The money trade in its pure form, which we consider here, that is, the money trade not complicated by the credit system, is concerned only with the technique of a certain phase of the circulation of commodities, namely with the circulation of money and the different functions of money following from its circulation.
This distinguishes the money trade essentially from the trade in commodities, which promotes the metamorphosis of commodities and their exchange, or which gives even to this process the aspect of a process of a certain capital separated from the industrial capital. While, therefore, the commercial capital has its own form of circulation, M—C—M, in which the commodity changes hands twice and thereby recovers the money, in distinction from C—M—C, in which the money changes hands twice and thereby promotes the exchange of commodities, there is no such special form of circulation, which can be demonstrated in the case of financial capital.
To the extent that money-capital is advanced by a separate class of capitalists for the technical promotion of the circulation of money—a capital representing on a reduced scale the additional capital, which the merchants and industrial capitalists must otherwise advance themselves for these purposes—the general form of capital, M—M', is found also here. By the advance of M, the advancing capitalist secures M + 8Delta;M. But the promotion of the transaction M—M' does not concern itself in this case with the objective materials, but only with the technical processes of this metamorphosis.
It is evident, that the mass of money-capital, with which the money dealers have to operate, is the money-capital of the merchants and industrial capitalists in process of circulation, and that the operations of the money dealers are merely those originally performed by the merchants and industrial capitalist.
It is equally evident, that the profit of the money dealers is nothing but a deduction from the surplus-value, since they are operating merely with already realised values (even when they have been realised in the form of creditors' claims).
As in the trade with commodities, so in that with money a duplication of functions takes place. For a portion of the technical operations connected with the circulation of money must be carried out by the dealers and producers of commodities themselves.
THE particular form, in which the commercial capital and financial capital accumulate money, will be discussed in the next part of this volume.
From what has gone before it follows as a matter of course that nothing can be more absurd than to consider merchants' capital, whether in the shape of commercial or of financial capital, as some particular kind of industrial capital, such as that invested in mining, agriculture, stock raising, manufacture, transportation, etc., which constitute side lines of industrial capital formed by division of social labor and thus different spheres for its investment. The simple observation, that every industrial capital, when in the circulation phase of its process of reproduction, performs in the shape of commodity-capital and money-capital the very same functions, which appear as exclusive functions of the two forms of merchants' capital, should make such a crude conception impossible. On the other hand, in commercial and financial capital the differences between the productive nature of industrial capital and its functions in the sphere of circulation are independently individualised, by transferring definite forms and functions assumed momentarily by industrial capital into independent forms and functions of separate portions of capital permanently tied up in circulation. A changed form of industrial capital is widely different from distinctions between productive capitals following from the nature of the various lines of industry.
Aside from the brutality with which the economist ordinarily handles distinctions of form, in which he is interested only so far as their material side is concerned, the vulgar economist is influenced by two other reasons in his violation of distinctions. There is, in the first place, his incapability to explain the peculiar nature of mercantile profit. In the second place, he writes for the apologetic purpose of proclaiming his opinion, that the process of production by its very nature, is the source of such forms as commodity-capital and money-capital, or later of merchants' capital and financial capital, instead of showing that they are due to the specific form of capitalist production, which is conditioned above all on the circulation of commodities and therefore of money.
If commercial capital and financial capital do not differ from the production of grain any more than this differs from stock raising and manufacture, then it is evident that production and capitalist production are one and the same thing, and that especially the distribution of the social products among the members of society for the purpose of productive or individual consumption need no more be promoted by merchants and bankers than the consumption of meat by stock raising or that of clothes by their manufacture. 46
The great economists, such as Smith, Ricardo, etc., are embarrassed over mercantile capital as a special kind, since they analyse the basic form of capital, industrial capital, and take notice of capital of circulation (commodity-capital and money-capital) only to the extent that it is a phase in the process of reproduction of all capital. The rules concerning the formation of value, profit, etc., which are directly deduced from an analysis of industrial capital, do not fit merchants' capital directly. Therefore these economists leave merchants' capital entirely out of consideration and mention it only as a kind of industrial capital. Whenever they treat of it particularly, as Ricardo does in dealing with foreign commerce, they seek to demonstrate that it does not create any value (and consequently no surplus-value). But whatever is true of foreign commerce, applies also to home commerce.
Hitherto we have considered merchants' capital merely from the point of view of the capitalist mode of production, and within its limits. However, not only commerce, but also merchants' capital, is older than the capitalist mode of production. In fact, it represents historically the oldest free existence of capital.
As we have already seen that the money trade and the capital advanced for it require nothing for their existence but the presence of commerce on a large scale, and further of commercial capital, it is only the latter, which we have to consider here.
Since commercial capital is tied up in the circulation, and since its function consists exclusively in promoting the exchange of commodities, it follows that it requires no other condition for its existence—aside from undeveloped forms arising from direct barter—but those indispensable for the simple circulation of money and commodities. Or rather, the circulation of money is the condition of its existence. No matter what may be the basis on which production is carried on, which throws its products into circulation as commodities —whether it be the basis of a primitive commune, or of slave production, or of small agricultural, small bourgeois, or capitalist—the character of the products as commodities is not altered, and as commodities they have to pass through the process of exchange and through the forms incidental to it. The extremes, between which merchants' capital acts as a mediator, exist for it as given propositions, just as they do for money and its movements. The only requisite is that these extremes should be present as commodities, regardless of whether production is wholly a production of commodities, or whether only the surplus of the independent producers over the immediate needs satisfied by their production is thrown on the market. The merchants' capital promotes only the movements of these extremes, these commodities, which are premises of its own existence.
The extent to which production ministers to commerce and supplies the merchants, depends on the mode of production. It reaches its maximum under a fully developed capitalist production, in which the product is primarily produced as a commodity, not for direct subsistence. On the other hand, on the basis of every mode of production, commerce promotes the production of surplus products destined for exchange, for the purpose of increasing the enjoyments of wealth of the producers (who are here understood to be the owners of the products). Commerce impregnates production more and more with the character of a production for exchange.
The metamorphosis of commodities, their movements, consist, 1) materially, of an exchange of different commodities for one another; 2) formally, of a conversion of commodities into money by sale, and a conversion of money into commodities by purchase. And the functions of merchants' capital resolve themselves into these functions of buying and selling commodities. It promotes merely the exchange of commodities, which must be conceived at the outset as being something more than a bare exchange of commodities between direct producers. Under slavery, feudalism, vassalage, so far as primitive organisations are concerned, it is the slave holder, the feudal lord, the tribute collecting state, who are the owners and sellers of the products. The merchant buys and sells for many. In his hands are concentrated purchases and sales, and purchase and sale cease consequently to be dependent on a direct necessity of the buyer (as a merchant).
But whatever may be the social organisation of the spheres of production, whose exchange of commodities the merchant promotes, his wealth exists always in the form of money and his money always serves as capital. Its form is always M—C—M'. Money, the independent form of exchange value, is his starting point, expansion of the exchange value his independent purpose. He occupies himself with the exchange of commodities and the operations incidental to it, which are separated from production and performed by a non-producer, and this is merely a means to increase wealth and at that wealth in its most general social form, exchange value. His compelling motive and compelling end are the conversion of M into M + 8Delta;M. The transactions M—C and C—M, which promote the act M—M', appear merely as stages of transition in this conversion of M into M + 8Delta;M. This M—C—M' is the characteristic movement of merchants' capital which distinguishes it from C—M—C, the exchange of commodities between the producers themselves, which has for its ultimate end the exchange of use-values.
To the extent that production is undeveloped, the money wealth will be concentrated in the hands of merchants, will appear in the specific form of merchants' wealth.
Within the capitalist mode of production—that is, as soon as capital has seized hold of production and given to it a wholly changed and specific form—merchants' capital appears merely as a capital with a specific function. But in all previous modes of production, and so much the more production ministers to the direct wants of the producers themselves, merchants' capital appears as the capital which performs the function of capital.
There is, then, no difficulty in understanding how it is that that merchants' capital is the historical form of capital long before capital has subjected production to its control. Its existence and development to a certain level are themselves historical premises for the development of capitalist production. For they are, 1), premises for the concentration of moneyed wealth, and 2), the capitalist mode of production is conditioned on production for exchange, commerce on a large scale instead of with a few individual customers, and this requires also a merchant, who does not buy for the satisfaction of his own individual wants, but concentrates the transactions of many buyers in one commercial transaction. On the other hand, all development of merchants' capital tends to give to production more and more the character of a production for exchange and to impregnate the products more and more with the character of commodities. But the development of merchants' capital by itself is incapable of bringing about and explaining the transition from one mode of production to another, as we shall presently see.
Within capitalist production, the merchants' capital is reduced from its former independent existence to a special phase in the investment of capital in general, and the compensation of profits reduces its rate of profits to the general average. Then it serves only as an agent of productive capital. The particular social conditions, which formed together with the development of merchants' capital, are then no longer paramount. On the contrary, where merchants' capital still predominates, we find backward conditions. This is true even of one and the same country, in which, for instance, the pure merchants' towns form far better analogies with past conditions than the manufacturing towns. 47
An independent and prevailing development of capital in the shape of merchants' capital signifies that production is not subject to capital, in other words, it means that capital develops on the basis of a mode of production independent and outside of it. The independent development of merchants' capital stands therefore in an inverse ratio to the general economic development of society.
The independent mercantile wealth, as a prevailing form of capital represents the independent establishment of the process of circulation as against its extremes, and these extremes are the exchanging producers themselves. These extremes remain independent of the process of circulation, just as this circulation remains independent of them. The product becomes a commodity in this case by way of commerce. It is commerce which, under such conditions, develops products into commodities; it is not the produced commodity itself which, by its movements, gives rise to commerce. Capital in the capacity of capital appears here first in the process of circulation. In the process of circulation money first develops into capital. In the circulation, the products first assume the character of exchange values, of commodities and money. Capital can and must form in the process of circulation, before it learns to control the extremes, that is, the various spheres of production between which circulation intervenes as a mediator. The circulation of money and commodities may act as an intermediary between spheres of production of widely different organisation, whose internal structure is still, predominantely adjusted to the production of use-values. This independent status of the process of circulation, by which various spheres of production are connected by means of a third link, expresses two facts. On the one hand it shows that the circulation has not yet seized hold of production, but as yet regards it as an existing fact. On the other hand, it shows that the process of production has not yet absorbed circulation and made a phase of production of it. But in capitalist production, both of these things are accomplished. The process of production rests wholly upon the circulation, and the circulation is a mere phase of transition of production, in which the product, having been created as a commodity, is realised in money and its elements of production replaced by products, which have likewise been created in the shape of commodities. That form of capital, which developed directly in circulation, the merchants' capital, appears here merely as one of the forms of capital in its process of reproduction.
The rule, that the independent development of merchants' capital is inversely proportioned to the degree of development of capitalist production, becomes particularly manifest in the history of the carrying trade, for instance, among the Venetians, Genoese, Dutch, etc., where the principal gains were not made by the exportation of the products of the home industries, but by the promotion of the exchange of products of commercially and otherwise economically undeveloped societies and by the exploitation of both spheres of production. 48
Here the merchants' capital is pure, separated from the extremes, the spheres of production, between which it intervenes. This is one of the main sources of its formation. But this monopoly of the carrying trade disintegrates, and with it this trade itself, in proportion as the economic development of peoples advances, whom it exploits at each end of its course, and whose backward development formed the basis of this trade. In the carrying trade, this appears not only as the disintegration of a special line of commerce, but also as the disintegration of the supremacy of purely commercial nations and of their commercial wealth in general, which rested upon this carrying trade. This is but one of the special forms, which expresses the subordination of the commercial capital to the industrial capital with the advance of capitalist production. The manner in which merchants' capital behaves wherever it rules over production is drastically illustrated, not only by the colonial economy (the colonial system) in general, but particularly by the methods of the old Dutch East India Company.
Since the movement of merchants' capital is M—C—M', the profit of the merchant is made, in the first place, only within the process of circulation, by the two transactions of buying and selling; and in the second place, it is realised in the last transactions, the sale. It is a profit upon alienation. At first sight, a pure and independent commercial profit seems impossible, so long as products are sold at their value. To buy cheap in order to sell dear is the rule of trade. It is not supposed to be an exchange of equivalents. The conception of value is included in it only to the extent that the individual commodities all have a value and are to that extent money. In quality, they are all expressions of social labor. But they are not values of equal magnitude. The quantitative ratio, in which products are exchanged, is at first quite arbitrary. They assume the form of commodities inasmuch as they are exchangeable, that is, inasmuch as they may be expressed in terms of the same third thing. The continued exchange and the more regular reproduction for exchange reduces this arbitrariness more and more. But this applies not at once to the producer and consumer, but only to the mediator between them, the merchant, who compares the money-prices and pockets their difference. By his own movements he establishes the equivalence of commodities.
The merchants' capital is at first merely the intervening movement between extremes not controlled by it and between premises not created by it.
Just as from the mere form of the circulation of commodities, C—M—C, money rises not only as a measure of value and medium of circulation, but also as the absolute form of the commodity and thus of wealth, in the form of a hoard, so that its conservation and accumulation as money become its life's purpose, so money, in the shape of a hoard, issues from the mere form of the circulation of merchants' capital, M—C—M', as something which is preserved and increased only by its alienation.
The trading nations of the ancients existed like the gods of Epicure in the intermediate worlds of the universe, or rather like the Jews in the pores of Polish society. The trade of the first independent and highly developed merchant towns and trading nations rested as a pure carrying trade upon the barbarism of the producing nations between whom they intervened.
In the precapitalist stages of society, commerce rules industry. The reverse is true of modern society. Of course, commerce will have more or less of a reaction on the societies, between which it is carried on. It will subject production more and more to exchange value, by making enjoyments and subsistence more dependent on the sale than on the immediate use of the products. Thereby it dissolves all old conditions. It increases the circulation of money. It seizes no longer merely upon the surplus of production, but corrodes production itself more and more, making entire lines of production dependent upon it. However, this dissolving effect depends to a large degree on the nature of the producing society.
So long as merchants' capital promotes the exchange of products between undeveloped societies, commercial profit does not only assume the shape of outbargaining and cheating, but also arises largely from these methods. Leaving aside the fact that it exploits the difference in the prices of production of the various countries (and in this respect it tends to level and fix the values of commodities), those modes of production bring it about that merchants' capital appropriates to itself the overwhelming portion of the surplus-product, either in its capacity as a mediator between societies, which are as yet largely engaged in the production of use-values and for whose economic organisation the sale of that portion of its product which is transferred to the circulation, or any sale of products at their value, is of minor importance; or, because under those former modes of production, the principal owners of the surplus-product, with whom the merchant has to deal, are the slave holder, the feudal landlord, the state (for instance, the oriental despot), and they represent the wealth and luxury, which the merchant tries to trap, as Adam Smith correctly scented in that passage on feudal times, which I have quoted above. Merchants' capital in its supremacy everywhere stands for a system of robbery, 49 and its development, among the trading nations of old and new times, is always connected with plundering, piracy, snatching of slaves, conquest of colonies. See Carthage, Rome, and later Venetians, Portuguese, Dutch, etc.
The development of commerce and merchants' capital brings forth everywhere the tendency toward production of exchange values, increases its volume, multiplies and monopolises it, develops money into world money. Commerce therefore has everywhere more or less of a dissolving influence on the producing organisations, which it finds at hand and whose different forms are mainly carried on with a view to immediate use. To what extent it brings about a dissolution of the old mode of production, depends on its solidity and internal articulation. And to what this process of dissolution will lead, in other words, what new mode of production will take the place of the old, does not depend on commerce, but on the character of the old mode of production itself. In the antique world the effect of commerce and the development of merchants' capital always result in slave economy; or, according to what the point of departure may be, the result may simply turn out to be the transformation of a patriarchal slave system devoted to the production of direct means of subsistence into a similar system devoted to the production of surplus-value. However, in the modern world, it results in the capitalist mode of production. From these facts it follows, that these results were conditioned on quite other circumstances than the mere influence of the development of merchants' capital.
It follows from the nature of the case that as soon as town industry as such separates from agricultural industry, its products are from the outset commodities and require for their sale the intervention of commerce. The leaning of commerce upon the development of the towns, and, on the other hand, the dependence of the towns upon commerce, are to that extent intelligible. However, in what measure industrial development will keep step with this development, depends upon quite other circumstances. Already ancient Rome, in its later republican days, developed merchants' capital more highly than it had ever existed in the antique world, without any progress in the development of crafts, while in Corinth and in other Grecian towns of Europe and Asia Minor the development of commerce was accompanied by highly developed crafts. On the other hand, in direct opposition to the development of towns and its conditions, the trading spirit and the development of commerce are frequently found among unsettled nomadic peoples.
There is no doubt—and it is precisely this fact which has led to many wrong conceptions—that in the 16th and 17th centuries the great revolutions, which took place in commerce with the through geographical discoveries and rapidly increased the development of merchants' capital, form one of the principal elements in the transition from feudal to capitalist production. The sudden expansion of the world market, the multiplication of the circulating commodities, the zeal displayed among the European nations in the race after the products of Asia and the treasures of America, the colonial system, materially contributed toward the destruction of the feudal barriers of production. However, the modern mode of production, in its first, period, the manufacturing period, developed only in places, where the conditions for it had been previously developed during medieval times. Compare, for instance, Holland with Portugal. 50 And, on the other hand, when in the 16th, and partially still in the 17th, century the sudden expansion of commerce and the creation of a new world market exerted an overwhelming influence on the overthrow of the old mode of production and the rise of the capitalistic one, this was accomplished on the basis of the already created capitalist mode of production. The world market forms itself the basis of this mode of production. On the other hand, the immanent necessity of this production to produce on an ever enlarged scale tends to extend the world market continually, so that it is not commerce in this case which revolutionises industry, but industry which continually revolutionises commerce. The commercial supremacy itself is now conditioned on the greater or smaller prevalence of the conditions for a large industry. Compare for instance, England and Holland. The history of the decline of Holland as the ruling commercial nation is the history of the subordination of merchants' capital to industrial capital. The obstacles presented by the internal solidity and articulation of precapitalistic, national, modes of production to the corrosive influence of commerce is strikingly shown in the intercourse of the English with India and China. The broad basis of the mode of production is here formed by the unity of small agriculture and domestic industry, to which is added in India the form of communes resting upon common ownership of the land, which, by the way, was likewise the original form in China. In India, the English exerted simultaneously their direct political and economic power as rulers and landlords, for the purpose of disrupting these small economic organisations. 51 The English commerce exerts a revolutionary influence on these organisations and tears them apart only to the extent that it destroys by the low prices of its goods the spinning and weaving industries, which are an archaic and integral part of this unity. And even so this work of dissolution is proceeding very slowly. It proceeds still more slowly in China, where it is not backed up by any direct political power on the part of the English. The great economy and saving in time resulting from the direct connection of agriculture and manufacture offer here the most dogged resistance to the products of great industries, whose prices are everywhere perforated by the dead expenses of their process of circulation. On the other hand, Russian commerce, unlike the English, leaves the economic basis of Asiatic production untouched. 52
The transition from the feudal mode of production takes two roads. The producer becomes a merchant and capitalist, in contradistinction from agricultural natural economy and the guild-encircled handicrafts of medieval town industry. This is the really revolutionary way. Or, the merchant takes possession in a direct way of production. While this way serves historically as a mode of transition—instance the English clothier of the 17th century, who brings the weavers, although they remain independently at work, under his control by selling wool to them and buying cloth from them—nevertheless it cannot by itself do much for the overthrow of the old mode of production, but rather preserves it and uses it as its premise. For example, even up to the middle of the 19th century the manufacturer in the French silk industry and in the English hosiery and lace industries was but nominally a manufacturer, and merely a merchant in point of fact, who permitted the weavers to continue their work in the old unorganized way and exerted only the control of the merchant, for whom they work in reality. 53 This method is everywhere an obstacle to a real capitalist mode of production and declines with the development of the latter. Without revolutionising the mode of production, it deteriorates merely the condition of the direct producers, transforms them into mere wage workers and proletarians under worse conditions than those who have already been placed under the immediate control of capital and absorbs their surplus-labor on the basis of the old mode of production. The same conditions exist in a somewhat modified form in the London furniture industry, so far as it is carried on by handicrafts. Particularly in the Tower hamlets it is practised on a very extensive scale. The whole production is divided into numerous separate lines independent of one another. One business makes only chairs, another only tables, a third only bureaus, etc. But these lines of business themselves are run more or less like crafts, by one small master with a few journeymen. Nevertheless the output is too large to work directly for private persons. The products are bought by owners of furniture stores. On Saturdays the master sees them and sells his product, and the transaction is closed with as much haggling as is done in a pawnshop over the loan on this or that piece. The masters need this weekly sale, were it for no other reason than to buy more raw materials for next week and pay wages. Under these circumstances, they are really only middlemen between their employes and the merchants. The merchant is the real capitalist, who pockets the largest share of the surplus-value. 54
A similar condition exists in the transition to manufacture from lines, which were formerly carried on as handicrafts or as sidelines to rural industries. According to the development of such small independent businesses—which may even employ machinery that admits of a craftslike operation—the transition to large scale industry takes place. The machine is driven by steam, instead of by hand. This is the case, for instance, of late in the English hosiery industry.
There is, consequently, a threefold transition. First, the merchant becomes directly an industrial capitalist. This is the case in crafts conditioned on commerce, especially industries producing luxuries, which are imported by the merchants together with the raw materials and laborers from foreign countries, as they were in Italy from Constantinople in the 15th century. In the second place, the merchant converts the small masters into his middlemen or, perhaps, buys direct from the self-producer, leaving him nominally independent and his mode of production unchanged. In the third place, the industrial becomes a merchant and produces immediately on a large scale for commerce.
In the Middle Ages, the merchant is merely the man who, as Poppe correctly says, "removes" the goods produced by the guilds or the peasants. The merchant becomes an industrial capitalist, or rather, he lets the craftsmen, particularly the small rural producers, work for him. On the other hand, the producer becomes a merchant. The master weaver, instead of receiving his wool in installments from the merchant and working for him with his journeymen buys wool or yarn himself and sells his cloth to the merchant. The elements of production pass into his process of production as commodities bought by himself. And instead of producing for the individual merchant, or for definite customers, the master cloth-weaver produces for the commercial world. The producer is himself a merchant. The merchants' capital performs no longer anything but the process of circulation. Originally the commerce was the premise for the transformation of the crafts, rural domestic industries, and feudal agriculture into capitalist enterprises. It develops the products into commodities, either by creating a market for them, or by carrying new equivalents in the form of goods to them and supplying production with new raw and auxiliary materials. In this way it opens up new lines of production, which are based at the outset upon commerce, both as concerns the production for the home and world market and as concerns conditions of production originated by the world market. As soon as manufacture gains sufficient strength, and still more large scale industry, it creates in its turn a market for itself and captures it with its commodities. Now commerce becomes the servant of industrial production, and a continual expansion of the market becomes a vital necessity for industrial production. An ever more extended wholesale production floods the existing market and thereby works continually toward a still wider expansion of the market and a bursting of its bonds. What restricts this wholesale production, is not commerce (to the extent that it expresses the existing demand), but the magnitude of the employed capital and the developed productivity of labor. The industrial capitalist always has the world market before him, compares, and must continually compare, his own cost-prices with those of the whole world, not only with those of his home market. In former periods this comparison falls almost entirely upon the shoulders of the merchants, and thereby secures for merchants' capital the supremacy over industrial capital.
The first theoretical treatment of modern modes of production—the mercantile system—started out necessarily from the superficial phenomena of the process of circulation, which are presented in an independent form by the movements of merchants' capital. Therefore it grasped only the semblance of things. This was partly due to the fact that merchants' capital is the first free mode of existence of capital in general. On the other hand, it was due to the overwhelming influence exerted by this capital during the first period of revolution of feudal production, the period of genesis of modern production. The real science of modern economy does not begin, until theoretical analysis passes from the process of circulation to the process of production. It is true, interest-bearing capital is likewise a very old form of capital. But we shall see later, why mercantilism did not take its departure from it, but assumed a controversial attitude towards it.
IN our first discussion of the general, or average, rate of profit in Part II of this volume, we did not have this rate before us in its complete form, since the equalisation of profit appeared there only as an equalisation between the various industrial capitals invested in different spheres. This was further supplemented in the preceding Part, in which the participation of merchants' capital in this equalisation and the commercial profit were discussed. By this means the general rate of profit and the average profit presented themselves within more circumscribed limits than before. In the further process of our analysis it should be remembered, that any future reference to the general rate of profit or to the average profit means only this latter, completed, form of the average rate. Since this rate is now the same for the industrial and the mercantile capital, it is no longer necessary, so far as this average profit is concerned, to make any distinction between industrial and commercial profit. Whether capital is invested industrially in the sphere of production, or commercially in the sphere of circulation, it yields the same average profit annually in proportion to its magnitude.
Money—which signifies here any independent expression of a certain amount of value, whether it exists actually as money or as commodities—may be converted into capital on the basis of capitalist production. By this conversion it is transformed from a given value to a self-expanding, increasing, value. It produces a profit, that is, it enables a capitalist to extract a certain amount of unpaid labor, surplus-products and surplus-value, from the laborers and to appropriate it to himself. In this way it acquires, aside from its use-value as money, an additionel use-value, namely that of serving as capital. Its use-value consists then precisely in the profit, which it produces when converted into capital. In this capacity of potential capital, of a means for the production of profit, it becomes a commodity, but a commodity of a peculiar kind. Or, what amounts to the same, capital as capital becomes a commodity. 55
Take it that the average rate of profit is 20%. In that case a machine, valued at 100 p.st., employed as capital under the prevailing average conditions and with an average exertion of intelligence and adequate activity, would yield a profit of 20 p.st. In other words, a man having 100 p.st. at his disposal, holds in his hand a power by which 100 p.st. may be turned into 120 p.st., or by which a profit of 20% may be produced. He holds in his hand a potential capital of 100 p.st. If this man relinquishes these 100 p.st. for one year to another man, who uses this sum actually as capital, he gives him the power to produce a profit of 20%, a surplus-value, which costs this other nothing, for which he pays no equivalent. If this man should pay, say 5 p.st. at the close of the year to the owner of the 100 p.st., out of the produced profit, he would be paying for the use-value of the 100 p.st., the use-value of its function as capital, the function of producing 20 p.st. of profit. That part of the profit, which he pays to the owner, is called interest. It is merely another name, a special term, for a certain part of the profit, which capital in process of its function has to give up to its owner, instead of keeping it in its own pockets.
It is evident, that the possession of 100 p.st. gives to their owner the power to absorb the interest, a certain portion of the profit produced by his capital. If he did not give the 100 p.st. to the other man, then this other could not produce any profit, and could not act in the capacity of capitalist at all with reference to these 100 p.st. 56
To speak in such a case of natural justice, as Gilbart is doing (see note), is nonsense. The justice of the transactions between the agents of production rests on the fact that these transactions arise as natural consequences from the conditions of production. The juristic forms, in which these economic transactions appear as activities of the will of the parties concerned, as expressions of their common will and as contracts which may be enforced by law against some individual party, cannot determine their content, since they are only forms. They merely express this content. This content is just, whenever it corresponds, and is adequate, to the mode of production. It is unjust, whenever it contradicts that mode. Slavery on the basis of capitalist production is unjust; likewise fraud in the quality of commodities.
The 100 p.st. produce the profit of 20 p.st. by functioning as capital, whether it be industrial or commercial. But the indispensable condition of this function as capital is that this money is used as capital, that this money is invested in the purchase of means of production (in the case of industrial capital), or of commodities (in the case of merchants' capital). But in order to be expended, it must be there. If A, the owner of the 100 p.st., were to spend them for his private expenses, or to keep them as a hoard, they could not be invested by B, in his capacity as a capitalist, as capital. B does not invest his own capital, but that of A. But he cannot expend the capital of A without the consent of A. Therefore it is really A, who first expends these 100 p.st. as capital, although his whole function as a capitalist is limited to this expenditure of 100 p.st. as capital. So far as these 100 p.st. are concerned, B acts in the capacity of a capitalist only because A lends him this money and thus expends it as capital.
Let us first consider the peculiar circulation of interest-bearing capital. Then we shall analyse in the second place the peculiar manner, in which it is sold as a commodity, being merely lent instead of relinquished for good.
The point of departure is the money, which A advances to B. This may be done with or without security. However, the first named form is the more ancient, with the exception of advances on commodities or on certificates of indebtedness, such as bills of exchange, bonds, etc. These special forms do not concern us here. We are dealing here with interest-bearing capital in its ordinary form.
In the hand of B, the money is actually converted into capital, passes through the process M—C—M', and returns as M' to A, as M + increment of M, where the increment of M represents the interest. For the sake of simplicity we leave out of consideration the case, in which capital stays in the hands of B for a long term and interest is paid at periodical intervals.
The movement, then, is M—M—C—M'—M'. What appears duplicated here is 1) the expenditure of the money as capital, 2) its reflux as realised capital, as M', or as M + increment of M.
In the movement of merchants' capital, M—C—M', the same commodity changes hands twice, or even more than twice, if one merchant sells to another. But every change of hand of these commodities indicates a metamorphosis, a purchase or sale of commodities, no matter how often this process may be repeated until it ends in consumption.
On the other hand, the same money changes hands twice in C—M—C, but this indicates the complete metamorphosis of the commodity, which is first converted into money and then from money back into another commodity.
But in the case of interest-bearing capital, the first change of hands of M is not a phase of either the metamorphosis of a commodity or of the reproduction of capital. It does not become so until the second change of hands, in the hands of the man acting in the capacity of a capitalist, who carries on a trade with it or transforms it into productive capital. The first change of hands of M does not express anything else in this case but its transfer, or handing over by contract, from A to B. This is a transfer, which usually takes place under certain juristic forms and stipulations.
This duplicated expenditure of money as capital, the first of which is merely a transfer from A to B, is supplemented by the duplication of its reflux. As M', or M + increment of M, it flows back out of the process to the man acting in the capacity of a capitalist. This man in his turn transfers it back to A, together with a part of the profit, of realised capital, of M + increment of M, which, however, is not equal to the entire profit, but only a part of the profit, the interest. It flows back to B only as the thing which he had invested, as capital in process of function, but as the property of A. In order that its reflux may be complete, B must return it to A. But B has not only to return the amount of the capital, he must also turn over to A a part of the profit, which he made with this capital, and this part is called interest. For A gave him this money only as a capital, that is, as a value, which is not only maintained by its movements, but brings also a surplus-value to its owner. It remains in the hands of B only so long as it is performing its function of capital. And it ceases to be capital as soon as it is returned to its owner on the stipulated date. When no longer serving as capital, it must be returned to A, who never ceased being its legal owner.
The form of lending, which is peculiar to this commodity, this capital as a commodity, and which also occurs in other transactions instead of that of sale, follows from the simple definition that capital serves here as a commodity, or that money as capital becomes a commodity.
It is necessary to make a distinction here.
We have seen in Volume II, chapter I, and recall at this point, that capital serves in the process of circulation as commodity-capital and money-capital. But in neither of these forms does capital become a commodity as capital.
As soon as the productive capital has transformed itself into commodity-capital, it must be thrown upon the market, it must be sold as a commodity. There it serves simply in the capacity of a commodity. The capitalist then appears only as a seller of commodities, just as the buyer is only a buyer of commodities. As a commodity, the product must realise its value in the process of circulation, by its sale, must assume the form of money. In this respect it is quite immaterial, whether this commodity is bought by a consumer for the purpose of subsistence, or by a capitalist as a means of production to become a part of his capital. In the act of circulation, the commodity-capital serves only as a commodity, not as capital. It is a commodity- capital, as distinguished from a simple commodity, 1), because it is pregnant with surplus-value, so that the realisation of its value is simultaneously a realisation of surplus-value. But this does not alter in any way its simple existence as a commodity, as a product of a certain price. 2) It is a commodity- capital, because its function as a commodity is a phase in its process of reproduction as capital, so that its movement as a commodity, being a part of its movement in process, is simultaneously its movement as capital. Yet it does not become capital by the act of selling as such, but only through the connection of this act with the whole movement of this definite amount of value in the capacity of capital.
In like manner it serves only as money pure and simple, when acting in the capacity of money-capital, that is, as a means of buying commodities (the elements of production). The fact that this money is at the same time money-capital, a form of capital, is not due to the act of buying, which is the service performed by it as money. It is due to the connection of this act with the total movement of capital, since this act, which it performs as money, inaugurates the capitalist process of production.
But so far as they perform any service and play any actual role in the process, commodity-capital on the market serves only as a commodity, money-capital only as money. At no time during the metamorphosis, viewed by itself, does the capitalist sell his commodities as capital to the buyer, although they represent a capital for himself, nor does he give up money to the sellers in his capacity as a capitalist. In either case he exchanges his commodities simply as commodities, and the money simply as money, as a means of purchasing commodities.
It is only in the connection with the whole process, at the moment where the point of departure appears simultaneously as the point of return, in M—M' or C—C', that capital in the process of circulation appears as capital (while it appears as capital in the process of production through the subordination of the laborer under the capitalist and the production of surplus-value). In this moment of return, however, the connection disappears. What is present is M', that is money plus increment of money (regardless of whether the amount of value increased by this increment has the form of money, commodities, or elements of production), a certain amount of money equal to the amount originally advanced plus an increment, which is the realised surplus-value. And it is precisely at this point of return, where capital exists as a realised capital, as an expanded value, that capital never passes into circulation—considering this point as a fixed point of rest, whether imaginary or real—, but rather appears to be withdrawn from circulation as a result of the whole process. Whenever it is again relinquished, it is never transferred to another as capital, but sold to him as a simple commodity, or given to him as simple money in exchange for commodities. It never appears as capital in its process of circulation, but only as a commodity or as money, and this is the only form in which it exists so far as others are concerned. Commodities and money are here capital, not inasmuch as commodities change into money, or money into commodities, not with reference to their actual relations to sellers or buyers, but only with reference to their ideal relations, that is, subjectively speaking, their relations to the capitalist himself, or objectively speaking, as elements of the process of reproduction. So far as capital is capital, it exists only in its actual function, not in the process of circulation, but only in the process of production, in the process by which labor-power is exploited.
But it is different with interest-bearing capital, and it is precisely this difference, which constitutes its specific character. The owner of money, who desires to invest his money as interest-bearing capital, transfers it to some one else, throws it into circulation, makes a commodity of it as capital. It is not a capital for himself alone, but also for others. It is not capital merely for the man who offers it for investment, but it is handed to others at the outset as capital, as a value endowed with the use-value of creating surplus-value, profit; a value which preserves itself in process and returns to its original owner, in this case the owner of money, after performing its function. It moves away from him only for a certain time, it passes for a while from the possession of its owner into that of a capitalist performing his business, it is neither given up in payment nor sold, but merely loaned. It is relinquished only with the understanding that it shall in the first place return to its point of departure after a certain time, and that it shall return, in the second place, as realised capital, a capital having actually performed its function of creating surplus-value.
Commodities, which are loaned out as capital, are loaned either as fixed or as circulating capital, according to their constitution. Money may be loaned in either form. For instance, it may be loaned as fixed capital in the form of an annuity, whereby a portion of the capital returns with the interest. Some commodities, owing to the nature of their use-values, can be loaned only as fixed capital, such as houses, ships, machines, etc. But all loan capital, whatever be its forms, and no matter in what manner the nature of its use-value may modify its return, is only a specific form of money-capital. For the thing that is loaned here is always a definite sum of money, and it is this sum on which interest is calculated. If the thing that is loaned is neither money nor circulating capital, it is paid back in the same way in which fixed capital returns. The lender receives periodically a certain interest and a portion of the consumed value of the fixed capital itself, an equivalent for the periodical wear and tear. And at the end of the stipulated term the unconsumed portion of the loaned fixed capital is returned in natura. If the loaned capital is circulating capital, it is like-wise returned in the manner peculiar to circulating capital.
The manner of reflux, then, is always determined by the actual circulation of the capital in process of reproduction and its specific kind. But so far as loan capital is concerned, its reflux assumes the form of return payments, because its advance, by which it is relinquished, has the form of loaning.
In this chapter we treat only of money-capital proper, from which the other forms of loaned capital are derived.
The loaned capital returns in a twofold way. First it returns in the process of reproduction to the capitalist performing his function, and then its return is duplicated by its transfer to the lender, the money-capitalist, in the form of a return payment to its real owner, its legal point of departure.
In the actual process of circulation the capital appears always as a commodity or as money, and its movements are always dissolved into a series of purchases and sales. In short, the process of circulation resolves itself into the metamorphosis of commodities. It is different, when we consider the process of reproduction as a whole. If we take our departure from money (and it is the same, when we start off with commodities, since we then take our departure from their value and look upon them from the point of view of money), we see that a certain sum of money is expended and returns after a certain period with an increment. This sum has preserved itself and expanded itself in the course of a certain rotation. To the extent that money is loaned as capital, it is loaned as just such a sum of money, which preserves and expands itself, returns after a certain period with an increment, and is ready to pass through the same process once more. It is not expended either as money or as a commodity, it is neither exchanged for commodities when advanced in the form of money, nor sold in exchange for money, when advanced in the form of commodities. It is expended as capital. This reflexive relation to itself, in which capital presents itself when the process of production is viewed in its entirety and as a unit, and in which money appears as self-increasing money, is here imposed upon it as its character and peculiarity without the intervention of any intermediary movement. And it is expended in this peculiar form, when it is loaned as money-capital.
A very queer conception of the role of money-capital is held by Proudhon " Gratuité du Crédit. Discussion enter M. F. Bastiate et M. Proudhon. Paris, 1850.") Loaning appears as an evil to Proudhon because it is not selling. Loaning at interest is for him "the faculty of always selling the same article over and over, and of receiving its price again and again, without ever relinquishing the ownership of the things one is selling" (page 9). The object, such as money, a house, etc., does not change owners, as it does in selling and buying. But Proudhon does not see, that no equivalent is received for money handed over as interest-bearing capital. It is true that objects are passed from one to another in every act of buying and selling, so far as they are at all processes of exchange. The ownership of the sold object is always relinquished. But its value is not given up. In selling the commodity is relinquished, but not its value, which is given in return in the form of money, or in another form which here takes the place of money, namely of certificates of indebtedness, or of titles of payment. In buying money is given away, but its value, which is recovered in the shape of commodities. The industrial capitalist holds the same value in his hands during the entire process of reproduction (except the surplus-value), only it assumes different forms.
To the extent that exchange takes place, that is, an exchange of objects, no change of value takes place. The same capitalist always holds the same value in his hands. But so long as surplus-value is produced by the capitalist, no exchange takes place. As soon as exchange takes place, the surplus-value is already incorporated in the commodities. If we do not have in mind the individual acts of exchange, but the total circulation of capital, M—C—M', we see that a definite amount of values is continually advanced, and that this amount plus the surplus-value, or the profit, is recovered from the circulation. It is true, the individual acts of exchange do not reveal the fact that they are promoting this process. And it is precisely this process of M as capital, on which the interest of the money-lending capitalist rests and from which it arises.
"In fact," says Proudhon, "the hat maker, who sells hats...receives their value, no more and no less. But the money-lending capitalist...does not recover merely his capital: he recovers more than his capital, more than he throws into circulation; he receives an interest over and above his capital." (Page 169.) The hatter stands here in the place of the productive capitalist as distinguished from a loan capitalist. Evidently Proudhon did not learn the secret, which enables the capitalist to sell commodities at their value (the equalisation of values by the prices of production is here immaterial for his conception), whereby he receives a profit in addition to the capital, which he throws into circulation. Let us assume that the price of production of 100 hats is 115 pounds sterling, and that this price of production happens to be identical with the value of the hats, which means that the capital invested in the production of hats is of the same composition as the average social capital. If the profit is 15 p.st., or 15%, then the hatter gets this profit of 15 p.st. by selling his hats at their value of 115. They cost him 100 p.st. If he has produced them with his own capital, he pockets the whole surplus of 15 p.st. If he has borrowed the capital, he may have to give up 5 p.st. for interest. This does not alter anything in the value of the hats, but only in the distribution of the surplus-value already contained in this value between different persons. Since the value of the hats is not affected by the payment of interest, it is nonsense on the part of Proudhon to say: "As in commerce the interest of capital is added to the wages of laborers in making up the price of commodities, it is impossible that the laborer should be able to buy back the product of his own labor. To live by working is a principle, which implies a contradiction under the rule of interest." 57
How little Proudhon understood the nature of capital, is shown by the following statement, in which he describes the movement of capital in general as a movement peculiar to interest-bearing capital: "Since money-capital, from exchange to exchange, comes always back to its source by the accumulation of interest, it follows that re-investment is always made by the same hand and profit accrues always to the same person."
What is it, now, that remains a riddle to him in the peculiar movement of interest-bearing capital? The categories buying, price, giving up objects, and the spontaneous form, in which surplus-value appears here; in short, the phenomenon that capital as such has become a commodity, so that selling has been turned into lending and price into a share in the profit.
The return of capital to its point of departure is the most general and characteristic movement of capital in its total circulation. This is by no means a peculiarity of interest-bearing capital. Its peculiarity is rather the externalised form of its return without the intervention of any circulation. The loaning capitalist lets go of his capital, transfers it to some industrial capitalist, without receiving any equivalent. His handing over of capital is not an act of the real circulation of capital at all, but serves merely as a prelude for the industrial capitalist who effects this circulation. This first change of place of money does not express any act of metamorphosis, neither buying nor selling. Its ownership is not relinquished, because no exchange takes place, no equivalent is offered. The return of the money from the hand of the industrial capitalist to that of the loaning capitalist supplements merely the first act of handing over the capital. This capital, after having been advanced in the form of money, returns to the industrial capitalist from the process of circulation in the form of money. But as the capital did not belong to him when he expended it, neither can it belong to him on its return. The passage through the process of reproduction cannot by any means give him the ownership of this capital. Hence he must restore it to its lender. The first transfer of the capital from the hands of the lender to those of the borrower is a legal transaction, which has nothing to do with the actual process of reproduction, but merely inaugurates it. The restoration, which transfers the returned capital from the hands of the borrower back to those of the lender is another legal transaction, a supplement of the first. The first inaugurates the actual process, the second takes place after this process. The point of departure and of return, the dispensation and recovery of the loaned capital, thus appear as arbitrary movements promoted by legal transactions, which take place before and after the actual process of capital and have nothing to do with it. So far as this actual process is concerned, the industrial capitalist might as well own the capital at the outset, so that it would return to him as his property.
In the first introductory act the lender gives his capital to the borrower. In the second and closing act after the process, the borrower returns the capital to the lender. To the extent that we consider merely the transaction between these two—and leaving aside the question of interest for the present—, in other words to the extent that we have in mind only the movement of the loan capital itself between the lender and the borrower, the whole movement is comprised within these two acts (separated by a longer or shorter time, during which the process of actual reproduction of capital takes place). And this movement, this dispensing on condition of returning, constitutes per se the movement of lending and borrowing, which is a specific form of a conditional dispensation of money or commodities.
The characteristic movement of capital in general, namely the return of money to the capitalist, the return of capital to its point of departure, assumes in the case of interest-bearing capital a wholly externalised form, separated from the actual movement of which it is an expression. A lets go of his money, not in the sense of money, but of capital. This implies no transformation of the capital. It merely changes hands. Its real transformation into capital is not performed until it is in the hands of B. But it has become capital for A as soon as he has given it to B. The actual reflux of capital from the processes of production and circulation takes place only for B. But for A the reflux assumes the same form as the dispensation. The capital returns from the hands of B to those of A. Dispensing, loaning money for a certain time and recovering it with interest (surplus-value) make up the complete form of the movement, which is peculiar to interest-bearing capital as such. The actual movement of the loaned money as capital constitutes a process, which is outside of the transactions between the lender and the borrower. In these transactions the intermediate process is obliterated, invisible, not directly comprised.
Being a peculiar sort of commodity, capital has its own peculiar mode of alienation. Its return in the present case is not the expression, not the consequence or result, of a definite series of economic processes, but the outcome of a specific legal agreement between buyer and seller. The time of return depends on the duration of the process of reproduction. But in the case of interest-bearing capital, its return as capital seems to depend on the mere agreement between lender and borrower. The return of capital as a part of this agreement no longer appears as a result due to the process of reproduction, but seems to take place without depriving the loaned capital of the form of money. It is true that these transactions are actually determined by the reproductive returns. But this is not evident in the transactions themselves. Nor is it always the case in practice. If the return in reproduction does not take place at the proper time, then the borrower has to face the problem. what other resources he can call into play to fulfill his obligations towards the lender. The mere form of this capital—that is, money expended as a certain sum, A, and returning as another sum A + IA/x, after a certain lapse of time, without any other intermediate connection but this lapse of time—is but an abstract image of the actual movement of capital.
In the actual movement of capital, its return is a phase of the process of circulation. The money is first converted into means of production; the process of production transforms it into commodities; by the sale of the commodities it is reconverted into money, and in this form it returns to the hands of the capitalist, who originally advanced the capital in the form of money. But in the case of interest-bearing capital, both the alienation and the return are the results of a legal transaction between the owner of capital and another person. We see only the alienation and the return. Whatever passes during the interval is obliterated.
But since money, when advanced as capital, has the faculty of returning to the person, who expended it as capital, since M—C—M' is the immanent form of the movement of capital, for this very reason the owner of money can loan it as capital, a thing having the faculty of returning to its point of departure, of preserving its value while under way in process, and of increasing it. He loans it as capital, because it returns to its point of departure after having been transformed into capital, so that the borrower can restore it to the lender after a certain period, because he has recovered it himself.
The loaning of money as capital—its alienation on condition that it be returned after a certain time—is therefore conditioned on the requirement that this money be actually employed as capital, so that it may actually flow back to its starting point. The actual cycle of money as capital is therefore the basic condition of the legal transaction, by which the borrower has to return the money to the lender. If the borrower does not invest the money as capital, it is his own business. The lender loans it as capital, and as such it is supposed to perform the capitalist functions, which include the circulation of money-capital until it reaches once more its starting point in the form of money.
The transactions M—C and C—M' in the circulation, in which a certain amount of value serves as money or commodities, are but intermediary processes, individual phases of a whole movement. As capital, this sum passes through the whole movement M—M'. It is advanced as money, or as a sum of values in some form, and returns as a sum of values. The lender of money does not expend it in the purchase of commodities, or, if this sum of values exists in the form of commodities, he does not sell it for money, but he advances it as capital, as M—M', as a value, which returns after a certain lapse of time to its point of departure. Instead of buying and selling, he loans. This loaning, then, is the form corresponding to its alienation as capital, instead of its alienation as money or commodities. This does not mean, however, that loaning may not be used in transactions, which have nothing to do with the capitalist process of reproduction.
We have so far considered only the movements of loaned capital between its owner and the industrial capitalist. Now we shall have to inquire into interest.
The lender expends his money as capital; the amount of values, which he relinquishes into the hands of another, is capital and returns to him. But the mere return of the loan capital into his hands as the same amount would not be its reflux as capital, but merely the return of a loaned sum of values. In order to return as capital, the advanced sum of values must not only be preserved in process, but must also be expanded, must return with a surplus-value, must be recovered as M + increment of M. This increment of M is in the present case the interest. It is that portion of the average profit, which does not remain in the hands of the practicing capitalist, but falls to the share of the money capitalist.
The fact that the money capitalist expends it as capital implies that it must be restored to him as M + increment of M. Later we shall also have to consider the case, in which interest is paid in fixed intervals without the simultaneous return of the capital, whose definite return does not take place until at the end of a longer period.
What is it that the money capitalist gives to the borrower, the industrial capitalist? What does he really pass over to him? It is only this transaction of handing over money which makes of the loaning of money a lending of money as capital, that is, the lending of capital as a commodity.
It is only by this act of passing money over to another that the capital is loaned by the money lender as a commodity, or that the commodity at his disposal is given to another as capital.
What is it that is alienated in ordinary sale? It is not the value of the sold commodities, for this changes merely its form. The value exists ideally in a commodity as its price, before it passes actually into the hands of the seller as money. The same value and the same amount of value merely change their form in such a case. In one instance they exist in the form of a commodity, in another in the form of money. The thing which is actually alienated by the seller, and which for this reason passes into the individual or productive consumption of the buyer, is the use-value of the commodity, is the commodity as a use-value.
What, then, is the use-value, which the money capitalist passes over for the period of the loan and relinquishes into the hands of the borrower, the productive capitalist? It is the use-value, which the money assumes by being capable of being invested as capital and performing the functions of capital, so that it can create a definite surplus-value, the average profit (any excess or fall below this is here a matter of accident), during its process, in addition to preserving its original magnitude of value. In the case of other commodities the use-value is ultimately consumed. Their substance disappears in consequence and with it their value. But the commodity capital has the peculiarity, that the consumption of its use-value not only preserves its exchange value and its use-value, but also increases them.
It is this use-value of money as capital, this faculty of producing an average profit, which the money capitalist relinquishes to the industrial capitalist for the period, during which he yields to the latter the use of the loan capital.
The money thus loaned shows in this respect a certain analogy with labor-power in its relation to the industrial capitalist. There is only this difference, that he pays for the value of labor-power, while he simply pays back the value of the loaned capital. The use-value of labor-power consists for the industrial capitalist in the faculty that labor-power creates more value (the profit) by its consumption for the industrial capitalist. And in like manner the use-value of the loan capital appears as its faculty of preserving and increasing value.
The money-capitalist alienates indeed a use-value, and for this reason the thing which he gives away is given as a commodity. And to this extent the analogy with a commodity is complete. In the first place, it is a value, which passes from one hand to another. In the case of a simple commodity, a commodity as such, the same value remains in the hands of the buyer and seller, only it has different forms; both have the same value which they had before the transaction, the one in the form of a commodity, the other in that of money. The difference in the case of loan capital is that the money capitalist is the only one who gives away a value when loaning money; but he preserves it by means of future restoration. In the transaction of loaning only one party receives value, since only one party relinquishes value.
In the second place, it is a real use-value, which is relinquished on one side and received and consumed on the other. But it differs from the use-value of ordinary commodities in that it is itself a value, namely the excess over the value of the original capital realised by the use of money as capital. The profit is this use-value.
The use-value of the loan capital consists in being able to serve as capital and to produce in this capacity the average profit under average conditions. 58
What, then, does the industrial capitalist pay, and what is, therefore, the price of the loaned capital? That which men pay as interest for the use of what they borrow is, according to Massie, a part of the profit it is capable of producing. 59
What the buyer of an ordinary commodity buys is its use-value; what he pays for is its exchange value. What the borrower of money buys, is likewise its use-value as capital; but what does he pay for? Surely not for its price, or value, as in the case of ordinary commodities. No change of form takes place in the value passing between the borrower and the lender, such as takes place between the buyer and the seller, so that this value would exist in one instance in the form of money, in another instance in the form of a commodity. The sameness of the alienated and returned value shows itself here in an entirely different way. The sum of values, the money, is given away without an equivalent, and is returned after the lapse of a certain period. The lender always remains the owner of the same value, even after it has passed from his hands into those of the borrower. In the simple exchange of commodities, the money is always on the side of the buyer; but in the lending, the money is on the side of the lender. It is he, who gives away his money for a certain period, and it is the borrower, the buyer of capital, who receives it as a commodity. But this is possible only when the money serves as capital and is advanced for this purpose. The borrower borrows money as capital, as a value producing an increment. But at the moment of borrowing it is as yet only potential capital, and so is any other capital at the moment when it is advanced. Only by its use does it expand its value and realise itself as capital. But after it has become realised capital, the borrower has to return it, as a value plus a surplus-value (interest). And this interest can be only a portion of the realised profit. Only a portion, not the whole of it. For its use-value for the borrower consists in producing a profit for him. Otherwise there would not have been any alienation of its use-value on the part of the lender. On the other hand, it cannot be the whole profit which falls to the share of the borrower. Otherwise he would not be paying anything for the alienation of the use-value, and he would return the advanced money to the lender as simple money, not as a capital having realised itself. For it is realised capital only when it is M + increment of M.
Both of them expend the same sum of money as capital, the lender and the borrower. But only in the hands of the latter does it serve as capital. The profit is doubled by the double existence of the same sum of money as a capital for two persons. It can serve as a capital for both of them only by dividing the profit. That portion, which falls to the share of the lender, is called interest.
It is our assumption, that this entire transaction takes place between two kinds of capitalists, the money-capitalist and the industrial or the merchant capitalist.
It should never be forgotten, that capital as such is here a commodity, or that the commodity, which is here in question, is capital. All the relations, which become manifest here, would be irrational from the point of view of a simple commodity, or even from the point of view of capital serving as a commodity-capital in its process of reproduction. Lending and borrowing, instead of selling and buying, is here a distinction arising from the specific nature of the commodity, of capital; also that it is interest, not the price of the commodity, which is paid here. If interest is to be called the price of money-capital, it will be an irrational form of price, which is quite at variance with the conception of the price of commodities. 60 The price is then reduced to its purely abstract and meaningless form, signifying a certain sum of money paid for some thing, which serves in some manner as a use-value. On the other hand, the concept of price really signifies the value of some use-value expressed in money.
To call interest the price of capital is to use at the outset an irrational expression. A commodity has here a double value, namely first a real value, and secondly a price differing from this value, while ordinarily price signifies the expression of the value in money. Money-capital is primarily but a sum of money, or the value of a certain quantity of commodities incorporated in a sum of money. If a commodity is loaned as capital, then it is only the disguised form of a sum of money. For that which is loaned as capital is not so and so many pounds of cotton, but so much money existing in the form of cotton as its value. The price of capital, therefore, refers to it as a sum of money, even if not a currency, as Mr. Torrens thinks (see above note 60). How, then, can a sum of values have a price beside its own price, that is, aside from the price expressed in their own money-form? Price is precisely the value of commodities (and this holds good also of the market-price, whose difference from value is not one of quality, but only one of quantity, since it refers only to the magnitude of the value) as distinguished from their use-value. A price which is different in quality from value is an absurd contradiction. 61
Capital manifests itself as capital by its employment. The degree of its self-expansion expresses the quantitative ratio, in which it realises itself as capital. The surplus-value or profit produced by it—its rate or magnitude—is measurable only by its comparison with the value of the advanced capital. The greater or lesser self-expansion of interest- bearing capital is, therefore, only measurable by a comparison of the amount of interest, its share in the total profits, with the value of the advanced capital. While the price expresses the value of commodities, the interest expresses the self-expansion of money-capital and thus appears as the price, which the lender receives for it. This shows how absurd it is at the start to apply indiscriminately to this question the simple relations of exchange through buying and selling, as Proudhon does. For the basic premise is here that money serves as capital and may thus be transferred as capital itself, as potential capital, to another person.
Capital itself appears here as a commodity, inasmuch as it is offered on the market as the use-value of money actually handed over as capital. Its use-value consists in producing profits. The value of money or of commodities employed in the capacity of capital is not determined by their value as money or commodities, but by the quantity of surplus-value, which they produce for their owner. The product of capital is profit. On the basis of capitalist production it is merely a difference in the employment of money, whether it is expended as money or advanced as capital. Money, or commodities, are in themselves, potentially, capital, just as labor-power is potential capital. For in the first place, money may be converted into elements of production and is to that extent only an abstract expression of them, personifying their existence as values; in the second place, the material elements of wealth have the capacity of being even potentially capital, because the opposite supplement, which makes capital of them, namely wage-labor, is present on the basis of capitalist production.
The opposing social peculiarities of material wealth, its antagonism to labor in the form of wage-labor, considered apart from the process of production, are expressed even in capitalist property as such. This particular fact, when separated from the process of capitalist production itself, of which it is a constant result and, being its constant result, is its constant prerequisite, expresses itself in such a way that money and commodities alike become latent, potential, capital, so that they may be sold as capital, and that they represent in this form a command over the labor of others, a claim to the appropriation of the labor of others, so that they become self-expanding values. In this way it also becomes clearly apparent that this relation supplies the title and means for the appropriation of the labor of others, and that this is not due to any labor offered as an equivalent on the part of the capitalist.
Capital appears furthermore as a commodity, inasmuch as the division of profit into interest and profit proper is regulated by demand and supply, that is, by competition, just as are the market-prices of commodities. But in the present case the difference becomes quite as apparent as the analogy. If demand and supply balance, the market-price of commodities corresponds to their price of production. In other words, their price is then seen to be regulated by the internal laws of capitalist production, independently of competition, since the fluctuations of supply and demand do not explain anything but the deviations of market-prices from the prices of production. These deviations balance mutually, so that in the course of long periods the average market-prices correspond to the prices of production. As soon as these prices coincide, these forces cease to operate, they compensate one another, and the general law determining prices then applies also to individual cases. The market-price then corresponds even in its immediate form, and without the help of averages drawn from the movements of market-prices, to the price of production, which is regulated by the immanent laws of the mode of production itself. The same is then true of wages. If supply and demand balance, they neutralise each other's effects, and wages are then equal to the value of labor-power. But it is different with the interest on money-capital. Competition does not, in this case, determine the deviations from the rule, but there is rather no law of division except that enforced by competition, because no such thing as a "natural" rate of interest exists, as we shall see presently. By the natural rate of interest people merely mean the rate fixed by free competition. There are no "natural" limits for the rate of interest. Whenever competition does not merely determine the deviations and fluctuations, in other words, whenever a neutralisation of the opposing forces of competition puts a stop to all determination, the thing to be determined becomes a matter of arbitrary and lawless estimation. We shall dwell on this further in the next chapter.
In the case of interest-bearing capital, everything is outward appearance: The advance of capital seems a mere transfer from the lender to the borrower; the reflux of realised capital a mere transfer back to its owner, a return payment with interest from the borrower to the lender. The same holds good of the fact, due to the capitalist mode of production, that the rate of profit is not merely determined by the relation of the profit made in one single turn-over to the advanced capital-value, but also by the length of the time of turn-over itself, so that it is a question of a profit realised on the industrial capital in definite periods of time. This likewise appears in the case of interest-bearing capital in the outward fact, that a definite interest is paid to the lender for a definite period of time.
With his customary insight into the internal connection of things, the romantic Adam Müller says ( "Elemente der Staatskunst," Berlin, 1809, p. 37): "In determining the prices of things, time is not considered; while in the determination of interest, it is principally time which is taken into account." He does not see that the time of production and the time of circulation enter into the determination of the price of commodities, and that this is precisely what determines the rate of profit for a given time of turn-over of capital, while the determination of profit for a certain time in its turn determines that of interest. His sagacity consists here, as it always does, in seeing the clouds of dust on the surface and having the presumption to declare this dust to be something mysterious and important.
THE object of this chapter, and in general all other phenomena of credit requiring our consideration later on, cannot here be analysed in detail. The competition between lenders and borrowers and the resulting minor fluctuations of the money-market fall outside of the scope of our inquiry. The circle described by the rate of interest during the industrial cycle requires for its presentation the analysis of this cycle itself, but this is likewise beyond our intentions for the present. The same is true of the greater or lesser approximate equalisation of the rate of interest in the world market. We merely intend here to analyse the independent form of interest-bearing capital and the individualisation of interest as differentiated from profit.
Since interest is merely a part of profit, paid according to our assumption by the industrial capitalist to the money-capitalist, the maximum limit of interest is marked by profit itself, and in that case the portion pocketed by the productive capitalist would be equal to zero. Aside from exceptional cases, in which interest might be actually larger than profit and could not be paid out of profit, one might consider as the maximum limit of interest the entire profit minus that portion (to be subsequently analysed), which resolves itself into wages of superintendence. The minimum limit of interest is wholly undefinable. It may fall to any depth. But counteracting circumstances will always appear and lift it again above this relative minimum.
"The relation between the amount paid for the use of some capital and this capital itself expresses the rate of interest, measured in money." "The rate of interest depends, 1), on the rate of profit; 2), on the proportion in which the total profit is divided between the lender and the borrower." ( Economist, January 22nd, 1853.) "Since that which is paid as interest for the use of that which is borrowed is a part of the profit, which the borrowed is able to produce, this interest must always be regulated by that profit." (Massie, l. c., p. 49.)
Let us first assume, that a fixed relation exists between the total profit and that one of its parts, which has to be paid as interest to the money-capitalist. In this case it is evident, that the interest will rise or fall with the total profit, and this profit is determined by the general rate of profit and its fluctuations. For instance, if the average rate of profit were 20% and the interest one-quarter of the profit, then the rate of interest would be 5%; if the rate of profit were only 16%, the rate of interest would be 4%. With a rate of profit of 20%, the rate of interest might rise to 8%, and yet the industrial capitalist would still make the same profit as he would with the rate of profit at 16% and the rate of interest at 4%, namely 12%. If the interest should rise only to 6 or 7%, he would keep a still larger share of the profit. If the interest amounted to a constant quota of the average profit, it would follow, that to the extent that the general rate of profit would rise, the absolute difference between the total profit and the interest would increase, and to the same extent would that portion of the total profit increase, which the productive capitalist would pocket, and vice versa. Take it that the interest amounts to one-fifth of the average profit. One-fifth of 10 is 2; difference between total profit and interest 8. One-fifth of 20 is 4; difference 20-4 = 16. One-fifth of 25 is 5; difference 25-5 = 20. One-fifth of 30 is 6; difference 30-6 = 24. One-fifth of 35 is 7; difference 35-7 = 28. The different rates of interest of 4, 5, 6, 7% would in this case always represent one-fifth of the total profit. If the rates of profit are different, then different rates of interest may represent the same aliquot parts of the total profit, or the same percentage of the total profit. With such constant proportions of interest, the industrial profit (the difference between the total profit and the interest) would be so much greater, the higher the average rate of profit would be, and vice versa.
Assuming all other conditions to be equal, in other words, assuming the proportion between interest and total profit to be more or less constant, the productive capitalist will be able and willing to pay a higher or lower interest directly proportional to the level of the rate of profit. 62 Since we have seen, that the height of the rate of profit is inversely proportional to the development of capitalist production, it follows that the high or low rate of interest in a certain country is to the same extent inversely proportional to the degree of industrial development, at least so far as differences in the rate of interest actually expresses differences in the rates of profit. And this mode of regulating interest applies even to its average.
In any event the average rate of profit is the ultimate limit determining the maximum limit of interest.
The fact that the rate of interest is related to the average profit will be considered more at length immediately. Whenever a certain whole, such as profit, is to be divided between two parties, the first thing to be considered is the magnitude of the whole. The magnitude of the profit is determined by its average rate. Assuming the average rate of profit, and thus the magnitude of profit, for a capital of a certain size, to be given (for instance 100), it is evident that the variations of interest will be inversely proportional to those of the profit remaining in the hands of the capitalist working with a borrowed capital. And the circumstances, which determine the amount of profit to be divided (the values produced by unpaid labor), differ widely from those, which determine its distribution between these two kinds of capitalists, and frequently produce effects in opposite directions. 63
If we observe the cycles of variation, in which modern industry moves along—condition of rest, increasing activity, prosperity, overproduction, crisis, stagnation, condition of rest, etc., which fall outside of the scope of our analysis—we shall find, that a low rate of interest generally corresponds to periods of prosperity, or of extra profit, a rise of interest to the transition between prosperity and its reverse, and a maximum of interest up to a point of extreme usury to the period of crises. 64 With the summer of 1843 came a period of remarkable prosperity; the rate of interest, which had still been 4½% in the spring of 1842, fell to 2% in the spring and summer of 1843; 65 in September it fell even to 1½%. (Gilbart, I, p. 166); whereupon it rose to 8% and more during the crisis of 1847.
It may happen, however, that low interest is found in times of stagnation, and moderately rising interest in times of increasing activity.
The rate of interest reaches its highest point during crises, when money must be borrowed in order to meet payments at any cost. Since a rise of interest implies a fall in the price of securities, this offers at the same time a fine opportunity to people with available money-capital, who may acquire possession at cut-rate prices of such interest-bearing securities as must at least regain their average price in the regular course of things, as soon as the rate of interest falls again. 66
However, there is also a tendency of the rate of interest to fall, quite independently of the fluctuations of the rate of profit. This is due to two main causes.
I. "Let us assume that capital were never borrowed for any other but productive investments, it is nevertheless possible, that the rate of interest may vary without any change in the rate of gross profits. For, as a people progresses in the development of wealth, there arises and grows more and more a class of people, who find themselves possessed of funds through the labors of their ancestors, and who can live on the mere interest on them. Many, having actively participated in business in their youth and prime, retire, in order to live quietly in their old age on the interest of the sums accumulated by them. These two classes have a tendency to increase with the growing wealth of the country; for those who start out with a moderate capital acquire more easily an independent fortune than those, who start out with little. In old and rich countries, therefore, that portion of the national capital, whose owners do not care to invest it themselves, makes up a larger proportion of the total productive capital of society than in newly settled and poor countries. How numerous is not the class of annuity-holders in England! In proportion as the class of annuity-holders increases, that of the capital loaners increases also, for they are both the same." (Ramsay, Essay on the Distribution of Wealth, p. 201)
II. The development of the credit system, and with it the continually growing control of the industrials and merchants over the money savings of all classes of society by the co-operation of bankers, and the progressive concentration of these savings into such volumes as will enable them to serve as money-capital, must also depress the rate of interest some-what. We shall discuss this more at length later.
With reference to the determination of the rate of interest, Ramsay says that it "depends in part on the rate of gross profits, in part on the proportion in which this is divided into interest and profits of enterprise. This proportion depends on the competition between lenders and borrowers of capital. This competition is influenced, but not exclusively regulated, by the prospective rate of gross profits. 67 Competition is not exclusively regulated thereby, because on one side many are borrowing without any intention of productive investment, and because on the other the magnitude of the total loanable capital changes with the wealth of the country, independently of any change in the gross profits." (Ramsay, 1. c., p. 206, 207.)
In order to find the average rate of interest, it is necessary, 1), to calculate the average rate of interest during its variations in the great industrial cycles; 2), to find the rate of interest in such investments as require loans of capital for a long time.
The average rate of interest prevailing in a certain country—as differentiated from the continually fluctuating market rates—cannot be determined by any law. In this sense there is no such thing as a natural rate of interest, such as economists speak of when mentioning a natural rate of profit and a natural rate of wages. Massie has justly said with reference to this (p. 49): "The only thing which any man can be in doubt about on this occasion, is, what proportion of these profits do of right belong to the borrower, and what to the lender; and this there is no other method of determining than by the opinions of borrowers and lenders in general; for right and wrong, in this respect, are only what common consent makes so." The balancing of demand and supply—assuming the average rate of profit to be a fact—does not signify anything here. Wherever else this formula serves as an excuse (and is then practically correct) it is used to find the fundamental rule, which is independent of competition and rather determines it, this rule indicating the regulating limits, or the limiting magnitudes, of competition; this formula serves particularly as a help to those, who are bounded by the horizon of practical competition, its phenomena, and the conceptions arising from them, and who try thereby to get a rather shallow grasp of the internal connections of economic conditions within the sphere of competition. It is a method by which to pass from the variations that go with competition to the limits of these variations. This is not so in the case of the average rate of interest. There is no reason by which the idea could be justified, that the average conditions of competition, a balance between lenders and borrowers, should secure for the lender a rate of interest of 3, 4, 5%, etc., on his capital, or a certain percentage of the gross profits, say 20% or 50%. Whenever competition as such determines anything in this matter, its determination is a matter of accident, purely empirical, and only pedantry or fantasticalness can attempt to represent this accidental character as something necessary. 68 Nothing is more amusing than to listen in the reports of Parliament of 1857 and 1858 concerning bank legislation and commercial crises to the rambling twaddle of directors of the Bank of England, London bankers, provincial bankers, and theoretical professionals, when referring to "the real rate produced." They never get beyond such commonplaces as that "the price paid by loanable capital probably varies with the supply of such capital," that "a high rate of interest and a low rate of profit cannot exist together in the long run," and similar specious platitudes. 69 Custom, legal tradition, etc., have as much to do with the determination of the average rate of interest as competition itself, so far as this rate exists not merely as an average figure, but as an actual magnitude. An average rate of profit has to be assumed as a legal rate even in many law disputes, in which interest has to be calculated. Now, if we press the inquiry, why the limits of an average rate of interest cannot be deduced from general laws, we find the answer simply in the nature of interest. It is merely a portion of the average profit. The same capital appears in two roles, as a loanable capital in the hands of the lender, and as an industrial capital, or commercial capital, in the hands of the investing capitalist. But it performs its function as capital only once, and produces profit only once. In the process of production itself, the loanable nature of this capital does not play any role. To what extent the two parties divide the profit, in which they both share, is in itself as much a purely empirical fact belonging to the realm of accident as the division of the shares of common profit of some corporative business among different share holders by percentages. In the division between surplus-value and wages, on which the determination of the rate of profit essentially rests, the decision is made by two very different elements, labor-power and capital; these are functions of two independent variables, which limit one another; and their qualitative difference is the source of the quantitative division of the produced value. We shall see later that the same takes place in the division of surplus-value between rent and profit. But nothing of the kind occurs in the case of interest. In this case the qualitative differentiation, as we shall see immediately, proceeds rather from the purely quantitative division of the same lot of surplus-value.
From what has gone before it follows that there is no such thing as a "natural" rate of interest. But while, in distinction from the general rate of profit, there is on one side no general law, by which the limits of the average interest, or average rate of interest, may be determined and differentiated from the continually fluctuating market rates of interest, because it is merely a question of dividing the gross profit between two possessors of capital under different titles, there is on the other side the fact that the rate of interest, whether it be the average or the prevalent market rate, appears as a uniform, definite and tangible magnitude in a very different way from the general rate of profit. 70
The rate of interest holds a similar relation to the rate of profit as the market price of a commodity does to its value. To the extent that the rate of interest is determined by the rate of profit, it is so always by the general rate of profit, not by any specific rates of profit, which may prevail in some particular lines of industry, and still less by any extra profit, which some individual capitalist may make in some particular line of business. 71 It is a fact, then, that the general rate of profit re-appears as an empirical, given, reality in the average rate of interest, although the latter is not a pure or reliable expression of the former.
It is true, that the rate of interest itself differs according to the different classes of securities offered by the borrowers and according to the length of time for which the money is borrowed; but it is uniform within every one of these classes at a given moment. This distinction, then, does not militate against a fixed and uniform shape of the rate of interest. 72
The average rate of interest appears in every country for long epochs as a constant magnitude, because the general rate of profit—in spite of the continual variation of the particular rates of profit, in which a variation in one sphere is offset by an opposite variation in another sphere—varies only in long intervals. Its relative constancy is revealed in this more or less constant nature of the average rate, or common rate, of interest.
As concerns the continually fluctuating market rate of interest, it exists at any moment as a fixed magnitude, the same as the market price of commodities, because all the loanable capital as an aggregate mass is continually facing the invested capital, so that the relation between the supply of loanable capital on one side, and the demand for it on the other, decide at any time the market level of interest. This is so much more the case, the more the development and simultaneous concentration of the credit system impregnates the loanable capital with a general social character, and throws it all at one time on the market. On the other hand, the general rate of profit always exists as a mere tendency, as a movement to compensate specific rates of profit. The competition between capitalists—which is itself this movement toward an equilibrium—consists in this case in their activity of gradually withdrawing capital from spheres, in which the profit stays for a long time below the average, and in the same way taking capital into spheres, in which the profit is above the average. Or it may also consist in their distributing additional capital gradually and in varying proportions between these spheres. It is always a matter of a continual variation between supply and demand of capital with reference to different spheres, never a simultaneous mass effect, as it is in the determination of the rate of interest.
We have seen that interest-bearing capital, although a category absolutely different from a commodity, becomes a peculiar commodity, so that interest becomes its price, which is fixed at any time by supply and demand, just as the market price of an ordinary commodity is fixed. The market rate of interest, while continually oscillating, appears therefore at any moment just as constantly fixed and uniform as the prevailing market price of commodities. The money-capitalists offer this commodity, and the investing capitalists buy it and make a demand for it. This does not take place in the equalisation of profits toward a general rate of profit. If the prices of commodities in a certain sphere are below or above the price of production (leaving aside any oscillations, which are found in every business and are due to fluctuations of the industrial cycles), a balance is effected by an expansion or restriction of production. This signifies an expansion or restriction of the quantities of commodities thrown on the market by industrial capitalists, by means of immigration or emigration of capital to and from particular spheres. It is by such a compensation of the average market prices of commodities to prices of production that the deviations of specific rates of profit from the general, or average, rate of profit are corrected. This process does not, and cannot, at any time assume the appearance as though the industrial or mercantile capital as such were commodities seeking a buyer, but it does in the case of interest-bearing capital. To the extent that this process is perceptible, it is so only in the oscillations and compensations of the market prices of commodities to prices of production, not in any direct fixation of the average profit. The general rate of profit is actually determined, 1), by the surplus-value produced by the capital; 2), by the proportion of this surplus-value to the value of the total capital; and, 3), by competition, but only to the extent that this is a movement, by which capitals invested in particular spheres seek to draw equal dividends out of this surplus-value in proportion to their relative magnitudes. The general rate of profit, then, derives its determination actually from causes, which are quite different and far more profound than those of the market rate of interest, which is directly and immediately determined by the proportion between supply and demand. It is, therefore, not such a tangible and obvious fact as the rate of interest. The particular rates of interest in the different spheres of production are themselves more or less unsettled; but so far as they are perceptible, it is not their uniformity, but their differences, which appear. The general rate of profit itself appears only as the minimum limit of profit, not as the empirical and directly visible shape of the actual rate of profit.
In emphasizing this difference between the rate of interest and the rate of profit, we still leave out of consideration the following two circumstances, which favor the consolidation of the rate of interest: 1), The historical pre-existence of interest-bearing capital and the existence of a traditionally sanctioned general rate of interest; 2), the far greater direct influence exerted by the world market on the fixation of the rate of interest, independently of the economic conditions of a certain country, compared to its influence on the rate of profit.
The average profit does not appear as a directly existing fact, but merely as a final result of the compensation of opposite fluctuations, to be ascertained by analysis. Not so the rate of interest. It is, at least in its local validity, a daily fixed thing, a fact which serves even to industrial and mercantile capitals as a prerequisite and figure in their calculations. It becomes a general faculty of every sum of money of 100 pounds sterling to yield 2, 3, 4, 5%. Meteorological reports do not register the stand of the barometer and thermometer more accurately than the reports of the Bourse do the stand of the rate of interest, not for this or that capital, but for the money-capital on the market, for the available loanable capital in general.
On the money market only lenders and borrowers face one another. The commodity has the same form, money. All specific forms of capital according to its investment in particular spheres of production or circulation are here blotted out. It exists here in the undifferentiated, homogenous, form of independent value, money. The competition of the individual spheres ceases here. They are all thrown together as borrowers of money, and capital likewise faces all of them in a form, in which it is as yet indifferent to its definite investment in this or that specific manner. The character worn by industrial capital only in its movement and competition between individual spheres, the character of a common capital of a class comes into evidence here in full force by the demand and supply of capital. On the other hand, money-capital on the money market has actually that form, in which it may be distributed as a common element among the capitalists in the various spheres, regardless of its specific employment, as the requirements of production in each individual sphere may dictate. Add to this that with the development of large scale industry money-capital, so far as it appears on the market, is not represented by some individual capitalist, not by the owner of this or that fraction of the capital on the market, but assumes more and more the character of an organised mass, which is far more directly subject to the control of the representatives of social capital, the bankers, than actual production is. Under these circumstances, not only the demand for loanable capital is expressed with the full force of a class, but also its supply appears as loanable capital in masses.
These are some of the reasons, why the general rate of profit appears as a vanishing shape of mist compared to the definite rate of interest, which, while fluctuating in its magnitude, yet faces all borrowers as a fixed fact, because it varies uniformly for all of them. In like manner the variations in the value of money do not prevent it from having the same value for all commodities. In like manner the market prices of commodities fluctuate daily, yet this does not prevent them from being reported daily. In like manner, the rate of interest is regularly reported as "the price of money." It is so for the reason that capital itself is here offered in the form of money as a commodity. The fixation of its price is thus a fixation of its market price, as it is with all other commodities. Thus the rate of interest always appears as the general rate of interest, as so much for so much money, as a definite quantity. Not so the rate of profit. It may vary even within the same sphere for commodities with the same price, according to the different conditions under which different capitals produce the same commodity. For the rate of profit of the individual capital is determined, not by the market price of a commodity, but by the difference between the market-price and the cost-price. And these different rates of profit, first within the same sphere and then between different spheres themselves, can be balanced only by continual fluctuations.
(Note for later elaboration): A specific form of credit. It is known that when money serves as a means of payment instead of as a means of purchase, the commodity is transferred, but its value is not realised until later. If payment is not made until after the commodity has again been sold, then this sale does not seem to be the result of the purchase, but it is by this sale that the purchase is realised. In other words, the sale becomes a means of purchase.—Secondly; Titles to debts, bills of exchange, etc., become means of payment for the creditor.—Thirdly: The compensation of titles to debts replaces the money.
INTEREST, as we have seen in the two preceding chapters, seems to be originally, is originally, and remains in fact merely a portion of profit, of surplus-value, which the investing capitalist, whether industrial or commercial, has to pay over to the owner and lender of money-capital whenever he uses loan capital instead of his own. If he employs only his own capital, no such division of profit takes place; it is all his. In fact, to the extent that the owners of capital employ it themselves in the process of reproduction, they do not compete in the determination of the rate of interest. This alone shows that the category of interest, an impossibility without a determination of the rate of interest, is alien to the movements of industrial capital itself.
"The rate of interest may be defined to be that proportional sum which the lender is content to receive, and the borrower to pay, for a year or for any longer or shorter period for the use of a certain amount of moneyed capital...when the owner of capital employs it actively in reproduction, he does not come under the head of those capitalists, the proportion of whom, to the number of borrowers, determines the rate of interest." (Th. Tooke, History of Prices, Newmarch ed. London, 1857, II, p. 355.) It is indeed only the separation of capitalists into money-capitalists and industrial capitalists, which transforms a portion of the profit into interest, which creates the category of interest at all; and it is only the competition between these two kinds of capitalists which creates the rate of interest.
So long as capital serves in the process of reproduction—even assuming that it belongs to the industrial capitalist himself, so that he has no need of paying it back to some lender—just so long the capitalist has at his disposal as a private individual, not this capital itself, but only the profit, which he may spend as revenue. So long as his capital performs the functions of capital, it belongs to the process of reproduction, it is tied up in that process. He is indeed its owner, but this ownership does not enable him to dispose of it in some other way, so long as he uses it as capital for the exploitation of labor. It is the same with the money-capitalist. So long as his capital is loaned out and serves as money-capital, it brings him as interest a portion of the profit, but he cannot dispose of the principal. This becomes evident, whenever he loans his capital, say, for one year, or longer, and receives interest at certain stipulated times without recovering his principal. But even the return of the principal does not make any difference here. If he gets it back, then he must always loan it out again, so long as he expects it to produce the effects of capital, in this case of money-capital, for him. While he is keeping it in his own hands, it collects no interest, it does not act in the capacity of capital; and so long as it gathers interest and serves as capital, it is not in his hands. This accounts for the possibility to loan capital for all eternity. The following remarks of Tooke against Bosanquet are, therefore, entirely wrong. He quotes Bosanquet ( Metallic, Paper, and Credit Currency, p. 73): "If the rate of interest were depressed to 1%, then borrowed capital would be almost on a par with owner's capital." Tooke makes the following comment on this: "That a capital borrowed at this, or even at a lower rate, should be considered as being almost on a par with one's own capital is such a strange contention, that it would hardly deserve any serious consideration, did it not come from so intelligent a writer, who is so well informed on particular points of his subject. Has he overlooked the fact, or does he hold it to be so unimportant, that his assumption implies the condition of return payment?" (Th. Tooke, An Inquiry into the Currency Principle, 2nd. edition, London, 1844, p. 80.) If interest were equal to zero, then the industrial capitalist working with a borrowed capital would be on a par with a capitalist working with his own capital. Both of them would pocket the same average profit, and capital, whether borrowed or the owner's, serves as capital only to the extent that it produces profit. The condition of return payment would not alter this in the least. The more the rate of interest approaches zero, falling, for instance, to 1%, the more borrowed capital is placed on a par with owner's capital. So long as money-capital is expected to act in the capacity of money-capital, it must always be loaned out again and again, and this must take place at the prevailing rate of interest, say 1%, and always to the same class of industrial and commercial capitalists. So long as these perform the functions of capitalists, the only difference between one working with a borrowed and one working with his own capital is that the one has to pay interest and the other has not; that the one pockets the whole profit p, and the other only p—i, profit minus interest. To the extent that the interest approaches zero, p—z becomes equal to p, and to the same extent do both capitals stand on a par. The one must pay back the capital and borrow it again; but the other, so long as his capital is expected to perform its function, must likewise advance it again and again to the process of production and cannot dispose of it freely without any dependence upon this process. The only remaining difference between the two is the obvious one that the one is the owner of his capital and the other is not.
The question which arises here is this: How is it that this purely quantitative division of profit into net profit and interest turns into a qualitative one? In other words, how is it that even the capitalist who employs only his own capital, and not a borrowed one, ranges a portion of his gross profit under the specific category of interest and calculates it separately as such? And furthermore, why is all capital, whether borrowed or not, differentiated in itself as interest-bearing capital from net profit producing capital?
It is understood that not every accidental quantitative division of profit turns in this manner into a qualitative one. For instance, some industrial capitalists associate for some business and divide the profits among themselves according to some legal agreement. Others carry on their business, each by himself, without any associate. These last do not calculate their profit under two heads, one part as individual profit, the other as profits of the company for associates who do not exist. In this case the quantitative division does not turn into a qualitative one. It takes place, when the ownership is vested accidentally in several juridical personalities. It does not take place, when this is not the case.
In order to answer this question, we must dwell a little longer on the actual point of departure of the formation of interest; that is, we must take our departure from the assumption, that the money-capitalist and the industrial capitalist really face one another, not merely as legally different persons, but as persons playing entirely different roles in the process of reproduction, or as persons in whose hands the same capital really passes through a twofold and wholly different movement. The one merely loans it, the other employs it productively.
For the productive capitalist, who works with a borrowed capital, the gross profit falls into two parts, namely into the interest to be paid by the lender and the surplus over the interest forming his own share of the profit. If the general rate of profit is given, then this last portion is determined by the rate of interest; if the rate of interest is given, then this last portion is determined by the general rate of profit. And furthermore: Whatever may be the divergence in any individual case of the gross profit, the actual magnitude of value of the total profit, from the average profit, it does not alter the fact that the portion belonging to the investing capitalist is determined by the interest, since this is fixed by the general rate of interest (aside from special legal stipulations) and assumed to be paid beforehand, before the process of production begins, and before its result, the gross profit, has been made. We have seen that the peculiar and specific product of capital is surplus-value, or more closely defined, profit. But for the capitalist working with a borrowed capital it is not the profit, but the profit minus the interest, that portion of the profit which remains for him after the interest has been deducted. This portion of the profit necessarily appears to him as the product of a capital performing its function; and so far as he is concerned it is really so, because he is the representative of capital in action. He is its personification to the extent that it is in function, and it performs its function to the extent that it is profitably invested in industry or commerce and engaged, through its employer, in such operations as are prescribed by the line of its industry. In distinction from interest, which he has to pay out of the gross profits to the lender, the remaining portion of the profit, which he pockets, necessarily assumes the form of industrial or commercial profit, or, to designate it by a term comprising both of them, the form of profit of enterprise. If the gross profit is equal to the net profit, then the magnitude of this profit of enterprise is exclusively determined by the rate of interest. If the gross profit varies from the average profit, then its difference from the average profit (after deducting the interest from both of them) is determined by all constellations causing a temporary deviation, either of the rate of profit in any particular sphere from the general rate of profit, or of the profit made by some individual capitalist in a certain sphere from the average profit of this sphere. Now, we have seen, that the rate of profit within the process of production itself does not depend merely on the surplus-value, but also on many other circumstances, for instance, on the purchase prices of the means of production, on methods more productive than the average, on economies in constant capital, etc. And aside from the price of production, it depends on special constellations of the market, and in every business transaction on the greater or lesser smartness and thrift of the individual capitalists, whether, and to what extent, a man will buy or sell above or below the price of production and thus appropriate in the process of circulation a greater or smaller portion of the total surplus-value. At any rate the quantitative division of the gross profit turns here into a qualitative one, and it does so all the more as the quantitative division itself depends on the nature of thing that is to be divided, on the manner in which the capitalist manages his capital, and on the amount of gross profit it yields for him in his capacity as active capitalist. The investing capitalist is here assumed not to be the owner of the capital. The ownership of capital is vested in the money-capitalist, who stands opposed to him. The interest, which he pays to the lender, thus appears as that portion of the gross profit, which is absorbed by the ownership of capital as such. In distinction therefrom, that portion of the profit, which falls to the share of the investing capitalist, appears then as profit of enterprise, arising solely from the operations, or functions, which he performs with the capital in the process of reproduction, particularly of those functions, which he performs as the impersonator of enterprise in industry or commerce. From his point of view, the interest appears merely as the fruit of the ownership of capital, of capital "itself" abstracted from the process of capital in reproduction, of a capital not "working," not performing its function; while profit of enterprise appears to him as the exclusive fruit of the functions, which he performs with the capital, a fruit of the movements and performances of capital, of performances, which appear to him as his own activity as differentiated from the inactivity, the non-participation, of the money-capitalist in the process of production. This qualitative separation of the two portions of gross profit, which makes interest appear as the fruit of abstract capital, of the ownership of capital outside of the process of production, and profit of enterprise as the fruit of capital performing its function in the process of production, of the active role played by the employer of capital in the process of reproduction, this qualitative separation is by no means merely a subjective point of view of the money-capitalist on one side and of the industrial capitalist on the other. It rests upon an objective fact, for the interest flows into the hands of the money-capitalist, the lender, the mere owner of capital, who represents only capital property before the process of production and outside of it; while the profit of enterprise flows only into the hands of the investing capitalist, who is not the owner of the capital.
In this way, both the industrial capitalist working with borrowed capital and the money-capitalist not working himself with his capital play a role, in which a merely quantitative division of the gross profit between two persons having two different legal titles to the same capital and to the profit produced by it turns into a qualitative division. One portion of the profit appears now as interest, as a fruit coming to capital in one of its forms; the other portion appears as a specific fruit of capital in an opposite form, and thus as profit of enterprise. One appears as the fruit of mere ownership of capital, the other as a fruit of the performance of the function of capital, as a fruit of capital in process, of the functions performed by the active capitalist. And this ossification and individualisation of the two parts of the gross profits among themselves, as though they were derived from two essentially different sources, now becomes a fixture for the entire capitalist class and the total capital. And this takes place regardless of whether the capital employed by the active capitalist is borrowed or not, and whether the capital belonging to the money-capitalist is employed by himself or not. The profit of every capital, and consequently the average profit established by a mutual compensation of capitals, is separated into two qualitatively different, separately individualised, and mutually independent parts, to wit, interest and profit of enterprise, both of which are determined by particular laws. The capitalist working with his own capital divides the gross profit into interest due to himself as its owner lending it to himself, and into profit of enterprise due to himself as an active capitalist performing his function, just as does the capitalist working with a borrowed capital. For this division, in its qualitative aspects, it becomes immaterial whether the capitalist really has to divide his profit with another or not. The employer of capital, even when working with his own capital, falls apart into two personalities, into the mere owner of capital and the employer of capital; his capital itself, with reference to the categories of profit which it yields, falls apart into capital property outside of the process of production and yielding interest of itself, and capital in the process of production yielding profit of enterprise through its function in the process.
Interest, then, becomes so firmly established, that it no longer appears as a division of gross profits, to which production is indifferent and which takes place only occasionally when the industrial capitalist works with the capital of some other man. Even when he works with his own capital, his profit is separated into interest and profit of enterprise. Thus a merely quantitative division turns into a qualitative one. It takes place without regard to the fact, whether the industrial capitalist is, or is not, the owner of the capital employed by him. It is no longer a question of different quota of profit assigned to different persons, but of two different categories of profit holding different relations to the capital, being related to different forms of capital.
It is a simple matter, in view of the foregoing remarks, to explain, why this character of qualitative separation becomes established for the total social capital and the entire capitalist class, as soon as the separation of gross profits into interest and profits of enterprise has assumed its qualitative aspect.
1) This follows from the simple empirical circumstance, that the majority of the industrial capitalists, even if in different proportional numbers, work with their own and with borrowed capital, and that the proportion between self-owned and borrowed capital changes in different periods.
2) The transformation of a portion of the gross profits into the shape of interest converts the other portion into profit of enterprise. The latter is indeed but the antagonistic form assumed by the excess of the gross profit over the interest, as soon as interest exists as an independent category. The entire analysis of the problem, how gross profit is differentiated into interest and profit of enterprise, resolves itself into the inquiry, how a portion of the gross profits becomes universally ossified and individualised in the shape of interest. Now, historically, interest-bearing capital exists as a complete, traditional form, and with it interest as a ready subdivision of the surplus-value produced by capital, long before the capitalist mode of production and the conceptions of capital and profit belonging to it existed. Thus it is that popular conception still regards money-capital, interest-bearing capital, as typical capital, as capital par excellence. Thus, also, we find up to the time of Massie the prevailing idea, that it is money as such, which is paid in interest. The fact that loaned capital yields interest, whether it is actually employed as interest or not—even when borrowed only for consumption—lends strength to the idea of the independence of this form of capital. The best proof of the independence, which interest seemed to have with reference to profit and interest-bearing capital with reference to industrial capital, during the first periods of the capitalist mode of production, is that it was not until the middle of the 18th century that Massie, and after him Hume, discovered the fact that interest is but a portion of the gross profit, and that such a discovery was necessary at all.
3) Whether the industrial capitalist works with his own or with borrowed capital, it does not alter the fact that the class of money-capitalists face him as a special class of capitalists, money-capital as an independent form of capital, and interest as the independent form of surplus-value peculiar to this specific capital.
Qualitatively speaking, interest is surplus-value supplied by the mere ownership of capital, yielded by capital as such, even though its owner remains outside of the process of reproduction. It is surplus-value realised by capital outside of its process.
Quantitatively speaking, that portion of profit, which forms interest, does not seem to be related to industrial or commercial capital as such, but to money-capital, and the rate of this portion of surplus-value, the rate of interest, fortifies this relation. For, in the first place, the rate of interest, despite its dependence upon the general rate of profit, is independently determined, and, in the second place, it appears with all its variations as a fixed, uniform, tangible and always given relation, just like the market-prices of commodities, compared to the intangible rate of profit. If all capital were in the hands of the industrial capitalists, there would be no interest and no rate of interest. The independent form assumed by the quantitative division of gross profit creates the qualitative one. If the industrial capitalist compares himself to the money-capitalist, only his profit of enterprise distinguishes him from the other man, the excess of his gross profit over the average interest, the latter being empirically given by means of the rate of interest. On the other hand, if he compares himself to the industrial capitalist working with his own, instead of borrowed capital, the other differs from him only as a money-capitalist by pocketing the interest instead of paying it over to some one else. On either side the portion of the gross profit differing from the interest appears to him as profit of enterprise, and interest itself as a surplus-value yielded by capital as such, which it would yield even without any productive employment.
This is practically correct for the individual capitalist. He has the choice, whether he wants to invest his capital as an interest-bearing one or as a productive one, regardless of whether it exists in the form of money-capital from the out-set, or whether it has to be converted into money-capital. But to make this conception a general one and apply it to the total capital of society, as some vulgar economists do, who even go so far as to regard this capital as the source of profit, is, of course, preposterous. The idea of a conversion of the total capital of society into money-capital without the existence of people, who shall buy and utilise the means of production, which form the total capital with the exception of relatively small portion existing in the shape of money, is sheer nonsense. It implies the additional nonsense, that capital could yield interest on the basis of capitalist production without performing any productive function, in other words, without producing any surplus-value, of which interest would be but a part; that the capitalist mode of production could run its course without any capitalist production. If an excessively large number of capitalists were to convert their capital into money-capital, it would result in an extraordinary depreciation of money-capital and an extraordinary fall of the rate of interest; many would at once be face to face with the impossibility of living on their interest, and would be compelled to retransform themselves into industrial capitalists. But we repeat that it is a fact for the individual capitalist. For this reason, he necessarily considers that part of his average profit, which is equal to the average interest, as a fruit of his capital as such, apart from the process of production, even when he works with his own capital; and he differentiates from this portion, from this interest, that surplus of the gross profit, which constitutes his profit of enterprise.
4) (A blank in the manuscript.)
We have seen that that portion of the profit, which the investing capitalist has to pay to the mere owner of borrowed capital, converts itself into the independent form of a portion of profit, which all capital as such, whether borrowed or not, yields under the name of interest. How large that portion shall be is determined by the quotation of the average rate of interest. Its origin does not show itself any more in anything but the fact that the investing capitalist, when owner of his capital, no longer competes in the determination of the rate of interest, at least not actively. The purely quantitative division of profit between two persons having different legal titles to it has turned into a qualitative division, which seems to arise from the nature of capital and profit itself. For, as we have seen, as soon as a portion of the profit generally assumes the form of interest, the difference between the average profit and the interest, or the portion of profit exceeding the interest, assumes a form antagonistic to interest, that of profit of enterprise. These two forms, interest and profit of enterprise, exist only as opposites. They are not reduced to the surplus-value, of which they represent proportional parts cast in different moulds, but are merely referred to one another. Because one portion converts itself into interest, the other portion appears as profit of enterprise.
By profit we always mean average profit here, since the variations of individual profit and of profit in different spheres, due to the fluctuations of the competitive struggle and other circumstances affecting the distribution of the average profit, or surplus-value, do not concern us in this analysis. This applies quite generally to the foregoing inquiry.
Interest is then net profit, as Ramsay calls it, which capital as such yields, either for the mere lender remaining outside of the process of reproduction, or for the owner employing his capital productively. For this latter capitalist also, capital yields this net profit, not in his capacity as a productive capitalist, but of money-capitalist and lender of his own capital as an interest-bearing one to himself as an investing capitalist. Just as the conversion of money, and of value in general, into capital is the constant result of capitalist production, so its existence in the form of capital is its constant prerequisite. By its ability to transform itself into means of production, it commands continually unpaid labor and thereby transforms the process of production and circulation of commodities into a production of surplus-value for its owner. Interest is, therefore, merely the expression of the fact, that value in general, in other words, value representing materialised labor in its general social form, or value assuming the form of means of production in the actual process of production, faces living labor-power as an independent power, and is a means of appropriating unpaid labor; and that it is such a power, because it represents the property of another in opposition to the laborer. But on the other hand, this opposition to wage-labor is obliterated in the form of interest; for interest-bearing capital as such has not wage-labor, but productive capital for its object. The lending capitalist faces as such the capitalist performing his actual function in the process of reproduction, not the wage-worker, who is expropriated from the means of production under capitalist production. Interest-bearing capital represents capital as ownership compared to capital as a function. But to the extent that capital does not perform its function, it does not exploit the laborers and does not come into opposition to labor.
On the other hand, profit of enterprise is not in opposition to wage-labor, but only to interest.
1) Assuming the average profit to be given, the rate of profit on enterprise is not determined by wages, but by the rate of interest. It is high or low inversely as the rate of interest is. 73
2) The investing capitalist derives his claim to profits of enterprise, and consequently the profit of enterprise itself, not from his ownership of capital, but from its production function as distinguished from the form, in which it is only inert property. This appears as an obviously existing contrast, whenever he is working with a borrowed capital, so that interest and profits of enterprise each go to different persons. The profit of enterprise arises from the function of capital in the process of reproduction, it is a result of the operations by which the investing capitalist promotes this function of industrial and commercial capital. But to be a representative of invested capital is not a sinecure like the representation of interest-bearing capital. On the basis of capitalist production, the capitalist directs the processes of production and circulation. The exploitation of productive labor requires exertion, whether he performs it himself or has it performed by some one else in his name. In distinction from interest, his profit of enterprise appears to him as independent of the ownership of capital, it seems to be the result of his function as a non-proprietor— a laborer.
Under these circumstances his brain necessarily conceives the idea, that his profit of enterprise, far from being in opposition to wage-labor and representing only the unpaid labor of others, is rather itself wages of labor, wages of superintendence of labor. These wages are superior to those of the common laborer, 1) because they pay for more complicated labor, 2) because the capitalist pays them to himself. The fact that his function as a capitalist consists in creating surplus-value, which is unpaid labor, and to create it under the most economical conditions, is entirely forgotten over the contrast, that the interest falls to the share of the capitalist, even if he does not perform any capitalist function and is merely the owner of capital; and that, on the other hand, the profit of enterprise falls to the share of the investing capitalist, even if he is not the owner of the capital, which he employs. The antagonistic form of the two parts, into which profit, or surplus-value is divided, leads him to forget, that both parts are surplus-value, and that this division does not alter the nature, origin, and living conditions of surplus-value.
In the process of reproduction, the investing capitalist represents capital as the property of another in opposition to the wage-laborers, and the money-capitalist, represented by the investing capitalist, shares in the exploitation of labor. The fact, that the investing capitalist can perform his function or employ means of production as capital only as the personification of the means of production in opposition to the laborers, is forgotten over the antagonism between the function of capital in the process of reproduction and the mere ownership of capital outside of the process of reproduction.
In fact, the forms assumed by the two parts of profit, of surplus-value, when divided into interest and profit of enterprise, do not express their relation to labor, because their relation refers only to themselves and to the profit, or rather to the surplus-value as a whole compared to them as parts of this unit. The proportion in which the profit is divided, and the different legal titles, by which this division is sanctioned, are based on the assumption that profit is already in existence. If, therefore, the capitalist is the owner of the capital, which he employs, he pockets the whole profit, or surplus-value. It is immaterial to the laborer, whether the capitalist pockets the whole profit, or whether he has to pay over a part of it to some other person, who has a legal claim to it. The reasons for dividing the profit among two kinds of capitalists thus turn surreptitiously into reasons for the existence of the surplus-value to be divided, which the capital as such draws out of the process of reproduction quite apart from any subsequent division. Seeing that the interest is opposed to the profit of enterprise, and the profit of enterprise to the interest, that they are both opposed to one another, but not to labor, it follows that both profit of enterprise plus interest, in other words, the total profit, and further the surplus-value, are derived—from what? From the antagonistic form of its two parts! But the profit is produced, before this division takes place, and before there can be any mention of it.
Interest-bearing capital stands the test of such only to the extent that borrowed money is actually converted into capital, and that a surplus is produced with it, of which the interest is a part. But this does not militate against the fact, that the faculty of drawing interest is innate in it outside of the process of production. So does labor-power evince its faculty of producing value only so long as it is employed and materialised in the labor-process; yet this does not argue against the fact, that labor-power is potentially a faculty of creating values, which does not arise out of the mere process of production, but is rather antecedent to it. As a faculty creating value, it is bought. One might also buy it without setting it to work productively. It may be used for purely personal ends, for instance, for personal service, etc. So it is with capital. It is the borrower's affair, whether he employs it as capital, actually setting in motion its inherent faculty of producing surplus-value. What he pays, is in either case the surplus-value inherently latent in the commodity capital.
Let us now consider profit of enterprise more in detail.
Since the specific social faculty of capital under capitalist production, that of being property in the hands of one and yet commanding the labor-power of another, becomes fixed, so that interest appears as a part of the surplus-value produced by capital in this interrelation, the other part of the surplus-value, the profit of enterprise, must necessarily appear as derived, not from capital as such, but from the process of production, separated from its social faculty, which is already expressed as a distinct mode of existence by the term interest in capital. Now, separated from capital, the process of production is simply a labor-process. Hence the industrial capitalist as differentiated from the owner of capital does not appear, in this case, as a functionary of capital, but as a functionary separated from capital, as a simple agent of the labor-process, as a laborer, and specifically as a wage-laborer.
Interest itself expresses precisely the existence of the conditions of labor in the form of capital, in their social antagonism to labor, and in their transformation into personal powers in opposition to labor and dominating it. Interest represents the mere ownership of capital as a means of appropriating the products of the labor of others. But it represents this character of capital as something, which belongs to it outside of the process of production, and which is not by any means a result of the specifically capitalist nature of this process of production itself. Interest places this process in such a light, that it does not seem opposed to labor, but rather without any relation to labor and simply the relation of one capitalist toward another. It thus assumes a form which places it outside of the relation of capital toward labor, and renders it indifferent toward this relation. In interest, then, which is that specific form of profit, in which the antagonistic character of capital assumes an independent form, this is done in such a way, that the antagonism here appears completely obliterated and left out of consideration. Interest is a relation between two capitalists, not between a capitalist and a laborer.
On the other hand, this form of interest bestows upon the other portion of profit the qualitative form of profit of enterprise, and, further on, of wages of superintendence. The specific functions, which the capitalist as such has to perform, and which precisely differentiate him from the laborer and bring him into opposition to the laborer, are presented as mere functions of labor. He creates surplus-value, not because he performs the work of a capitalist, but because he also works aside from his capacity as a capitalist. This portion of surplus-value is thus no longer surplus-value, but its opposite, an equivalent for labor performed. Owing to the fact that the estranged character of capital, its antagonism to labor, has been relegated to a place outside of the actual process of exploitation, namely to the interest-bearing capital, this process of exploitation itself appears as a simple labor process, in which the exploiting capitalist performs merely a different kind of labor than the laborer. In this way the labor of exploitation and the exploited labor both appear as labor, as identical. The labor of exploitation is labor just as well as the labor which is exploited. It is the interest which represents the social form of capital, but it does so in a neutral and indifferent way. It is the profit of enterprise which represents the economic function of capital, but it does so in a way, which takes no cognizance of the definite capitalist character of this function.
In the present case, what passes in the consciousness of the capitalist is quite similar to what passes in the case of the fluctuations for which the capitalist makes allowance in the equalisation of the average profits, as indicated in part II of this volume. These compensating causes, which exert a determining influence on the distribution of the surplus-value, are distorted by the capitalist conception into originating causes and subjective justifications of profit itself.
The conception of profit of enterprise in the shape of wages of superintendence of labor, arising from the antagonism of profit of enterprise to interest, is further strengthened by the fact, that a portion of the profit may indeed be separated, and is separated in reality, as wages, or rather the reverse, that a portion of the wages appear under capitalist production as a separate portion of the profit. Already Adam Smith indicated, that this portion assumes its pure form, independently of profit and wholly separated from it (as the sum of interest and profit of enterprise), and likewise separated from that portion of the profit, which remains in the shape of profit of enterprise after the deduction of the interest, in the salary of the superintendent in those lines of business, whose size, etc., permits a sufficient division of labor to justify a special salary for the labor of a superintendent.
The labor of superintendence and management will naturally be required whenever the direct process of production assumes the form of a combined social process, and does not rest on the isolated labor of independent producers. 74 It has, however, a double nature.
On one side, all labors, in which many individuals cooperate, necessarily require for the connection and unity of the process one commanding will, and this performs a function, which does not refer to fragmentary operations, but to the combined labor of the workshop, in the same way as does that of a director of an orchestra. This is a kind of productive labor, which must be performed in every mode of production requiring a combination of labors.
On the other side, quite apart from any commercial department, this labor of superintendence necessarily arises in all modes of production, which are based on the antagonism between the laborer as a direct producer and the owner of the means of production. To the extent that this antagonism becomes pronounced, the role played by superintendence increases in importance. Hence it reaches its maximum in the slave system. 75 But it is indispensable also under the capitalist mode of production since then the process of production is at the same time the process by which the capitalist consumes the labor-power of the laborer. In like manner, the labor of superintendence and universal interference by the government in despotic states comprises both the performance of the common operations arising from the nature of all communities and the specific functions arising from the antagonism between the government and the mass of the people.
In the works of ancient writers, who have the slave system under their eyes, both sides of the labor of superintendence are as inseparably combined in theory as they were in practice. So it is also in the works of the modern economists, who regard the capitalist mode of production as the absolute mode of production. On the other hand, as I shall show immediately by an example, the apologists of the modern slave system utilise the labor of superintendence quite as much to justify slavery, as the other economists do to justify the wage system.
The villicus in Cato's time: "At the head of the rural slave community ( familia rustica ) stood the manager ( villicus, derived from villa ), who took receipts and made expenditures, bought and sold, received instructions from the master, gave orders and meted out punishment in his absence....The manager occupied naturally a freer position than the other slaves; the Magonian books advise to permit him to marry, raise children, and have his own funds, and Cato recommends that he be married with the female manager; he alone probably had any prospects of being liberated by the master for good behavior. For the rest, all of them formed one common economy....Every slave, including the manager himself, was supplied with his necessities at the expense of his master, in definite periods according to fixed rates, and he had to get along on that. The quantity varied according to labor, and for this reason the manager, whose work was lighter than that of the other slaves, received a smaller ration than the others." (Mommsen, Römische Geschichte, second edition, 1856, I, p. 808-810.)
Aristotle: "For the master proves himself such not in the buying, but in the employing of slaves." (The capitalist proves himself such, not by the ownership of capital, which gives him the power to buy labor-power, but in the employment of laborers, nowadays of wage laborers in the process of production.) "But there is nothing great about this knowledge. For whatever the slave must be able to perform, the master must be able to order. Whenever the masters are not compelled to drudge at superintendence, the manager assumes this honor, while the masters attend to affairs of state or study philosophy." (Aristotle, Republic, Bekker edition, Book I, 7.)
Aristotle says in plain words, that rulership on the political and economic field imposes upon the powers that be the functions of government, and that they must understand the art of consuming labor-power. And he adds, that this labor of superintendence is not a matter of great moment, and that for this reason the master, who is wealthy enough, leaves the "honor" of this drudgery to an overseer.
The labor of management and superintendence arising out of the servitude of the direct producers has often been quoted in justification of this relation, not because it is a function due to the nature of all combined social labor, but because it is due to the antagonism between the owner of means of production and the owner of mere labor-power, regardless of whether this labor-power is bought by buying the laborer himself, as it is under the slave system, or whether the laborer himself sells his labor-power, so that the process of production is the process by which capital consumes his labor-power. And exploitation, the appropriation of the unpaid labor of others, has quite as often been represented as the reward justly due to the owner of capital for his labor. But it was never better defended than it was by a champion of slavery in the United States, a certain lawyer O'Connor, at a meeting held in New York, on December 19th, 1859, under the slogan of "Justice for the South." "Now, Gentlemen," he said amid great applause, "nature itself has assigned this condition of servitude to the negro. He has the strength and is fit to work; but nature, which gave him this strength, denied him both the intelligence to rule and the will to work. (Applause.) Both are denied to him! And the same nature, which denied him the will to work, gave him a master, who should enforce this will, and make a useful servant of him in a climate, to which he is well adapted, for his own benefit and that of the master who rules him. I assert that it is no injustice to leave the negro in the position, into which nature placed him; to put a master over him; and he is not robbed of any right, if he is compelled to labor in return for this, and to supply a just compensation for his master in return for the labor and the talents devoted to ruling him and to making him useful to himself and to society."
Now, the wage-laborer, like the slave, must have a master, who shall put him to work and rule him. And assuming this relation of master and servant to exist, it is quite proper to compel the wage-laborer to produce his own wages and also the wages of superintendence, a compensation for the labor of ruling and superintending him, "a just compensation for his master in return for the labor and talents devoted to ruling him and to making him useful to himself and to society."
The labor of superintendence and management arising out of the antagonistic character and rule of capital over labor, which all modes of production based on class antagonisms have in common with the capitalist mode, is directly and inseparably connected, also under the capitalist system, with those productive functions, which all combined social labor assigns to individuals as their special tasks. The wages of an epitropos, or régisseur, as he used to be called in feudal France, are entirely differentiated from the profit and assumes the form of wages for skilled labor, whenever the business is operated on a sufficiently large scale to warrant paying such a manager, although our industrial capitalists do not "attend to affairs of state or study philosophy" for all that.
That not the industrial capitalists, but the industrial managers are "the soul of our industrial system," has already been remarked by Mr. Ure. 76 So far as the commercial part of the business is concerned, we have said as much as was necessary in the preceding part of this volume.
The capitalist mode of production itself has brought matters to such a point, that the labor of superintendence, entirely separated from the ownership of capital, walks the streets. It is, therefore, no longer necessary for the capitalist performs the labor of superintendence himself. A director of an orchestra need not be the owner of the instruments of its members, nor is it a part of his function as a director, that he should have anything to do with the wages of the other musicians. The co-operative factories furnish the proof, that the capitalist has become just as superfluous as a functionary in production as he himself, in his highest developed form, finds the great real estate owner superfluous. To the extent that the labor of the capitalist is not the purely capitalistic one arising from the process of production and ceasing with capital itself, to the extent that it is not limited to the function of exploiting the labor of others, to the extent that it rather arises from the social form of the labor-process as a combination and co-operation of many for the purpose of bringing about a common result, to that extent it is just as independent of capital as that form itself, as soon as it has burst its capitalistic shell. To say that this labor as a capitalistic one, as a function of the capitalist is necessary, amounts merely to saying that the vulgar economist cannot conceive of the forms developed in the womb of capitalist production separated and freed from their antagonistic capitalist character. Compared to the money-capitalist the industrial capitalist is a laborer, but a laboring capitalist, an exploiter of the labor of others. The wages which he claims and pockets for this labor amount exactly to the appropriated quantity of another's labor and depend directly upon the rate of exploitation of this labor, so far as he takes the trouble to assume the necessary burdens of exploitation. They do not depend upon the degree of his exertions in carrying on this exploitation. He can easily shift this burden to the shoulders of a superintendent for moderate pay. After every crisis one may see plenty of ex-manufacturers in the English factory districts, who for low wages superintend their own former factories as managers of the new owners, who are frequently their creditors. 77
The wages of superintendence, both for the commercial and the industrial manager, appear completely separated from the profits of enterprise in the co-operative factories of the laborers as well as in capitalistic stock companies. The separation of the wages of superintendence from the profits of enterprise, which is at other times accidental, is here constant. In the co-operative factory the antagonistic character of the labor of superintendence disappears, since the manager is paid by the laborers instead of representing capital against them. Stock companies in general, developed with the credit system, have a tendency to separate this labor of management as a function more and more from the ownership of capital, whether it be self-owned or borrowed. In the same way the development of bourgeois society separates the functions of judges and administrators from feudal property, whose prerogatives they were in feudal times. Since the mere owner of capital, the money-capitalist, has to face the investing capitalist, while money-capital itself assumes a social character with the advance of credit, being concentrated in banks and loaned by them instead of by its original owners, and since, on the other hand, the mere manager, who has no title whatever to the capital, whether by borrowing or otherwise, performs all real functions pertaining to the investing capitalist as such, only the functionary remains and the capitalist disappears from the process of production as a superfluous person.
From the public accounts of the co-operative factories in England 78 it is manifest, that the profit, after the deduction of the wages of the superintendent, which form a part of the invested capital the same as the wages of the other laborers, was higher than the average profit, although they paid occasionally a much higher interest than the private factories. The cause of the greater profit was in all these cases a greater economy in the use of constant capital. What interests us particularly here is the fact that here the average profit (= interest + profit of enterprise) presents itself actually and palpably as a magnitude, which is wholly separated from the wages of superintendence. Since the profit was here higher than the average profit, the profit of enterprise was also higher than the current one.
The same fact is revealed by some capitalist stock companies, such as joint stock banks. The London and Westminster Bank paid in 1863 annual dividends of 30%, the Union Bank of London and others 15%. Aside from the salary of the director, the interest paid for deposits is here deducted from the gross profit. The high profit is explained in this case by the small proportion of the paid-up capital to the deposits. For instance, in the case of the London and Westminster Bank, it was in 1863: Paid-up Capital 1,000,000 pounds sterling; deposits 14,540,275 pounds sterling. In that of the Union Bank of London, 1863: Paid-up capital 600,000 pounds sterling; deposits 12,384,173 pounds sterling.
The confounding of the profit of enterprise with the wages of superintendence or management was due originally to the antagonistic form assumed toward interest by the surplus over the interest. It was further promoted by the apologetic intention to represent profit, not as a surplus-value derived from unpaid labor, but as wages of the capitalist himself for labor performed by him. This was met on the part of the socialists by the demand, that profit should actually be reduced to what it pretended to be theoretically, namely mere wages of superintendence. And this demand was all the more disagreeable to the apologists of the capitalists, as these wages of superintendence, like all other wages, found on one hand their level and fixed market-price to the extent that a numerous class of industrial and commercial superintendents was formed, 79 while on the other hand these wages fell, like all wages for skilled labor, with the general development, which reduces the cost of production of specifically trained labor-power. 80 With the development of co-operation on the part of the laborers, of stock enterprises on the part of the bourgeoisie, even the last pretext for the confusion in matters of profit of enterprise and wages of management was removed, and profit appeared also in practice what it was undeniably in theory, mere surplus-value, a value for which no equivalent was paid, realised unpaid labor. It was then seen that the investing capitalist really exploits labor, and that the fruit of his exploitation, when he worked with a borrowed capital, was divided into interest and profit of enterprise, a surplus of profit over interest.
On the basis of capitalist production, a new swindle develops in stock enterprises with the wages of management. It consists in placing above the actual director a board of managers or directors, for whom superintendence and management serve in reality only as a pretext for plundering stockholders and amassing wealth. Very interesting details concerning this are found in " The City or the Physiology of London Business; with Sketches on 'Change, and the Coffee Houses, London. 1845."Here is a sample: "What bankers and merchants gain by being on the boards of eight or nine different companies, may be seen from the following illustration: The private account of Mr. Timothy Abraham Curtis, handed in by the court of bankruptcy on his failure, showed an income of 8,900 pounds sterling per year under the head of directorships. Since Mr. Curtis had been a director of the Bank of England and of the East Indian Company, every stock company was happy to secure him as a director." (P. 82.)—The remuneration of the directors of such companies for each weekly meeting is at least one guinea. The proceedings of the court of bankruptcy show, that these wages of superintendence are as a rule inversely proportioned to the actual superintendence performed by these nominal directors.
IN the interest-bearing capital, the relations of capital assume their most externalised and most fetish-like form. We have here M—M' money creating more money, self-expending value, without the process intermediate between these two extremes. In the merchants' capital, M—C—M', there is at least the general form of the capitalistic process, although it clings to the sphere of circulation, so that profit appears merely as profit from selling; but it is at least seen to be the product of a social relation, not the product of a mere thing. The form of merchants' capital presents at least the aspect of a process, of a unity of antagonistic phases, of a movement divided into two transactions, namely into the purchase and sale of commodities. This is obliterated in M—M', the form of interest-bearing capital. For instance, if 1,000 pounds sterling are loaned by some capitalist, when the rate of interest is 5%, then the value of 1,000 pounds sterling as a capital for one year is C + Ci', C standing for the capital and i' for the rate of interest. In the present case this would mean 5%, or 5/100 or 1/20, and 1,000 + 1,000 times 1/20 = 1,050 pounds sterling. The value of 1,000 pounds sterling as capital is 1,050 pounds sterling, that is, capital is not a simple magnitude. It is a relation of magnitudes, a relation of principal sum, as a given value, to itself as a self-expanding value, as a principal sum having produced a surplus-value. And we have seen that capital assumes this form of a directly self-expanding value for all investing capitalists, whether they work with their own or with a borrowed capital.
M—M'. We have here the original starting point of capital, we have money in the formula M—C—M' reduced to its two extremes M—M', in which M' stands for M + increment of M, money creating more money. It is the primal and general formula of capital concentrated into a meaningless summary. It is capital perfected, a unity of the process of production and process of circulation, yielding a certain surplus-value in a certain period of time. In the form of interest-bearing capital this appears spontaneously without any intervention of the processes of production and circulation. Capital appears as a mysterious and self-creating source of interest, a thing increasing itself. The Thing (money, commodity, value) is now capital even as a mere thing, and capital appears as a mere thing. The result of the entire process of reproduction appears as a faculty inherent in the thing itself. It depends on the owner of the money, which represents the universal exchange-form of commodities, whether he wants to spend it as money or loan it as capital. In the interest-bearing capital, therefore, this automatic fetish is elaborated in its pure state, it is self-expanding value, money generating money, and in this form it does not carry any more scars of its origin. The social relation is perfected into the relation of a thing, of money, to itself. Instead of the actual transformation of money into capital, only an empty form meets us here. As in the case of labor-power, so here in the case of interest-bearing capital the use-value of money becomes that of creating value, and at that a greater value than it contains itself. Money as such is potentially self-expanding value and is loaned as such, and loaning is the form of sale for this peculiar commodity. It becomes a faculty of money to generate value and yield interest, just as it is a faculty of a pear tree to bear pears. And the money lender sells his money as such an interest-bearing thing. But that is not all. The actually invested capital, as we have seen, presents itself in such a light, that it seems to yield the interest, not as a capital performing its function, but as a capital in itself, as money-capital.
And still something else becomes perverted. While interest is only a portion of the profit, that is, of surplus-value, which the investing capitalist squeezes out of the laborer, it looks now on the contrary as though the interest were the typical fruit of capital, the primal thing, and profit, in the shape of profit of enterprise, a mere accessory and by-product of the process of reproduction. Thus the fetish form of capital and the conception of a fetish capital are perfect. In M—M' we have the void form of capital, the perversion and individualisation of the relations of production in their highest degree. The interest-bearing form is the simple form of capital, in which it is assumed to be antecedent to its own process of reproduction. It is the faculty of money, or of a commodity, to expand its own value independently of reproduction, a mystification of capital in its most flagrant form.
For vulgar political economy, which desires to represent capital as a spontaneous source of value and its creation, this mystic form is, of course, a great boon. It is a form, in which the source of profit is no longer discernible, and in which the result of the capitalist process of production receives an independent existence apart from this process.
It is not until capital becomes money-capital, that it can assume the form of a commodity, whose self-expanding faculty has a definite price, which is quoted in the current rate of interest.
As an interest-bearing capital, in its direct form of interest-bearing money-capital (the other forms of interest-bearing capital, which do not concern us here, are derived from this one and require its existence), capital assumes its pure fetish form, M—M' as a subject and a saleable thing. In the first place, its continual existence as money gives to it a form, in which all its functions are obliterated and its real elements invisible. For money is precisely that form, in which the distinctions of commodities as use-values are concealed, and with them the distinctions of the industrial capital consisting of these commodities and their conditions of production. It is that form, in which value, in the present case capital, exists as an independent exchange-value. In the process of reproduction of capital, the money-form is but a transient one, a mere passing link. But on the money-market, capital always exists in this form. In the second place, the surplus-value produced by it, which has here again the form of money, appears as inherent in it. Like the growing of trees, so the breeding of money appears as an innate quality of capital in the form of money-capital.
In the interest-bearing capital, the movement of capital is contracted. The intervening process is omitted. In this way a capital of 1,000 appears with the fixed faculty of being of itself 1,100 and converting itself after a certain period into 1,100, just as wine in a cellar improves its use-value after a certain period. Capital is then a thing, which is of itself capital. The money is then pregnant. As soon as it has been loaned, or invested in the process of reproduction (when it yields interest to its owner separate from profit of enterprise for his function as investing capitalist), the interest accumulates, whether it be awake or asleep, at home or abroad, day or night. In the interest-bearing money capital, then, the fervent wish of the hoarding miser is fulfilled (and all capital is money-capital, so far as the expression of its value is concerned, or is considered as the expression of money-capital).
It is this inherent dwelling of interest in money-capital as a thing (and this is the aspect here assumed by the production of surplus-value by capital), which engages Luther's attention so much in his naive thundering against usury. After demonstrating, that interest may be demanded, when failure to pay back a loan to a lender, who has to meet a certain payment himself, caused a loss to him, or when he might have made a profit on a bargain, for instance in buying a garden, but lost it for the reason that the borrower failed to return the loan on time, Luther continues: "Now that I have loaned you 100 guilders, you make good my double loss due to the fact that I could not pay on one side and not buy on the other, so that I had to lose on both sides, and this is called double interest, for loss sustained and gain stopped....Having heard that John lost on his loan of 100 guilders and demands just damages, they rush in and charge double interest on every 100 guilders, which interest was only charged for the loss due to nonpayment and to inability to make a profit on a bargain, just as though every 100 guilders could naturally grow double interest, so that whenever they have 100 guilders, they loan them out and charge for two losses, which they have not at all sustained....Therefore you are a usurer, who takes damages out of his neighbor's money for an imaginary loss that you did not sustain at all, and which you can neither prove nor calculate. This sort of loss is called by the jurists not true, but fantastical interest. It is a loss of which each dreams for himself....It will not do to say that you might incur a loss, because I might not have been able to pay or buy. That would be making something out of a thing that is not so, a thing that is uncertain into a thing that is absolutely sure. Such usury would eat up the world in a few years....If the lender accidentally incurs a loss, without his fault, he may demand damages for it, but it is different in trade and just the reverse. There they scheme to profit at the expense of their needy neighbors, how to amass wealth and get rich, to be lazy and idle and live in luxury on the labor of others, without any care, danger and loss. To sit behind the stove and let my 100 guilders gather wealth for me in the country and yet keep them in my pocket, because they are only loaned, without any danger or risk, my friend, who would not like to do that!" (Martin Luther, An die Pfarherrn wider den Wucher zu predigen, etc., Wittenberg, 1540.)
The idea of capital as a self-reproducing and thereby self-expanding value, lasting and growing eternally by virtue of its inherent power—by virtue of the hidden faculties of the scholastics—has led to the fabulous fancies of Dr. Price, which far outdo the fantasies of the alchemists; fancies, in which Pitt seriously believed and which he used as pillars of his financial administration in his laws concerning the sinking fund.
"Money bearing compound interest grows at first slowly; but since the rate of increase is constantly accelerated, it becomes so fast after a while as to defy all imagination. A penny, loaned at the birth of our Savior at compound interest at 5%, would already have grown into a larger amount than would be contained in 150 million globes, all of solid gold. But loaned at simple interest, it would have grown only to 7 sh. 4½ d. in the same time. Hitherto our government has preferred to improve its finances in the latter instead of in the former way." 81
He flies still higher in his " Observations on Reversionary Payments, etc., London, 1782." There we read: "1 sh. invested at the birth of our Savior" (presumably in the Temple of Jerusalem) "at 6% compound interest would have grown to a larger amount than the entire solar system could contain, if it were transformed into a globe of the diameter of the orbit of Saturn." "A state need never to be in difficulties on this account; for with the smallest savings it can pay the largest debt in as short a time as its interests may demand." (P. 136.) What a pretty theoretical introduction to the national debt of England!
Price was simply dazzled by the enormousness of the figures arising from geometrical progression. Since he regarded capital, without taking note of the conditions of reproduction and labor, as a self-regulating automaton, as a mere number increasing itself (just as Malthus did with men in their geometrical progression), he could imagine that he had found the law of its growth in the formula s = c(1 + i)Ñ, in which s stands for the sum of capital plus compound interest, c for the advanced capital, i for the rate of interest expressed in aliquot parts of 100, and n for the number of years in which this process takes place.
Pitt takes this mystification of Price quite seriously. In 1788 the House of Commons had resolved to raise one million pounds sterling for the public benefit. According to Price, in whom Pitt believed, there was, of course, nothing better than to tax the people, in order to "accumulate" this sum after raising it, and thus to spirit the national debt away by the mystery of compound interest. "The above resolution of the House of Commons was soon followed up by Pitt with a law, which ordered the accumulation of 250,000 pounds sterling, until, with the expired annuities, the fund should have grown to 4,000,000 pounds sterling annually." (Act 26, George III, chap. 22.) In his speech of 1792, in which Pitt proposed that the amount devoted to the sinking fund be increased, he mentioned among the causes of the commercial supremacy of England machines, credit, etc., as "the most wide-spread and enduring cause of accumulation." This principle, he said, was completely developed in the work of Smith, that genius, etc....And this accumulation, he continued, was accomplished by laying aside at least a portion of the annual profit for the purpose of increasing the principal, which was to be employed in the same manner next year, and which thus yielded a continual profit. By the help of Dr. Price, Pitt thus converted Smith's theory of accumulation in an increase of popular wealth by means of the accumulation of debts, and in this way he gets into the pleasant progress of infinite loans, made for the purpose of paying loans.
Already Josiah Child, the father of modern banking, tells us that 100 pounds sterling at 10% will produce in 70 years by compound interest 102,400 pounds sterling. Traité sur le commerce, etc., par J. Child, traduit, etc., Amsterdam et Berlin, 1754, p. 115. Written in 1669.)
How thoughtlessly the conception of Dr. Price is applied by modern economists, is shown by the following passage of the "Economist": "Capital, with compound interest on every portion of capital saved, is so all-engrossing that all the wealth in the world from which income is derived, has long ago become interest of capital....all rent is now the payment of interest on capital previously invested in the land." ( Economist, July 19th, 1859.) In its capacity of interest-bearing capital capital claims the ownership of all wealth which can ever be produced, and everything it has received so far is but an instalment for its all-engrossing appetite. By its innate laws, all surplus-labor belongs to it, which the human race can ever perform. Moloch.
In conclusion we present the following hodge-podge of the romantic Müller: "Dr. Price's immense increase of compound interest, or of the self-accelerating forces of man, presuppose an undivided or unbroken order for several centuries, if they are to produce such enormous effects. As soon as capital is divided, cut up into several independently growing slips, the total process of accumulating forces begins anew. Nature has distributed the progression of power over a course of about 20 to 25 years, which fall on an average to the share of every laborer (!). After the lapse of this time the laborer leaves his track and must transfer the capital accumulated by the compound interest of labor to a new laborer, having to distribute it as a rule among several laborers or children. These must first learn to vitalise and employ their share of capital, before they can draw any actual compound interest out of it. Furthermore, an enormous quantity of capital gained by bourgeois society is accumulated for many years, even in the most restless communities, and is not employed for any immediate expansion of labor, but rather entrusted to another individual, a laborer, a bank, a state, under the term of a loan, whenever a considerable amount has been gathered together. And in that case the one who receives it sets the capital into actual motion and draws compound interest out of it, so that he can easily agree to pay simple interest to the lender. Finally the laws of consumption, greed, waste, oppose those immense progressions, in which the forces of man and their products might increase, if the law of production or thrift were alone effective." (A Müller, 1. c., II, p. 147-149.)
It is impossible to concoct a more hair-raising nonsense in a few lines. Leaving aside the droll confusion of laborer and capitalist, of value of labor-power and interest of capital, etc., the decrease of compound interest is supposed to be explained by lending capital at compound interest. This procedure of our Müller is characteristic of romanticism in all fields. It is made up of current prejudices, skimmed from the most superficial semblance of things. This false and trivial substance is then supposed to be "uplifted" and rendered poetical by a mystifying mode of expression.
The process of accumulation of capital may be conceived as an accumulation of compound interest in the sense that that portion of the profit (surplus-value), which is reconverted into capital, and serves to absorb more surplus-value, may be called interest. But
1) Aside from all accidental irregularities, a large part of the available capital is continually depreciated in the course of the process of reproduction, because the value of the commodities is not determined by the labor-time originally spent in their production, but by the labor-time spent in their reproduction, and this decreases continually in consequence of the development of the productivity of social labor. On a higher stage of development of the social productivity all available capital appears therefore as the result of a relatively short time of reproduction, instead of as the result of a long process of saving capital. 82
2) As we have proven in Part III of this volume, the rate of profit decreases in proportion as the accumulation of capital and the productivity of social labor corresponding to it increase, since these two express themselves precisely in a relative and progressive decrease of the variable portion of capital as compared to the constant. In order to produce the same rate of profit, when the constant capital set in motion by one laborer increases tenfold, the surplus labor time would have to increase tenfold, and soon the total labor time, and finally the full 24 hours of a day, would not suffice, even if wholly appropriated by capital. The idea that the rate of profit does not decrease is, on the other hand, the basis of the progression of Price, as it is in general the basis of "all-engrossing capital with compound interest." 83
By the identity of surplus-value with surplus-labor a qualitative limit is imposed upon the accumulation of capital. This is formed by the total working day, the prevailing development of the productive forces and of the population, which limit the number of the simultaneously exploitable working days. But if surplus value is conceived of in the meaningless form of interest, then the limit is merely quantitative and defies all fantasy.
Now, in the interest-bearing capital the idea of a capitalist fetish is perfected, the idea, which attributes to the accumulated product of labor, and at that in the fixed form of money, the power of creating surplus-value by its inherent secret qualities, in a purely automatic manner, and in geometrical progression, so that the accumulated product of labor, as the "Economist" thinks, has long discounted all the wealth of the world for all times as belonging to it and coming to it by right. The product of past labor, the past labor itself, is here pregnant in itself with a portion of present or future living surplus-labor. We know, on the contrary, that as a matter of fact the preservation, and to that extent the reproduction, of the value of the products of past labor is only the result of their contact with living labor; and secondly, that the control exerted by the products of past labor over living surplus-labor lasts only as long as the relations of capital, which rest on the definite social relation, in which past labor dominates independently over living labor.
AN exhaustive analysis of the credit system and of the instruments created by it for its own use (credit money, etc.) is beyond the scope of our plan. We merely wish to dwell here upon a few particular points, which are necessary for a characterisation of the capitalist mode of production in general. To this end we shall deal only with commercial and bank credit. The connection between the development of this form of credit and that of public credit is not considered here.
I have shown previously (in volume I, chapter III, 3 b.), in what manner the function of money as a medium of payment, and consequently a relation of creditors and debtors, is formed among the producers of commodities and the traders, as the outcome of the simple circulation of commodities. With the development of commerce and of the capitalist mode of production, which has an eye only to the circulation, this natural basis of the credit system is extended, generalised, elaborated. Money serves here on the whole merely as a means of payment, that is to say, commodities are not sold for money, but for a written promise to pay for them at a certain date. We may comprise all these promises to pay for brevity's sake under the general category of bills of exchange. Such bills of exchange in their turn circulate as means of payment until the day on which they fall due; and they form commercial money in the strict meaning of the term. To the extent that they ultimately balance one another by the compensation of credits and debts, they serve absolutely as money, since no transformation into actual money takes place. Just as these mutual advances of the producers and merchants to one another form the real foundation of credit, so their instrument of circulation, the bill of exchange, forms the basis of credit money proper, of bank notes, etc. These do not rest upon the circulation of money, whether it be metallic money or government paper money, but upon the circulation of bills of exchange.
W. Leatham, a banker of Yorkshire, writes in his "Letters on the Currency," 2nd edition, London, 1840: "I find, that the total amount in bills of exchange for the entire year 1839 was 528,493,842 pounds sterling" (he assumed that the foreign bills of exchange composed about one-fifth of the whole) "and the amount of bills of exchange simultaneously current in the same year to 132,123,460 pounds sterling" (p. 56). "The bills of exchange make up a greater part of the amount in circulation than all the rest together" (p. 3). "This enormous superstructure of bills of exchange rests (!) upon a basis formed by the amount of bank notes and gold; and if in the course of events this basis is too much contracted, its solidity, and even its existence, become endangered" (p. 8). "Estimating the entire circulation" (he means of the bank notes) "and the amount of the obligations of all banks for which immediate payment may be demanded, I find a sum of 153 millions, whose conversion into gold might be demanded according to law, and to offset it only 14 millions in gold to satisfy this demand" (p. 11). The bills of exchange cannot be placed under control, unless the superfluity of money and the low rate of interest, or discount, can be prevented, which create a part of them and encourage this dangerous expansion. It is impossible to decide, how much of them is due to actual business, for instance, to real purchases and sales, and what part of them is fictitious and consists only of prolonged bills, that is, when a bill of exchange is drawn for the purpose of taking up a current one before it becomes due, and thus of creating fictitious capital by the manufacture of mere means of circulation. In times of superfluous and cheap money I know this is done to an enormous degree" (p. 43, 44). J. W. Bosanquet, Metallic, Paper, and Credit Currency, London, 1842: The average amount of the payments settled on every business day in the Clearing House (where the London bankers mutually exchange the due bills and filed checks) exceeds 3 millions of pounds sterling, and the daily supply of money required for this purpose is little more than 200,000 pounds sterling (p. 86). [In the year 1889, the total turn-over of the Clearing House amounted to 7,618 and ¾ millions of pounds sterling, which, in 300 business days, averages 25 and ½ millions of pounds sterling daily.—F. E.] "Bills of exchange are undoubtedly currency, independent of money, inasmuch as they transfer property from hand to hand by endorsement" (p. 92). "On an average it may be assumed that every circulating bill of exchange bears two endorsements, and that on an average every bill thus performs two payments, before it becomes due. Accordingly it seems that alone by endorsement the bills of exchange promoted a transfer of property to the amount of twice 528 millions, or 1,056 millions of pounds sterling, more than 3 millions daily, in the course of the year 1839. It is, therefore, certain the bills of exchange and deposits together, by transferring property from hand to hand and without the assistance of money, perform the functions of money to a daily amount of at least 18 millions of pounds sterling" (p. 93).
Tooke says the following about credit in general: "Credit, in its simplest expression, is the well or ill-founded confidence, which induces one man to entrust to another a certain amount of capital, in money or in commodities estimated at a certain value, which amount is always payable after the lapse of a definite time. Where the capital is loaned in money, that is, in bank notes, or in a cash credit, or in a check upon some correspondent, an addition of so and so many per cent. upon the returnable amount is made for the use of the capital. With commodities, whose money value has been agreed upon by the parties concerned, and whose transfer constitutes a sale, the stipulated sum, which is to be paid, includes a compensation for the use of the capital and for the risk assumed until the time of payment. Written agreements to pay on definite days are generally given for such credits. And these transferable obligations, or promises, form the means by which the lenders, when they find an opportunity to use their capital, either in the shape of money or commodities, are generally enabled to borrow or buy more cheaply, their own credit being strengthened by that of the second name upon the bill of exchange." Inquiry into the Currency Principle, (p. 87.)
Ch. Coquelin, Du Crédit et des Banques dans l' Industrie. Revue des deux Mondes, 1842, tome 31: "In every country the majority of the credit transactions takes place in the circle of the industrial relations themselves...the producer of the raw material advances it to the capitalist, who works it up, and receives from him a promise to pay on a certain day. The manufacturer, having completed his share of the work, in his turn advances his product on similar conditions to another manufacturer, who has to manipulate it farther, and in this way credit extends more and more, from one to the other, down to the consumer. The wholesale dealer gives to the retail dealer commodities on credit, while he receives himself credit from a manufacturer or commission agent. All borrow with one hand and lend with the other, sometimes money, but more frequently products. In this manner an incessant exchange of credits, combining and crossing in all directions, takes place in the industrial relations. The development of credit consists precisely in the multiplication and growth of these mutual credits, and here is the real seat of its power."
The other side of the credit system is connected with the development of the money trade, which, of course, keeps step under capitalist production with the development of the trade in commodities. We have seen in the preceding part (chapter XIX), how the care of reserve funds of business men, the technical operations of receiving and issuing money, of international payments, and thus of the bullion trade, are concentrated in the hands of the money traders. Borrowing and lending money becomes their particular business. They step as middlemen between the actual lender and the borrower of capital. Generally speaking, the banking business on this side consists of concentrating the loanable money-capital in the banker's hands in large masses, so that in place of the individual money lender the bankers face the industrial capitalists and commercial capitalists in the capacity of representatives of all money lenders. They become the general managers of the money-capital. On the other hand, they concentrate the borrowers against all lenders, and borrow for the entire world of commerce. A bank represents on one hand the centralisation of money-capital, of the lenders, and on the other the centralisation of the borrowers. Its profit is generally made by borrowing at a lower rate of interest than it loans.