Precious Metals and Rates of Exchange. 685 fore they have been paid, or by the ordinary course of commerce — England can either consume them or reinvest them as capitaL Xeither the one nor the other thing touches the rates of exchange, and this is what Wilson overlooks. Whether a domestic or a foreign product forms a part of the revenue — and this last case requires merely an exchange of domestic for foreign products — the consumption of this revenue, be it productive or unproductive, alters nothing in the rates of exchange, even though it may alter the scale of production. The following remarks should be judged by the foregoing explanation: 1934. Wood asks ISTewmarch, how the shipment of war supplies to the Crimea would affect the rates of exchange with Turkey. Kewmarch replies: " I do not see, that the mere shipment of war supplies would necessarily affect the rates of exchange, but the shipment of precious metals would surely affect these rates." In this case he distinguishes capital in the form of money from capital in other forms. But now Wilson asks: 1935. "If you promote an export on a large scale of some article for which no corresponding import takes place, you do not pay the foreign debts, which you have contracted by your imports, and for this reason you must affect the rates of exchange by these transactions, since the foreign debts are not paid, because your export has no corresponding import. — This is true of countries in general." [Mr. Wilson forgets, that there are very considerable imports into England, for which no corresponding exports have ever taken place, except in the form of " good government " or of formerly exported capital for investment; at any rate imports which do not pass into the regular commercial movement. But these imports are again exchanged, for instance, for American products, and the fact that American goods are exported without any corresponding imports does not alter the fact that the value of these imports may be consumed without any equivalent return abroad; they have been received without being balanced by any corresponding exports, and may also be used up without entering into the balance of trade. On the other hand, if 686 Capitalist Production.
these imports have already been paid by you, for instance, by credit given to foreign countries, then no debt is contracted through this, and the question has nothing to do with the international balance; it resolves itself into productive and unproductive expenditures, no matter whether the products so used are domestic or foi-eign.]
This lecture of Wilson's amounts to saying that every export without a corresponding import is at the same time an import without a corresponding export, because foreign, hence imported, commodities enter into the production of the exported article. The assumption is that every export of this kind is based on some unpaid import, or creates it, resulting in a debt to a foreign country. This is wrong, even aside from the two following circumstances. 1) England receives imports free of charge, for which it pays no equivalent, such as a portion of its Indian imports. It may exchange these for American imports, and may export the latter without any imports to counterbalance them; but at any rate, so far as this value is concerned, it has only exported something that did not cost it anything. 2) England may have paid for imports, for instance American imports, which form additional capital; if it consumes these unproductively, for instance, using them as w^ar materials, this does not constitute any debt towards America and does not affect the rates of exchange with America. Newmarch contradicts himself in numbers 1934 and 1935, and Wood calls his attention to this, in number 1938: "If no portion of the commodities employed in the manufacture of articles, which we export without receiving any returns [war materials], comes from the country into which these articles are sent, how does that touch the rate of exchange w^ith that country? Suppose that commerce with Turkey is in the ordinary condition of equilibrium; how is the rate of exchange between us and Turkey affected by the export of w^ar materials to the Crimea? " — Here Newmarch loses his equanimity; he forgets that he has answered the same simple question correctly in No. 1934, and says: "We have, it seems to me, exhausted the practical question, and we are Precious Metals and Rates of Exchange. 687 now getting into a very high region of metaphysical discussion."
[Wilson has still another version of his claim, that the rate of exchange is affected by every transfer of capital from one country to another, no matter whether this takes place in the form of precious metals or of commodities. Wilson knows, of course, that the rate of exchange is affected by the rate of interest, particularly by the relation of the rates of interest current in any two countries whose rates of exchange are under discussion. If he can now demonstrate that any surplus of capital, and in the first place commodities of all kinds, including precious metals, contribute their share to influencing the rate of interest, then he makes a step nearer to his goal; a transfer of any considerable portion of this capital to some other country must then change the rate of interest in both countries, in opposite directions, and this must alter in a secondary way the rate of exchange between both countries. — He says, then, in the " Economist/' 1847, page 475, which he edited at that time: 1) "It is evident, that such a surplus of capital, indicated by large supplies of all kinds, including precious metals, must lead necessarily, not only to lower prices of commodities in general, but to a lower rate of interest for the use of capital."
2) "If we have a stock of commodities on hand, large enough to supply the country for the coming two years, then a command of these commodities for a given period may be had at a much lower rate than if it would last only for two months."
3) All loans of money, in whatever form they may be made, are merely transfers of the command over commodities from one to another. If, therefore, commodities are superabundant, then the money interest must be low, if they are scarce, it must be high."
4) " If commodities come in more abundantly, the number of sellers compared to the number of buyers must increase.
688 Capitalist Production.
and in proportion as the quantity exceeds tlie needs of the direct consumers, an ever larger portion must be stored up for later use. Under these circumstances an owner of commodities will sell at lower conditions on future payment, or on credit, than he would if he were sure that his whole stock would be sold within a few weeks."
Our comment on sentence No. I, is that a strong addition to the precious metals may be made while production is simultaneously contracted,, which is always the case in the period after a crisis. In the subsequent phase precious metals may come in from countries that produce above all precious metals; the imports of other commodities are generally balanced by the exports during this period. In these two phases the rate of interest is low and rises but slowly; we have already explained the reason for this. This low rate of interest may be explained everj^vhere without any influence of any " Large supplies of any kind." And how is this influence to take place? The low price of cotton, for instance, renders possible the high profits of the spinners, etc. Now Avhy is the rata of interest low? Surely not, because the profit, which may be made on borrowed capital, is high. But simply and solely, because under existing conditions the demand for loan capital does not grow in proportion to this profit; in other words, because loan capital has a difi'erent movement than industrial capital. What the '' Economist " wants to prove is exactly the reverse, namely that the movements of loan capital are identical with those of industrial capital.
Comment on sentence No. 2). If we reduce tlie absurd assumption of a stock for two years ahead to a point where it begins to take on some meaning, it sigiiifies that the markets are overstocked. This would cause a falling of prices. Less would have to be paid for a bale of cotton. This would by no means justify the conclusion, that the money which is to be used for the payment of this cotton, is more easily borrowed. For this depends on the condition of the money market. If money can be borrowed more easily, it can be so only because the commercial credit is in such shape, that it has to make less use of bank credit than ordinarily. The commodities over- Precious Metals and Rates of Exchang<;. 689 crowding the market are means of subsistence or means of production. The low price of both increases in this case the profit of the industrial capitalist. Why should these low prices depress the rate of interest, unless it be through the contrast (not the identity) between the abundance of industrial capital and the scarcity of the demand for loan capital? The circumstances are such, that the merchant and the industrial capitalist can more easily give credit to one another; owing to this facilitation of commercial credit, neither the industrial nor the merchant need much bank credit; hence the rate of interest can be low. This low rate of interest has nothing to do with the increase of precious metals, although both of them may run parallel to each other and the same causes, which bring about the low prices of articles of import, may also produce a surplus of precious metals. If the import market were really overcrowded, it would prove a decrease of the demand for imjDorted articles, and this would be inexplicable at low prices, unless it be attributed to a contraction of industrial production at home; but this, again, would be inexplicable, so long as there is an overimportation at low prices. All these absurdities are brought forward for the purpose of proving that a fall of prices is identical with a fall of interest.
Both things may, indeed, exist side by side. But if they do, it will be an expression of the opposite directions, in which the movement of industrial capital and of loan capital takes place. It will not be an expression of their identity.
Comment on sentence N^o. 3). Why money interest should be low, when commodities exist in abundance, is hard to understand, even after the foregoing remarks. If commodities are cheap, then I need, say, only 1,000 pounds sterling instead of 2,000 pounds sterling for a definite quantity which I may want to buy. But perhaps I might invest 2,000 pounds sterling nevertheless, and thus buy twice the quantity which I could have bought formerly. In this way I expand my business by advancing the same capital, which I may have to borrow. I buy 2,000 pounds sterling's worth of commodities, the same as before. My demand on the money market therefore remains the same, even though my demand on the com- 2R 690 Capitalist Production.
modity-market rises with the fall of the prices of commodities. But if this demand for commodities should decrease, that is, if production should not expand with the fall of the prices of commodities, a thing contrary to all laws of the " Economist," then the demand for loanable money-capital would be decreasing, although the profit would be increasing. But this increasing profit would create a demand for loan capital. For the rest, the low stand of the prices of commodities may be due to three causes. First, to a lack of demand. In that case the rate of interest is low, because production is paralyzed, not because commodities are cheap, since this cheapness is but an expression of that paralysis. In the second place, it may be due to a supply which is excessive compared to the demand. This may be the result of an overcrowding of markets, etc., which may lead to a crisis, and may go hand in hand with a high rate of interest during a crisis; or it may be the result of a fall in the value of commodities, so that the same demand may be satisfied at lower prices. Why should the rate of interest fall in the last case? Because the profits increase? If this should be due to the fact that less money-capital is required for the purpose of obtaining the same productive or commodity-capital, it would merely prove that profit and interest stand in an inverse proportion to one another. Certainly this general statement of the " Economist " is wrong.
Low money prices of commodities and a low rate of interest do not necessarily go together. Otherwise the rate of interest would be lowest in the poorest countries, in which the money prices of commodities are lowest, and highest in the richest countries, in which the money prices of products of agriculture are highest. In a general way the " Economist " admits: If the value of money falls, it exerts no influence on the rate of interest. 100 pounds sterling bring 105 pounds sterling the same as ever. If the 100 pounds sterling are worth less, so are the 105 pounds sterling or the 5 pounds interest. This relation is not affected by the appreciation or depreciation of the original sum. Considered as a value, a definite quantity of commodities is equal to a definite sum of money. If this value rises, it is equal to a larger sum of money; the reverse Precious Metals and Rates of Exchange. 691 takes place when it falls. If the value is 2,000, then 5% of it is 100; if it is 1,000, then 5% of it is 50. This does not alter anything in the rate of interest. The rational part of this matter is merely that a greater pecuniary accommodation is required, when it takes 2,000 pounds sterling to buy the same quantity of commodities, which may be bought for 1,000 pounds sterling at some other time. But this shows at this point merely that profit and interest are inversely proportionate to one another. For profit rises with the cheapness of the elements of constant and variable capital, whereas interest falls. But the reverse may also take place, and does often take place. For instance, cotton may be cheap, because no demand exists for yarn and fabrics; and cotton may be relatively dear, because a large profit in the cotton industry creates a great demand for it. On the other hand the profits of the industrials may be high, just because the price of cotton is low. That list of Hubbard's proves that the rate of interest and the prices of commodities pass through mutually independent movements, whereas the movements of the rate of interest adapt themselves closely to those of the metal reserve and the rates of exchange.
Says the " Economist ": " If, therefore, commodities are superabundant, then the money interest must be low." It is just the reverse which takes place during crises; the commodities are superabundant, not convertible into money, and therefore the rate of interest is high; in another phase of the cycle the demand for commodities is large, hence returns are easy, while prices of commodities are rising at the same time, and the rate of interest is low on account of the easy returns. " If they [the commodities] are scarce, it must be high." Once more the opposite is true in times of depression after a crisis. Commodities are scarce, absolutely speaking, not merely with reference to the demand; and the rate of interest is low.
Comment on sentence ^o. 4). It is pretty evident that an o^vner of commodities, provided he can sell them at all, will get rid of them at a lower price when the market is overcrowded than he will when there is a prospect of a rapid ex- 692 Capitalist Production.
haustion of the existing supply. But why the rate of interest should fall on that account is not so clear.
If the market is overcrowded with imported commodities, the rate of interest may rise as a result of an increased demand for loan capital on the part of their owners, who may wish to escape the necessity of throwing their commodities on the market. On the other hand, the rate of interest may fall, because the fluidity of commercial credit may keep the demand for bank credit relatively low.
The '' Economist " mentions the rapid effect on the rates of exchange in 1847, as a consequence of the raising of the rate of interest and other circumstances exerting a pressure on the money market. But it should not be forgotten, that the gold continued to be drained off until the end of April, in spite of the turn in the rates of exchange; a change did not take place in this until the beginning of May.
On January 1, 1847, the metal reserve of the Bank was 15,-066,691 pounds sterling; the rate of interest 3^%; rates of exchange for three months on Paris 25.75; on Hamburg 13.10; on Amsterdam 12. 3. j. On March 5th the metal reserve had dwindled to 11,595,535 pounds sterling; the discount had risen to 4%; the rate of exchange fell to 25.67^^ for Paris; 13.9^ for Hamburg; 12.2^ for Amsterdam. The drain of gold continued. See the following table: Precious Metal Money Market Highest Three Monthl y Rates Date 1847 Reserve of the Bank of England Paris Hamburg Amsterdam March 20 April 3 April 10 Money very scarce 25.90 April 17 April 24 Pressure Increasing Pressure Highest Pressure is.ibyi In 1847 the total exports of precious metals from England amounted to 8,602,597 pounds sterling.
Precious Metals and Rates of Exchange. 693 Of this amount the United States received 3,226,411 pounds sterling In spite of the change in the rates at the end of March the drain of gold continued for another full month, probably to the United States.
"We see here" [says the "' Ecovomist" 184:7, ip. ^8i], " how rapidly and strikingly the raising of the rate of interest exerted its effect, together with the subsequent money panic, in correcting an unfavorable rate of exchange and turning the tide of gold, so that it flowed once more into England." This effect was produced quite independently of the balance of payment. A higher rate of interest produced a lower price of securities, of English as well as foreign ones, and caused large purchases of them for foreign accounts. This increased the sum of the bills of exchange drawn by way of England, while on the other hand, at the high rate of interest, the difficulty of obtaining money was so great, that the demand for these bills of exchange fell, while their sum rose. It was for the same reason that orders for foreign goods were annulled and the investment of English capital in foreign securities realised and the money taken to England for investment. For instance, we read in the '^^ Rio de Janeiro Prices Current " of May 10: " The rate of exchange " [on England] " has experienced a new setback, caused mainly by a pressure on the market for remittances for the realisations on considerable purchases of [Brazilian] government bonds for English account." English capital, which had been invested in foreign countries in various securities, when the rate of interest was very low here, was thus taken back when the rate of interest had risen.
IV. England's Balance of Trade.
India alone has to pay 5 millions in tribute for " good government," interest and dividends of British capital, etc., not counting the sums sent home annually by officials as savings of their salaries, or by English merchants as a part of their profit 694 Capitalist Production, in order to be invested in England. Every British colony has to make large remittances continually for the same reason. Most of the banks in Australia, West India, Canada, have been founded with English capital, and the dividends are payable in England. In the same way England owns many foreign securities, European, North and South American, on which it draws interest. In addition to this it is interested in foreign railroads, canals, mines, etc., with the corresponding dividends. Eemittance on all these items is made almost exclusively in products, in excess of the amount of the English exports. What goes to foreign countries from England to owners of English securities and to be consumed by Englishmen abroad, is a vanishing quantity in comparison.
The question, so far as it concerns the balance of trade and the rates of exchange, is " at every given moment a question of time. As a rule...England gives large credits on its exports, while its imports are paid in cash. In certain moments this difference of habit has considerable influence on the rates of exchange. At a time when our exports increase very considerably, as in 1850, there must take place a continual expansion in the investment of British capital. in this way remittances of 1850 may be made against goods exported in 1849. But if the exports of 1850 exceed those of 1849 by more than 9 millions, the practical effect must be that more money is sent abroad, to this amount, than returned in the same year. And in this way an effect is produced on the rates of exchange and the rate of interest. But as soon as business is depressed by a crisis, and our exports are greatly reduced, the remittances due for large exports of former years considerably exceed the value of our imports; consequently the rates turn in our favor, capital rapidly accumulates in the home country, and the rate of interest falls." (Economist, The foreign rates of exchange may be altered: 1) In consequence of a momentary balance of payment, no matter to what cause this may be due, whether it be a purely mercantile one, or the investment of capital abroad, or gov- Precious Metals and Rates of Exchange. 695 ernment expenditures, wars, etc., so far as cash payments are made to foreign countries.
2) In consequence of a depreciation of money in a certain country, whether it be metal or paper money. This is purely nominal. If one pound sterling should represent only half as much money as formerly, it would naturally be counted as 12.5 francs instead of 25 francs.
3) When it is a question of the rate of exchange between countries, one of which uses silver, the other gold as " money," the rate of exchange depends upon the relative fluctuations of value of these two metals, since these fluctuations necessarily alter the parity between tliem. An illustration of this were the rates of exchange in 1850; they were against England, although its export rose enormously. But nevertheless no drain of gold took place. This was the result of a momentary rise in the value of silver as against that of gold. ( See Economist, ISTovember 30, 1857.)
The parity of the rate of exchange is for one pound sterling: on Paris 25.20 francs; Hamburg 13 marks banko 10.5 shillings;* Amsterdam 11 florins 97 centimes. In proportion as the rate of exchange on Paris exceeds 25.20 francs, it becomes more favorable to the English debtor of France, or the buyer of French commodities. In either case he needs less pounds sterling in order to accomplish his purpose. — In more remote countries, where precious metals are not easily obtained, when bills of exchange are scarce and insufficient for the remittances to be made to England, the natural effect is a raising of the prices of such products as are generally shipped to England, a greater demand arising for them, in order to send them to England in place of bills of exchange; this is often the case in India.
An unfavorable rate of exchange, or even a drain of gold, may take place, when there is a gi-eat abundance of gold in England, a low rate of interest, and a high price of securities.
In the course of 1848 England received large quantities of silver from India, since good bills of exchange were rare and * Old style German money, now discarded. — Translatok.
696 Capitalist Production.
mediocre ones were not easily accepted, in consequence of the crisis of 1847 and tlie great lack of credit in the Indian business. All this silver, ^vhen hardly arrived, quickly found its way to the continent, where the revolution caused a formation of hoards at all points. The same silver largely made the trip back to India in 1850, since the stand of the rates of exchange made this profitable.
The monetary system is essentially Catholic, the credit system essentially Protestant. " The Scotch hate gold." In the form of paper the monetary existence of commodities has only a social life. It is Faith that makes blessed. Faith in money-value as the imminent spirit of commodities, faith in the prevailing mode of production and its predestined order, faith in the individual agents of production as mere personifications of selfexpanding capitaL But the credit system does not emancipate itself from the basis of the monetary system any more than Protestantism emancipates itself from the foundations of Catholicism.
CHAPTER XXXVI.
PRECAPITALIST CONDITIONS.
Interest bearing capital, or usurer's capital, as we may call it in its ancient form, belongs like its twin brother, commercial capital, to the antediluvian forms of capital, which long precede the capitalist mode of production and are found in the most diverse economic formations of society.
The existence of usurer's capital requires merely that at least a portion of the products should be converted into commodities, and that money with its various functions should have developed along with the trade in commodities.
The development of capital attaches itself to that of mer- Precapitalist Conditions. 697 chant's capital, more particularly to financial capital. In ancient Home, starting from the last stages of the republic, when manufacture stood far below its ancient average development, merchants' capital, financial capital, and usurers' capital had reached their highest point within that ancient form.
We have seen that hoarding necessarily appears with money. But the professional hoarder does not become important until he becomes transformed into a usurer.
The merchant borrows money in order to make a profit with it, in order to use it as capital, that is, to spend it as such. Hence the money lender stands in the same relation to him in former stages of society as he does to the modem capitalist. This specific relation was felt also by the Catholic universities. " The universities of Alcala, of Salamanca, of Ingolstadt, of Freiburg in the Breisgau, Mayence, Cologne, Treves, one after another recognized the legality of interest for commercial loans. The first five of these approbations were deposited in the archives of the Consulate of the city of Lyons and published in the appendix of the Traite de I'usure et des interets, at Lyons, by Bruyset-Ponthus." (M. Augier, Le Credit Public, etc., Paris, 1842, p. 206.)
In all forms, in which slave economy (not the patriarchal kind, but that of later Grecian and Eoman times) serA^es as a means of amassing wealth, where money is a means of appropriating the labor of others by purchase of slaves, land, etc., there money becomes useful as capital, brings interest, for the reason that it may be so invested.
Llowever, the most characteristic forms, in which usurers' capital exists in times antedating capitalist production, are two. I say purposely characteristic forms. The same forms repeat themselves on the basis of capitalist production, but as mere subordinate forms. They are then no longer the forms which determine the character of interest-bearing capital. These two forms are: First, usury by lending money to extravagant persons of the higher classes, particularly to land owners; secondly, usury by lending money to the small producer who is in possession of his own means of employment, 698 Capitalist Production.
which includes the artisan, but more particularly the peasant, since under precapitalist conditions, so far as they permit of independent individual producers, the peasant class must form the overwhelming majority.
Both the ruin of rich land o^vners by usury and the spoliation of the small producers leads to the formation and concentration of large money-capitals. But to what extent this process does away with the old mode of production, as happened in modern Europe, and whether it places in its stead the capitalist mode of production, depends entirely upon the stage of historical development and the circumstances surrounding it.
Usurers' capital as the characteristic foi*m of interest-bearing capital corresponds to the predominance of small scale production, of self employing peasants and small craft masters. When the laborer is confronted by the means of employment and by the product of labor in the shape of capital, as he is under the capitalist mode of production, he has no occasion to borrow any money as a producer. When he does any borrowing of money, he does it to secure personal necessities, for instance, at the pawnshop. But wherever the laborer is the owner, whether actual or nominal, of his means of employment and of his product, he is confronted as a producer by the capital of the money lender, which stands in his way as a usurer's capital. ISTewman expresses the matter weakly, when he says that the banker is respected Avhile the usurer is hated and despised, because the banker lends to the rich, whereas the usurer lends to the poor. (J. W. N'ewman, Lectures on Political Economy, London, 1851, p. 44.) He overlooks the fact that the difference of two modes of social production and of the corresponding social orders intervenes here and that the matter is not exhausted by the distinction between rich and poor. On the contrary, the usury which sucks the life out of the small producer goes hand in hand with the usury which sucks the rich owner of large estates dry. As soon as the u?;-ury of the Roman patricians had completely ruined the Roman plebeians, the small peasants, this form of exploitation had an end and slave economy undisguised took the place of small peasant economy.
Precapitalist Conditions. 699