted form of capital (commodities including labor-power), it would not be a capital of 100 pounds sterling, but only five claims of 20 pounds sterling each.
In countries with a developed credit we may assume, that all money-capital available for loaning exists in the form of deposits with banks and money lenders. This holds good at least for the business in a general way. Moreover, in times of good business, before speculation proper breaks loose, when credit is easy and confidence growing, the greater portion of the functions of circulation is settled by a simple transfer of credit, without the intervention of metal or paper money.
The mere possibility of large amounts of deposits with a relatively small quantity of currency, depends solely: 1) Upon the number of purchases and sales, which the same piece of money performs; 2) The number of its return wanderings, in which it goes back to the banks as a deposit, so that its repeated function as a means of payment and purchase is promoted through its renewed conversion into a deposit. For instance, a small dealer deposits weekly with his banker 100 pounds sterling in money; the banker pays with this a portion of a deposit to a manufacturer; this man in his turn pays it over to some laborers; these pay the small dealer with it, who deposits it again in the bank. The 100 pounds sterling deposited by this dealer have, therefore, served, first, in paying to a manufacturer a portion of his deposit; secondly, in paying some 588 Capitalist Production.
laborers; thirdly, in paying the dealer himself; fourthly, in depositing another portion of the money-capital of the same small dealer; for at the end of twenty weeks, provided that he does not have to draw any of his money out of the bank, he would have deposited 2,000 pounds sterling in the bank by means of the same 100 pounds sterling.
To what extent this money-capital is unemployed, is shown only in the inward and outward movements of the banking reserves. Therefore Mr. Weguelin, Governor of the Bank of England in 1857, concludes that the gold of the Bank of England is the " only " reserve capital. — ■ 1258. " In my opinion the rate of discount is actually determined by the amount of unemployed capital existing in the country. The amount of unemployed capital is represented by the reserve of the Bank of England, which is in fact a gold reserve. Hence, when gold is exported, the amount of unemployed capital in the country is diminished and the value of the remaining parts is thereby increased." — 13'64. " The gold reser\'e of the Bank of England is in fact the central reserve, or the cash fund, on the basis of which the entire business of the country is carried on...It is this fund, or this reservoir, upon which the effect of the foreign quotations on 'Change always fall." (Eeport on Bank Acts, 1857.)
For the accumulation of the actual, this is, productive and commodity-capital, the statistics of exports and imports furnish a measure. These show always that during the decennial cycles of the period of development of British industry from 1815 to 1870 the maximum of the last time of prosperity always reappears before the crisis, whereupon it rises to a new and far higher maximum.
The actual or declared value of the exported products of Great Britain and Ireland in the prosperous year 1824 was 40,396,300 pounds sterling. The amount of the exports falls thereupon with the crisis of 1825 below this sum and fluctuates between 35 and 39 millions annually. With the return I Money-Capital and Actual Capital. 589 of prosperity in 1834 the amount of exports rises above the former maximum to 41,649,191 pounds sterling, and reaches in 1836 the new maximum of 53,368,571 pounds sterling. In 1837 it falls again to 42 millions, so that the new minimum stands higher than the old maximum, and fluctuates thereupon between 50 and 53 millions. The return of prosperity lifts the amount of exports in 1844 to 58,500,000 pounds sterling, a rise far above the maximum of 1836. In 1845 it reaches 60,111,082 pounds sterling; then it falls to something over 57 millions in 1846, reaches in 1847 almost 59 millions, in 1848 about 53 millions, rises in 1849 to 63,-500,000, in 1853 to nearly 99 millions, in 1854 to 97 millions, in 1855 to 94,500,000, in 1856 almost 116 millions, and reaches a maximum of 122 millions in 1857. It falls in 1858 to 116 millions, rises already in 1859 to 130 millions, in 1860 to nearly 136 millions, in 1861 only 125 millions (the new minimum is here again higher than the former maximum), in 1863 to 146,500,000.
Of course, the same thing might be demonstrated in the case of imports, which show the extension of the market; but we are here concerned only in the scale of production. [Of course, this holds good of England only for the time of its actual industrial monopoly; but it applies quite generally to the whole complex of countries with modern great industries, so long as the world market is still expanding. — F. E.]
Conversion of Capital or Revenue into Money that is Transformed into Loan Capital.
We will consider the accumulation of money-capital here in so far as it is not an expression, either of a relaxation in the flow of credit, or of greater economy, whether it be an economy in the actually circulating medium or in the reserve capital of the agents engaged in reproduction.
Aside from these two cases, an accumulation of money-capital may arise through extraordinary imports of gold, such as those of 1852 and 1853 resulting from the output of the new Australian and Californian mines. This gold was dec^o Capitalist Production.
posited in the Bank of England. The depositors took notes instead, which they did not at once redeposit in banks. By this means the circulating medium was unusually increased. {Testimony of Weguelin, B. C. 1857, No. 1329.)
The Bank strove to utilise these deposits by lowering its discount to 2%. The mass of gold accumulated in the Bank rose during six months of 1853 to 22 or 23 millions.
The accumulation of all capitalists lending money naturally takes place always in the form of direct money, whereas we have seen that the actual accumulation of industrial capitalists is accomplished, as a rule, by an increase of the elements of reproductive capital itself. Hence the development of the credit system and the enormous concentration of the money-lending business into the hands of great banks must by itself alone accelerate the accumulation of loanable capital, as a form distinguished from actual accumulation. This rapid development of loan capital is, therefore, a result of actual accumulation, for it is a consequence of the development of the process of reproduction, and the profit that forms the source of accumulation for these money-capitalists is but a. deduction from the surplus-value, which the reproductive capitalists filch from production (and it is at the same time a portion of the interest on the savings of others). The loan capital accumulates at the expense of both the industrial and commercial capitalists. We have seen that in the unfavorable phases of the industrial cycle the rate of interest may rise so high, that it temporarily devours the whole profit in particularly handicapped lines of business. At the same time the prices of the public securities and other securities also fall. It is at such times that the money-capitalists buy up these depreciated papers in masses, which soon regain their former level in later phases or rise above it. Then