Marx did not complete his analysis on the credit system.
The credit system is a product of capital’s own attempt to deal with its internal contradictions.
Money & Commodities
The commodity is both use value & exchange value.
This duality is the source of all the contradictions within the money form.
The relative form of value arises because the exchange value of a commodity cannot be measured in terms of itself.
Exchange presumes a relation of equivalence, which is ultimately the socially necessary labour time of value itself.
The money commodity is the universal equivalent.
The relative values of all other commodities are represented as prices.
Money functions as a standard of price.
Labour in the abstract is being represented by a particular commodity produced under specific conditions of concrete human labour.
It embodies two values:
- the socially necessary labour time it embodies
- the socially necessary labour time for which it can, on average, be exchanged for
Market prices can deviate from values.
This must be the case because prices fluctuating around values sends the necessary signals to connect supply with demand.
The use value of money is that it facilitates the circulation of commodities.
The supply of gold, which historically is the money commodity, is not instantaneously adjustable.
Coined money assumes a local & political character.
Their existence rises the possibility of a separation between their real & nominal values.
Coins can be replaced by tokens.
Political & legal backing is required if users are to have confidence in it.
Money permits the separation of sales & purchases in space & time.
Credit money has its origins in privately contracted bills of exchange & notes of credit which acquire the social form of money as soon as they begin to circulate as means of payment.
When the original debt is paid off the credit money disappears from circulation.
Credit money can be expanded & contracted at will.
Credit money can be devalued/depreciated if the debt cannot be paid.
A central bank provides the means for banks to balance accounts with each other without shipping gold around.
The central bank can dedicate itself to the sole task of defending the quality of national money.
It is the guardian of the country’s gold reserves.
It can drive out ‘bad’ bank money by refusing convertibility into central bank money.
The Bretton Woods agreement of 1944 fixed the value of the US $ in terms of gold & all other national currencies were measured against the $.
The $ became the universal equivalent.
In 1971 Bretton Woods collapsed when the $ was no longer tied to gold.
No way has yet been found to guarantee the quality of national moneys except by tying them to the production of some specific commodity, e.g. gold.
Countries (previously Britain & now the USA) that permit their moneys to be used as reserve currencies for settling international accounts are perpetually plagued by a policy dilemma: whether to defend the interests of national capital or to defend the interests of capital on a global scale.
World capitalism simply could not function without a stable reserve currency.
There is a contradiction between money as a measure of value & money as a medium of circulation.
Credit money is well adapted to the former, but constantly suspect in terms of the latter.
In times of crisis economic agents typically look for secure forms of money, such as gold, but when commodity production is booming the demand for credit money rises.
The Transformation of Money into Capital
A money economy is not unique to capitalism.
There is a difference between the circulation of money & the circulation of capital.
Money basically circulates in reverse order to the circulation of commodities.
Money could not be converted into capital if wage labour did not exist.
Complications can arise when money is hoarded.
A system of credit becomes necessary.
Interest-bearing capital comes to play a special role in relation to the circuit of capital.
A contradiction between money as a medium of circulation & money as a store of value can arise.
Interest
Money exists as a form of capitalist property outside & independent of any actual production process.
A distinction arises between capitalists as owners of money & employers of capital: financial capitalists & industrial capitalists.
The surplus value created in production gets split between interest & the profit of enterprise.
Interest is a relationship between two capitalists, not between capitalist & labourer.
Money is the representative of value & cannot possibly be more valuable than the value it represents.
Money has use value but no ‘value’ or ‘natural price’.
Marx rejects theories of a ‘natural’ rate of interest, & turns to supply & demand.
The rate of interest ‘becomes something arbitrary & lawless…the determination is accidental, purely empirical’ (Capital, Vol. 3)
The Circulation of Interest-Bearing Capital & the Functions of the Credit System
Money capitalists absorb rather than generate surplus value; they are parasites.
Money can be mobilised as capital via the credit system in two distinct ways:
- Banks can convert a flow of monetary transactions into loan capital.
The shift from cash to cheques & digital payment is part of the general strategy to generate loan capital. - Financial institutions concentrate the money savings & temporarily idle money capital, & convert this money into capital.
Individual capitalists can lend at interest to those who are reinvesting.
The concept of the value of labour power ought to embrace a certain level of workers’ savings to counter the argument that the destruction of capitalism will mean a loss of interest on their savings.
One of the principal costs of circulation is money itself.
The credit system helps promote the efficiency of monetary circulation.
The need to accelerate the turnover of capital is a fundamental determinant of the credit system.
By purchases & sales becoming separated from each other in time & space, the possibility of crises becomes greater.
Long term investments can be converted into annual payments, or capital can be centralised on a scale capable of funding such vast undertakings as railways, dams, docks, power stations, etc.
Credit likewise facilitates the individual consumption of commodities that have a long life, such as cars & houses.
Interest payment is linked to future labour.
The credit system operates with a form of ‘fictitious capital’ – a flow of money capital not backed by any commodity transactions.
The creation of fictitious values ahead of actual commodity production & realisation is risky, & sets the stage for crises.
If a piece of paper (or digital form) begins to circulate as credit money, then it is fictitious value that is circulating.
If this credit money is loaned out as capital, then it becomes fictitious capital.
The only collateral is the value of fixed capital which is subject to complex & unstable determinations.
Future surplus value production is uncertain.
Shares are market titles entitling owners to shares of future surplus value production.
This paper title can circulate while the real capital cannot.
Paper titles are purely illusory, fictitious forms of capital.
Their prices fluctuate according to their own laws quite independently of the movement of the value of the real capital.
Government debt is the ultimate form of fictitious capital, & like land has no inherent value, yet they have a price.
The credit system fools capitalist society into thinking investment in appropriation, such as rents & government debts, is just as important as investment in production.
In the end only the latter matters, for without expansion of production there is no surplus value & no interest payments.
In a crisis the credit system is forced to seek a more solid monetary basis.
Credit money & fictitious capital devalue & even get destroyed.
The credit system plays an important role in the equalisation of the rate of profit.
The common capital of the class of all capitalists is converted into the common capital of a class of money capitalists whose specific interests do not always coincide with those of capital in general.
The credit system also plays a role in centralising capital.
‘…little fish are swallowed by the sharks & the lambs by the stock-exchange wolves’ (Capital, Vol. 3)
The Credit System: Instrumentalities & Institutions
There is a distinction between the money-form of revenue & the money-form of capital.
The latter is surplus value converted into money & used to produce more surplus value.
An example of the former is the early building societies that permitted the savings of some workers to be used, in return for interest payments, to help other workers buy their houses.
Revenues of workers are being redistributed within the working class, & the interest payments are not a proportion of surplus value.
The credit system tends to merge these two forms.
Governments sell rights to a portion of future tax revenues – bonds.
Some government spending can improve the productive forces & contribute to surplus value production.
Saving banks, pension & insurance funds, building societies & credit unions & the like, mobilise savings out of an existing quantity of values.
They cannot save ahead of the production of values.
But banks can create money ahead of the production of values.
Limited only by the need to maintain a certain reserve of money to meet any sudden surge in demand for money from their customers.
The ability of banks to create money threatens the quality of money as a measure of value.
Hence central banks are tasked with preventing fictitious values from moving too far from real commodity values.
‘The central bank is the pivot of the credit system & the metal reserve, in turn is the pivot of the banks.’ (Capital, Vol. 3)
A tension exists between the need to sustain accumulation through credit creation & the need to preserve the quality of money.
State regulation is needed to try & regulate th excesses.
But the state is controlled by the capitalist class themselves.