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This isn't quite the way old Charlie saw things as happening. One of my
favourite sections of Volume III is where he discusses both how bank capital
and bank loans are priced, and the dynamic cyclical relationship between the
rate of profit and the rate of interest--which he thought would only equal
each other momentarily as they varied at different rates and frequencies
over the trade cycle.
If you'll pardon both my commentary, and the formatting codes for my desktop
publishing language (and copious typos!), this is part of the relevant
section. It is well worth a re-read in the original. I think Marx's analysis
was largely a (very convincing) attempt to synthesise his own experience of
the trade cycle, and reading of the historical data.
It ends with one of my favourite "Charlie flourishes" of all.
Excerpt from Vol III, Progress Press edition, with (copious!) comments.
21 Interest-bearing capital
He comments that since money engenders the
ability to make a surplus, money has <169>an additional
use-value, namely that of serving as capital. Its use-value then
consists precisely in the profit it produces when converted into
<170><$FIbid, p. 338.><$IUse-value of money.><$IUse-value of
capital.><$Iuse-value and exchange-value.> This in fact is an
admission that the use-value of a non-labour commodity can be
quantitative, not just qualitative like "absorbing labour-value".
He goes through an example with 100 pounds where he says the purchaser pays
the use-value of money, not its exchange-value.
<169>Suppose the annual average rate of profit is 20%.<193> A man
in possession of 100, therefore, possesses the power to make 120
out of 100.<193> If he gives these 100 to another for one year,
<193> he gives him the power to produce a profit of 20<196>a
surplus-value which costs this other nothing<193> If this other
should pay, say, 5 at the close of the year <193> out of the
profit produced, he would thereby pay the use-value of the
100<196>the uvv of its function as capital, the function of
producing a profit of 20. The part of thhe profit paid to the
owner is called interest.
<170><$FIbid, p. 339.>
Its exchange-value could be taken to be the cost of holding money
as money - a liquidity factor, which could include the physical
costs of holding money?
Later, describing loan capital, Marx says: <169>It is not capital
merely for the man who gives it up, but is from the very first
given to the third person as capital, as value endowed with the
use-value of creating svv, of creating profit.<193> it leaves him
only for a specified time, <193> merely relinquished with the
understanding that, first, it shall return <193> and, second,
that it shall return as realised capital<196>a capital having
realised its use-value, its power of creating surplus-value.
<170><$FIbid, p. 343.><$IUse-value, of capital.>
<169>What, now, is the use-value which the money-capitalist gives
up for the period of the loan and relinquishes to the productive
capitalist<196>the borrower? it is the use-value which the money
acquires by being capable of becoming capital, of performing the
functions of capital, and creating a definite surplus-value.<193>
In the case of othher commodities the use-value is ultimately
consumed. In contrast, the commodity-capital is peculiar in that
its value and use-value not only remain intaact, but also
increase, through consumption of its use-value.<193>
Money thus loaned has in this respect a certain similarity with
labour-power in its relation to the industrial capitalist. With
the difference that the latter pays for the value of
labour-power, whereas he simply pays back the value of the loaned
capital. The use-value of labour-power for the industrial
capitalist is that labour-power creates more value in its
consumption than it possesses itself, and than it costs. This
additional value is use-value for the industrial capitalist. And
in a like manner the use-value of loaned capital appears as its
faculty of begetting and increasing value.
The money-capitalist, in fact, alienates a use-value, and thus
whatever he gives away is given as a commodity. It is to this
extent that the analogy with a ccm <I>per se<D> is complete.
<170><$FIbid, p. 351.><$IUse-value of capital.><$ISurplus, source
of.><$IUse-value and exchange-value.>
<169>What, now, does the industrial capitalist pay, and what is,
therefore, the price of the loaned capital?<193> What the buyer
of an ordinary commodity, buys is its use-value; what he pays for
is its value. What the borrower of money buys is likewise its
use-value as capital; but what does he pay for? Surely not its
price, or value, as in the case of ordinary commodities.
<170><$FIbid, p. 352.>
While Marx willingly countenances that money has a use-value, he
can't accept that it should also have a price which is explained
by its value.
<169>It must always be borne in mind that here capital as capital
is a commodity<193> All the relations in evidence here would
therefore be irrational from the standpoint of an ordinary
commodity.<193> Similarly,<193> If we want to call interest the
price of money-capital, then it is an irrational form of price
quite at variance with the conception of price of commodities.
<170><$FIbid, p. 353.>
That leads to a problem; how can a product have a price (value)
which is not its value?
<169>How, then, can a sum of value have a price besides its own
price<193> Price, after all, is the value of a commodity as
distinct from its use-value. A price which differs from value in
quality is an absurd contradiction.
<170><$FIbid, p. 354.>
<169>Capital manifests itself as capital through self-expansion.
The degree of its self-expansion exxpresses the quantitative
degree in which it recognises itself as capital<193> its rate or
magnitude is measurable only by comparison with the value of the
advanced capital. The <193> self-expansion of interest-bearing
capital is, therefore, likewise only measurable by comparing the
amount of interest <193> with the value of thhe advanced capital.
If, therefore, price expresses the value of a commodity, then
interest expresses the self-expansion of money-capital and thus
appears as the price paid for it to the lender. This shows how
absurd it is from the very first to apply hereto the simple
relations of exchange<193>.
<170><$FIbid, p. 354-55.><$IInterest.>
<169>The value of money or of commodities employed as capital
does not depend on their value as money or as commodities, but on
the quantity of surplus-value they produce for their owner.
<170><$FIbid, p. 355.> Thus the measure of the value of money is
not its own value, but the surplus-value it can generate.
Having restated that when supply and demand balance, only the
natural price (value) of commodities rules, Marx says that
<169>But it is different with the interest on money-capital.
Competition does not, in this case, determine the deviations from
the rule. There is rather no law of division except that enforced
by competition, because as we shall see, no such thing as a
"natural" rate of interest exists.<193> There are no "natural"
limits for the rate of interest. Whenever competition does not
merely determine the deviations and fluctuations, whenever,
therefore, the neutralisation of opposing forces puts a stop to
anny and all determination, the thing to be determined becomes
something arbitrary and lawless.
<170><$FIbid, p. 356.>
22 Division of profit. Rate of interest. Natural rate of interest
<169>Since interest is merely a part of profit paid, according to
our earlier assumption, by the industrial capitalist to the
money-capitalist, the maximum limit of interest is the profit
itself<193> Aside from exceptional cases,<193> one might consider
as the maximum limit of interest the total profit minus <193>
wages of superintendence. The minimum level of interest is
altogether indeterminable. Yet in that case there will always be
counteracting influences to raise it again above this relative
<170><$FIbid, p. 358.>
Marx first considers that interest may be a fixed percentage of
<169>If we observe the cycles in which modern industry
moves<196>state of inactivity, mounting revival, prosperity,
over-production, crisis, stagnation, state of inactivity,
etc.,<193><196>we shall find that a low rate of interest
generallyy corresponds to periods of prosperity <193> a rise in
interest separates prosperity and its reverse, and a maximum of
interest up to a point of extreme usury corresponds to the period
of crisis.<193> It is possible, however, for low interest to go
along with stagnation, and for moderately rising interest to go
along with revived activity.
<170><$FIbid, pp. 360-61.><$IInterest.>
<169>However, the rate of interest also has a tendency to fall
quite independently of the fluctuations in the rate of
<170><$FIbid, p. 361.> Marx firstly talks of a growth in the
class of rentiers (as a factor leading to a fall in interest
rates?), then the development of the credit system, with the
belief that industrialists and merchants will exert "ever-growing
control" over it via the bankers. He evidently didn't consider
that bankers might become powerful in their own right, via
control of the credit system.
23 Interest and profit of enterprise
24 Externalisation of the relations of capital in the form on
<169>As in the case of labour-power, the use-value of money here
is its capacity of creating value<196>a value greater than it
<170><$FIbid, p. 392.><$ISurplus-value, source of.>
25 Credit and fictitious capital
26 Accumulation of money-capital. Its influence of the interest rate
<169>All these things, over-production in industry and
under-production in agriculture<196>in other words, greatly
differing causes<196>gave rise to an increased demand for
money-capital. The increased demand for money-capital had its
origin in the course of the productive process itself. But
whatever may have been the cause, it was the demand for
<I>money<D>-capital which made the interest rate, the value of
<170><$FIbid, p. 420.> The beginnings of a liquidity theory of
<169>The demand for money-capital, and consequently the "value of
capital", may rise even though the profit may decrease; as soon
as the relative supply of money-capital shrinks, its "value"
<170><$FIbid, p. 421.>
<169>But this enhanced value of money-capital corrresponded
directly on the other hand to the depreciated value of real
capital (commodity-capital and productive capital). The value of
capital in one form rose because the value of capital in the
other fell. Overstone, however, seeks to identify these two
values of different sorts of capital in a single value of capital
in general, and he tries to do so by opposing both of them to a
scarcity of the medium of circulation.
<170><$FIbid, p. 421.><$Money-capital.>
<169>In this case the interest rose because profits decreased and
the money-values of commodities fell enormously.
<170><$FIbid, p. 422.><$ILiquidity.>
<169>But if no real accumulation, i.e., expansion of production
and augmentation of the means of production, had taken place,
what good wouuld there be from the accumulation of debtor's
money claims on this production?
<170><$FIbid, p. 424.>
<169>This smug logician [Overstone] assumes that bills of
exchange are discounted only for the purpose of expanding
business, and that business is expanded because it is profitable.
The first assumption is wrong. The ordinary businessman
discounts, in order to anticipate the money-form of his capital
and thereby keep his process of reproduction in flow; not in
order to expand his business or secure additional capital, but in
order to balance the gives by the credit he receives.
<170><$FIbid, p. 425.><$ICredit.>
27 The role of credit in capitalist production
<169>The general remarks, which the credit system so far elicited
from us, were the following:
I. Its necessary development to effect the equalisation of the
rate of profit, or the movement of this equalisation, upon which
the entire capitalist production rests [so Marx sees credit as
part of the transformation problem].
II. Reduction of the costs of circulation.
1) One of the principal costs of circulation is money itself,
being value in itself. It is economised through credit in three
A. By dropping away entirely in a great many transactions.
B. By the accelerated circulation of the circulating
C. Substitution of paper for gold money.
2) Acceleration, by means of credit, of the individual phases
of circulation or the metamorphosis of commodities, <193> and
with it an acceleration of the process of reproduction in
III. Formation of stock companies. Thereby:
1) An enormous expansion of the scale of production <193> that
was impossible for individual capitalists.<193>
2) The capital, <193> is here directly endowed with the form of
social capital as distinctt from private capital<193> It is the
abolition of capital as private property within the framework of
capitalist production itself.
3) Transformation of the actually functioning capitalist into
IV. <193> credit offers to the individual capitalist <193>
absolute control within certain limits over the capital and
property of others, and thereby over the labour of others.
<170><$FIbid, p. 435-39.>
<169>The credit system appears as the main lever of
over-production and over-speculation in commerce solely because
the reproduction process, which is elastic by nature, is here
forced to its extreme limits.
<170><$FIbid, p. 441.>
28 Medium of circulation and capital; views of Tooke and Fullarton
<169>In times of prosperity, intense expansion, acceleration and
vigour of the reproduction process, labourers are fully
employed.<193> At the same time, the revenues of the capitalists
grow considerably. Consumption increases generally.
Commodity-prices also rise regularly<193> Consequently, the
quantity of circulating money grows at least within definite
limites, since the greater velocity of circulation, in turn,,
sets up certain barriers to the growth of the amount of
currency.<193> The total resuult is that the mass of circulating
media serving the expenditure of revenue grows decidedly in
periods of prosperity.
As concerns the circulation between capitalists, a perriod of
briskk business is simultaneously, a period of most elastic and
On the whole, the currency of money in such periods appears full,
although its Department II (transfer of capital) is, at least
relatively, contracted, while its Department I (expenditure of
revenue) expands in absolute terms.<193>
To insert what I have noted earlier: <169>In periods of
predominant credit, the velocity of the circc of money increases
faster than commodity-prices, whereas in times of declining
credit commodity-prices drop slower than the velocity of
<170><$FIbid, p. 446-48, quoting <U>The Critique of Political
<169>The reverse is true in times of crisis. Circulation No. I
contracts, prices fall, similarly wages; the number of employed
labourers is reduced, the mass of transactions decreases. On the
contrary, the need for money accommodation increases in
circulation No. II with the contraction of credit.
<170><$FIbid, p. 448.>
<169>It is by no means the strong demand for loans <193> which
distinguishes the period of depression from that of prosperity,
but the ease with which this demand is satisfied in periods of
prosperity, and the difficulties it meets in times of depression.
<170><$FIbid, p. 450.>
<169>both periods are primaarily distinguished by the fact that
the demand for currency between consumers and dealers
predominates in periods of prosperity, and the demand for
currency between capitalists predominates in periods of
<170><$FIbid, p. 450.>
29 Component parts of bank capital
30 Money-capital and real capital. I
<169>The accumulation of money-capital. To what extent is is
<193> an indication of an actual accumulation of capital, i.e. of
reproduction on an exxtended scale?<193> To what extent does a
scarcity of money <193> express a shortage of real capital?
<170><$FIbid, p. 476.>
<169>Titles of ownership <193> are indeed <193> titles to real
capital. But they do not place this capital at one's
disposal.<193> They merely convey legal claims to a portion of
the surplus-value to be produced by it.
<170><$FIbid, p. 477.>
Though such titles are linked to the accumulation of real
capital, and their prices partly depend on it, <169>Their value,
that is, their quotation on the Stock Exchange, necessarily has a
tendency to rise with a fall in the rate of interest<193>
<170><$FIbid, p. 477.>
<169>Gains and losses through fluctuations in the price of these
titles of ownership, <193> becomes <193> more and more a matter
of gamble, which appears to take the place of labour as the
original method of acquiring capital wealth.
<170><$FIbid, p. 478.>
<169>The accumulation of the wealth of this class may take place
completely differently than actual accumulation, but it proves at
any rate that this class pockets a good deal of the real
<170><$FIbid, p. 478.>
<169>The ultimate reason for all crises always remains the
poverty and restricted consumption of the masses as opposed to
the drive of capitalist production to develop the productive
forces as though only the absolute consuming power of society
constituted their limit.
<170><$FIbid, p. 484.><$ICrises.>
<169>Not every augmentation of loanable money-capital indicates a
real accumulation of capital or expansion of the reproduction
<170><$FIbid, p. 485.>
<169>On the whole, then, the movement of loan capital, as
expressed in the rate of interest, is in the opposite direction
to that of industrial capital. The phase wherein a low rate of
interest, but above the minimum, coincides with the "improvement"
and growing confidence after a crisis, and particularly the phase
wherein the rate of interest reaches its average level, are the
only two periods during which an abundance of loan capital is
available simultaaneously with a great expansion of industrial
capital. But at the beginning of the industrial cycle, a low rate
of interest coincides with a contraction, and at the end of the
industrial cycle, a high rate of interest coincides with a
superabundance of industrial capital.
<170><$FIbid, p. 489.>
31 Money-capital And Real Capital. Ii
31.1 Transformation Of Money Into Loan Capital
<169>We have already see that a large build-up or surplus of loan
capital can occur, which is connected with productive
accumulation only to the extent that it is inversely proportional
to it. This is the case in two phase of the industrial cycle,
namely, first, when industrial capitalist <193> is contracted
<193> and secondly, when the improvement begins, but when
commercial credit still does not use bank credit to a great
extent. In the first case, money-capital, which was formerly
employed in production and commerce, appears as idle loan
capital; in the second case, it appears used to an increasing
extent, but at a very low rate of interest, because the
industrial and commercial capitalists now prescribe terms to the
money-capitalists. The surplus of loan capital expresses, inn the
first case, a stagnation off commercial credit, and in the
second, a relative independence of commercial credit from banking
credit.<193> The speculators, who count on the credit capital of
other people, have not yet appeared on the field; the people who
work with their own capital are still far removed from
approxximately pure credit operations. In the former phase, the
surplus of loan capital is directly opposite to expressing actual
accumulation. In the second phase, it coincides with a renewed
expansion of the reproduction process<196>it accompanies it, but
is not the cause. The surplus of loan capital is already
decreasing, i.e. it is still only relative compared to demand. In
both cases, the exxpansion of the actual process of accumulation
is promoted by the fact that the low interest<196>which coincides
in the first case with low prices and in the second, with slowly
rising prices<196>increases that portion of the profit which is
tranformed into profit of enterprise [i.e., doesn't have to be
shared with the bank, landlord, etc.].
We have seen, on the other hand, that an accumulation of loan
capital can take place without any actual accumulation, i.e., by
mere technical means such as an expansion and concentration of
the banking system;<193> The mass of loanable money-capital thus
grows quite independently of the actuall accumulation (we are not
speaking here at all about loans for a number of years but only
of short-term ones on bills of exchange and deposits).
<170><$FIbid, pp. 494-95.><$IMoney.><$ICredit.><$IEconomic
A credit multiplier in Marx? <169>The mere possibility of large
sums of deposits existing when a relatively small quantum of a
medium of circulation is available, depends solely on:<193> 2)
the number of return excursions<193> For example, a small dealer
deposits weekly with his banker 100 in money; the banker pays out
a portion of the deposit of a manufacturer with this; the latter
pays it to his workers; and the workers use it to pay the small
dealer, who deposits it in his bank again.<193>
<170><$FIbid, p. 500.>
31.2 Transformation Of Capital Or Revenue Into Money. That Is
Transformed Into Loan Capital
<169>The accumulation of all money-lending capitalists naturally
always takes place directly in money-form, whereas we have seen
that the actual accumulation of industrial capitalists is
accomplished, as a rule, by an increase in the elements of
reproductive capital itself.
<170><$FIbid, p. 502.>
32 money-capital and real capital. III
<169>The most important point of our presentation so far is that
the expansion of the part of revenue intended for consumption
(leaving out of consideration the worker, because his revenue is
equal to the variable capital) shows itself at first as an
accumulation of money-capital.
<170><$FIbid, p. 505.>
<169>With the development of the credit system, great
concentrated money-markets are created, such as London, which are
at the same time the main seats of trade in this paper. The
bankers place huge quantities of the public's money-capital at
the disposall of this unsavoury crowd of dealers, and thus this
brood of gamblers multiplies.
<170><$FIbid, p. 511-12.><$ISpeculation.><$IMoney market.>
<169>In times of crisis, the demand for loan capital, and
therefore the rate of interest, reaches its maximum; the rate of
profit, and with it the demand for industrial capital, has to all
intents and purposes disappeared. During such times, everyone
borrows only for the purpose of paying, in order to settle
previously contracted obligations. On the other hand, in times of
renewed activity after a crisis, loan capital is demanded for the
purpose of transforming money-capital into productive or
<170><$FIbid, p. 513.><$IMoney.><$ICredit.>
Subsequent discussion of rising wages during a period of rising
profits leading to increased demand for money-capital.
<169>The whole endeavour of Mr Overstone consists in representing
the interests of loan capital and industrial capital as being
identical, whereas his Bank Act is precisely calculated to
exploit this very difference of interests to the advantage of
<170><$FIbid, p. 514.>
Discussion of speculative purchases of commodities.
Crises cover pages 515-17.
International payments, p. 517.
Cause of the rate of interest, p. 518-19.
33 The medium of circulation in the credit system
Velocity of credit and credit multipliers, pp. 520-522
<169>Once the crisis has broken out, it becomes from then on only
a question of means of payment. But since everyone is dependent
upon someone else for the receipt of these means of payment, and
no one knows whether the next one will be able to meet his
payments when due, a regular stampede ensues for those means of
payment available on the market, that is, for bank-notes.
Everyone hoards as many of them as he can lay hand on, and thus
the notes disappear from circulation on the very day when they
are most needed.
<170><$FIbid, p. 527.>
<169>We have seen that even Mr Chapman, who after all was himself
a magnate on the money-market in 1857, complains bitterly that
there were several large money-capitalists in London strong
enough to disrupt the whole money-market at any given moment and
thereby bleed white the smaller money-dealers. There were several
such money sharks, he said, who could considerably intensify a
stringency by selling one or two million's worth of consols and
thereby withdrawing an equal amount of bank notes (and
simultaneously available loan capital) from the market.
<170><$FIbid, p. 541.>
<169>Thus we see here how banks create credit and capital by 1)
issuing their own notes, 2) writing out drafts on London running
up to 21 days, but paid in cash to them immediately on issue, 3)
paying out discounted bills of exchange, which are endowed with
credit primarily and essentially by endorsement through the bank.
<170><$FIbid, p. 542.>
<169>Talk about centralisation! The credit system, which has its
focus in the so-called national banks and the big money-lenders
and usurers surrounding them, constitutes enormous
centralisation, and gives this class of parasites the fabulous
power, not only to periodically despoil industrial capitalists,
but also to interfere in actual production in a most dangerous
manner<196>and this gang knows nothing about production and has
nothing to do with it.
<170><$FIbid, pp. 544-45.>
>From: "Duncan K. Foley" <firstname.lastname@example.org>
>Subject: [OPE-L:3450] Re: equalisation of profit rates
>Date: Tue, 6 Jun 2000 22:41:05 -0400
>Since capital can move from the other sectors to banking, wouldn't the
>force of competition tend to equalize the rate of profit on banking capital
>to the average rate of profit?
>The mechanism might be a wider or narrower spread between bank's lending
>and borrowing rates of interest.
> >I have a query about the rate of profit.
> >Do list members think that the fixed capital of the banking sector
> >should enter into the general rate of profit, and if so by what
> >The practical relevance of this is that when one wishes to
> >look at time series for the organic composition of capital in a
> >country one has to decide if the fixed capital of the banking
> >sector ( its buildings and equipment ) should be included
> >in the figure for total constant capital or not.
> >I tend to think that it should not be included, as I can see
> >no plausible mechanism by which it can influence the rate
> >of profit of industrial capital.
> >What practice do other members follow when constructing
> >such time series.
>Duncan K. Foley
>Leo Model Professor
>Department of Economics
>New School University
>65 Fifth Avenue
>New York, NY 10003
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