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  Pricewassimplydazzledbythegargantuandimensionsobtainedinageometricalprogression。Sincehetooknonoteoftheconditionsofreproductionandlabour,andregardedcapitalasaself-regulatingautomaton,asamerenumberthatincreasesitselfjustasMalthus[AnEssayonthePrincipleofPopulation,London,1798,pp。25-26——Ed]didwithrespecttopopulationinhisgeometricalprogression,hewasstruckbythethoughtthathehadfoundthelawofitsgrowthintheformulas=c1in,inwhichs=thesumofcapitalcompoundinterest,c=

  advancedcapital,i=rateofinterestexpressedinaliquotpartsof100

  andnstandsforthenumberofyearsinwhichthisprocesstakesplace。

  PitttakesDr。Price’smystificationquiteseriously。In1786theHouseofCommonshadresolvedtoraise£1millionforthepublicweal。

  AccordingtoPrice,inwhomPittbelieved,therewas,ofcourse,nobetterwaythantotaxthepeople,soasto”accumulate”thissumafterraisingit,andthustospiritawaythenationaldebtthroughthemysteryofcompoundinterest。TheaboveresolutionoftheHouseofCommonswassoonfollowedupbyPittwithalawwhichorderedtheaccumulationof£250,000,”until,withtheexpiredannuities,thefundshouldhavegrownto£4,000,000

  annually。”Act26,GeorgeIII,Chap。3l。[”AnActforvestingcertainsumsinCommissioners,attheEndofeveryQuarterofaYear,tobebythemappliedtotheReductionoftheNationalDebt”Anno26GeorgiiIII,Regis,cap。31——Ed。]Inhisspeechof4792,inwhichPittproposedthattheamountdevotedtothesinkingfundbeincreased,hementionedmachines,credit,etc。,amongthecausesofEngland’scommercialsupremacy,butas”themostwide-spreadandenduringcause,thatofaccumulation。”

  Thisprinciple,hesaid,wascompletelydevelopedintheworkofSmith,thatgenius……andthisaccumulation,hecontinued,wasaccomplishedbylayingasideatleastaportionoftheannualprofitforthepurposeofincreasingtheprincipal,whichwas。tobeemployedinthesamemannerthefollowingyear,andwhichthusyieldedacontinualprofit。WithDr。

  Price’saidPittthusconvertsSmith’stheoryofaccumulationintoenrichmentofanationbymeansofaccumulatingdebts,andthusarrivesatthepleasantprogressionofaninfinityofloans-loanstopayloans。

  IthadalreadybeennotedbyJosiahChild,thefatherofmodernbanking,that£100at10%wouldproducein70yearsbycompoundinterest£102,400。

  Traitésurlecommerce,etc。,parJ。Child,traduit,etc。,AmsterdametBerlin,1754,p。115。Writtenin1669。

  HowthoughtlesslyDr。Price’sconceptionisappliedbymoderneconomists,isshowninthefollowingpassagefromtheEconomist:”Capital,withcompoundinterestoneveryportionofcapitalsaved,issoall-engrossingthatallthewealthintheworldfromwhichincomeisderived,haslongagobecometheinterestofcapital……Allrentisnowthepaymentofinterestoncapitalpreviouslyinvestedintheland。”Economist,July49,1851。Initscapacityofinterest-bearingcapital,capitalclaimstheownershipofallwealthwhichcaneverbeproduced,andeverythingithasreceivedsofarisbutaninstalmentforitsall-engrossingappetite。Byitsinnatelaws,allsurplus-labourwhichthehumanracecaneverperformbelongstoit。Moloch。

  Inconclusion,thefollowinghodge-podgebytheromanticMüller:”Dr。Price’simmenseincreaseofcompoundinterest,oroftheself-acceleratingforcesofman,presupposesanundivided,oruninterrupted,uniformapplicationforseveralcenturies,iftheyaretoproducesuchenormouseffects。Assoonascapitalisdivided,cutupintoseveralindependentlygrowingshoots,thetotalprocessofaccumulatingforcesbeginsanew。Naturehasdistributedoveraspanofabout20to25yearstheprogressionofenergywhichfallsonanaveragetotheshareofeverylabourer!。Afterthelapseofthistimethelabourerleaveshiscareerandmusttransferthecapitalaccumulatedbythecompoundinterestoflabourtoanewlabourer,mostlydistributingitamongseverallabourersorchildren。Thesemustfirstlearntoactivateandapplytheirshareofcapital,beforetheycandrawanyactualcompoundinterestonit。Furthermore,anenormousquantityofcapitalgainedbycivilsocietyeveninthemostrestlesscommunities,isgraduallyaccumulatedovermanyyearsandnotemployedforanyimmediateexpansionoflabour。

  Instead,assoonasanappreciablesumisgatheredtogether,itistransferredtoanotherindividual,alabourer,bankorstate,undertheheadofaloan。

  Andthereceiverthensetsthecapitalintoactualmotionanddrawscompoundinterestonit,sothathecaneasilypledgetopaysimpleinteresttothelender。Finally,thelawofconsumption,greed,andwasteopposesthosehugeprogressions,inwhichman’spowersandtheirproductswouldmultiplyifthelawofproduction,orthrift,werealoneeffective。”A。Müller,ElementederStaatskunst,III,pp。147-49。

  Itisimpossibletoconcoctamorehair-raisingabsurdityinsofewlines。Leavingasidethedrollconfusionoflabourerandcapitalist,valueoflabour-powerandinterestoncapital,etc。,thechargingofcompoundinterestissupposedtobeexplainedbythefactthatcapitalisloanedouttobringincompoundinterest。ThemethodemployedbyourMüIleristhoroughlycharacteristicoftheromanticisminallwalksoflife。Itismadeupofcurrentprejudices,skimmedfromthemostsuperficialsemblanceofthings。Thisincorrectandtritecontentshouldthenbe”exalted”andrenderedsublimethroughamystifyingmodeofexpression。

  Theprocessofaccumulationofcapitalmaybeconceivedasanaccumulationofcompoundinterestinthesensethattheportionofprofitsurplus-value

  whichisreconvertedintocapital,i。e。,servestoabsorbmoresurplus-labour,maybecalledinterest。But:

  1Asidefromallincidentalinterference,alargepartofavailablecapitalisconstantlymoreorlessdepreciatedinthecourseofthereproductionprocess,becausethevalueofcommoditiesisnotdeterminedbythelabour-timeoriginallyexpendedintheirproduction,butbythelabour-timeexpendedintheirreproduction,andthisdecreasescontinuallyowingtothedevelopmentofthesocialproductivityoflabour。Onahigherlevelofsocialproductivity,allavailablecapitalappears,forthisreason,tobetheresultofarelativelyshortperiodofreproduction,insteadofalongprocessofaccumulationofcapital。[2]

  2AsdemonstratedinPartIIIofthisbook,therateofprofitdecreasesinproportiontothemountingaccumulationofcapitalandthecorrespondinglyincreasingproductivityofsociallabour,whichisexpressedpreciselyintherelativeandprogressivedecreaseofthevariableascomparedtotheconstantportionofcapital。Toproducethesamerateofprofitaftertheconstantcapitalsetinmotionbyonelabourerincreasesten-fold,thesurpluslabour-timewouldhavetoincreaseten-fold,andsoonthetotallabour-time,andfinallytheentire24hoursofaday,wouldnotsuffice,evenifwhollyappropriatedbycapital。Theideathattherateofprofitdoesnotshrinkis,however,thebasisofPrice’sprogressionandingeneralthebasisof”all-engrossingcapitalwithcompoundinterest。”[3]

  Theidentityofsurplus-valueandsurplus-labourimposesaqualitativelimitupontheaccumulationofcapital。Thisconsistsofthetotalworking-day,andtheprevailingdevelopmentoftheproductiveforcesandofthepopulation,whichlimitsthenumberofsimultaneouslyexploitableworking-days。

  Butifoneconceivesofsurplus-valueinthemeaninglessformofinterest,thelimitismerelyquantitativeanddefiesallfantasy。

  Now,theconceptofcapitalasafetishreachesitsheightininterest-bearingcapital,beingaconceptionwhichattributestotheaccumulatedproductoflabour,andatthatinthefixedformofmoney,theinherentsecretpower,asanautomaton,ofcreatingsurplus-valueingeometricalprogression,sothattheaccumulatedproductoflabour,astheEconomistthinks,haslongdiscountedallthewealthoftheworldforalltimeasbelongingtoitandrightfullycomingtoit。Theproductofpastlabour,thepastlabouritself,isherepregnantinitselfwithaportionofpresentorfuturelivingsurplus-labour。Weknow,however,thatinrealitythepreservation,andtothatextentalsothereproductionofthevalueofproductsofpastlabourisonlytheresultoftheircontactwithlivinglabour;andsecondly,thatthedominationoftheproductsofpastlabouroverlivingsurplus-labourlastsonlyaslongastherelationsofcapital,whichrestonthoseparticularsocialrelationsinwhichpastlabourindependentlyandoverwhelminglydominatesoverlivinglabour。

  FOOTNOTES[1]RichardPrice,AnAppealtothePublicontheSubjectoftheNationalDebt,2nded。,London,1774,p。19。Hecracksthenaivejoke:”Itisborrowingmoneyatsimpleinterest,inordertoimproveitatcompoundinterest。”R。Hamilton,AnInquiryintotheRiseandProgressoftheNationalDebtofGreatBritain,2nded。,Edinburgh,1814,p。133。

  Accordingtothis,borrowingwouldbethesafestmeansalsoforprivatepeopletogatherwealth。ButifIborrow£100at5%annualinterest,Ihavetopay£5attheendoftheyear,andeveniftheloanlastsfor100millionyears,Ihavemeanwhileonly£100toloaneveryyearand£5topayeveryyear。Icannevermanagebythisprocesstoloan£105whenborrowing£100。AndhowamIgoingtopay5%?Bynewloans,or,ifitisthestate,bynewtaxes。Now,iftheindustrialcapitalistborrowsmoney,andhisprofitamountsto,say,15%,hemaypay5%interest,spend5%forhisprivateexpensesalthoughhisappetitegrowswithhisincome,andcapitalise5%。Inthiscase,15%isthepreconditionforpayingcontinually5%interest。Ifthisprocesscontinues,therateofprofit,forthereasonsindicatedinformerchapters,willfallfrom15%to,say,10%。ButPriceentirelyforgetsthattheinterestof5%presupposesarateofprofitof15%,andassumesittocontinuewiththeaccumulationofcapital。Hehasnothingwhatsoevertodowiththeactualprocessofaccumulation,butratheronlywithlendingmoneyandgettingitbackwithcompoundinterest。Howthatisaccomplishedisimmaterialtohim,sinceitistheinnatepropertyofinterest-bearingcapital。

  [2]SeeMillandCarey,andRoscher’smistakencommentaryonthisscore。[Marxreferstothefollowingworks:J。St。Mill,PrinciplesofPoliticalEconomy,Secondedition,Vol。I,London,1849,pp。91-92;H。Ch。Carey,PrinciplesofSocialScience,Vol。111,Philadelphia,1859,pp。

  71。73;W。Roscher,DieGrundlagenderNationalökonomie,3Auflage,StuttgartundAugsburg,1858,§45——Ed。]

  [3]”Itisclear,thatnolabour,noproductivepower,noingenuity,andnoart,cananswertheoverwhelmingdemandofcompoundinterest。Butallsavingismadefromtherevenueofthecapitalist,sothatactuallythesedemandsareconstantlymadeandasconstantlytheproductivepoweroflabourrefusestosatisfythem。Asortofbalanceis,therefore,constantlystruck。”LabourDefendedAgainsttheClaimsofCapital,p。23。ByHodgskin。

  Capital,Vol。3,Chapter25KarlMarxCAPITALVol。III

  THEPROCESSOF

  CAPITALISTPRODUCTIONASAWHOLEPartV

  DIVISIONOFPROFITINTOINTERESTANDPROFIT

  OFENTERPRISE。

  INTEREST-BEARINGCAPITALCHAPTER25

  CreditandFictitiousCapitalAnexhaustiveanalysisofthecreditsystemandoftheinstrumentswhichitcreatesforitsownusecredit-money,etc。liesbeyondourplan。Wemerelywishtodwellhereuponafewparticularpoints,whicharerequiredtocharacterisethecapitalistmodeofproductioningeneral。Weshalldealonlywithcommercialandbankcredit。Theconnectionbetweenthedevelopmentofthisformofcreditandthatofpubliccreditwillnotbeconsideredhere。

  IhaveshownearlierBuchI,Kap。III,3,b[Englishedition:Ch。III,3,b——Ed。]howthefunctionofmoneyasameansofpayment,andtherewitharelationofcreditoranddebtorbetweentheproducerandtraderofcommodities,developfromthesimplecirculationofcommodities。

  Withthedevelopmentofcommerceandofthecapitalistmodeofproduction,whichproducessolelywithaneyetocirculation,thisnaturalbasisofthecreditsystemisextended,generalised,andworkedout。Moneyserveshere,byandlarge,merelyasameansofpayment,i。e。,commoditiesarenotsoldformoney,butforawrittenpromisetopayforthematacertaindate。Forbrevity’ssake,wemayputallthesepromissorynotesunderthegeneralheadofbillsofexchange。Suchbillsofexchange,intheirturn,circulateasmeansofpaymentuntilthedayonwhichtheyfalldue;andtheyformtheactualcommercialmoney。Inasmuchastheyultimatelyneutraliseoneanotherthroughthebalancingofclaimsanddebts,theyactabsolutelyasmoney,althoughthereisnoeventualtransformationintoactualmoney。Justasthesemutualadvancesofproducersandmerchantsmakeuptherealfoundationofcredit,sodoestheinstrumentoftheircirculation,thebillofexchange,formthebasisofcredit-moneyproper,ofbank-notes,etc。Thesedonotrestuponthecirculationofmoney,beitmetallicorgovernment-issuedpapermoney,butratheruponthecirculationofbillsofexchange。

  W。LeathambankerofYorkshirewritesinhisLettersontheCurrency,2nded。,London,1840:”Ifind,then,theamountforthewholeoftheyearof1839……tobe£528,493,842”heassumedthattheforeignbillsofexchangemadeupaboutone-fifthofthetotal”andtheamountofbillsoutatonetimeintheaboveyear,tobe£132,123,460”p。

  56。Thebillsofexchangemakeup”onecomponentpartgreaterinamountthanalltherestputtogether”p。3。”Thisenormoussuperstructureofbillsofexchangerests!uponthebaseformedbytheamountofbank-notesandgold,andwhen,byevents,thisbasebecomestoomuchnarrowed,itssolidityandveryexistenceisendangered”p。8。”IfIestimatethewholecurrency”hemeansofthebank-notes”andtheamountoftheliabilitiesoftheBankandcountrybankers,payableondemand,Ifindasumof153

  million,which,bylaw,canbeconvertedintogold……andtheamountofgoldtomeetthisdemand”only14millionp。11。”Thebillsofexchangearenot……placedunderanycontrol,exceptbypreventingtheabundanceofmoney,excessiveandlowratesofinterestordiscount,whichcreateapartofthem,andencouragetheirgreatanddangerousexpansion。Itisimpossibletodecidewhatpartarisesoutofrealbonâfidetransactions,suchasactualbargainandsale,orwhatpartisfictitiousandmereaccommodationpaper,thatis,whereonebillofexchangeisdrawntotakeupanotherrunning,inordertoraiseafictitiouscapital,bycreatingsomuchcurrency。

  IntimesofabundanceandcheapmoneythisIknowreachesanenormousamount”

  pp。43-44。J。W。Bosanquet,Metallic,PaperandCreditCurrency,London,1842:”Anaverageamountofpaymentstotheextentofupwardsof£3,000,000issettledthroughtheClearingHousewheretheLondonbankersexchangeduebillsandfiledchequeseverydayofbusinessintheyear,andthedailyamountofmoneyrequiredforthepurposeislittlemorethan£200,000”p。86。In1889,thetotalturnoveroftheClearingHouseamountedto£7,618。75million,which,inroughly300

  businessdays,averages£251/2milliondaily——

  F。E。]”Billsofexchangeactundoubtedlyascurrency,independentofmoney,”inasmuchastheytransferpropertyfromhandtohandbyendorsementp。92。Itmaybeassumedthat”uponanaveragetherearetwoendorsementsuponeverybillincirculation,and……eachbillperformstwopaymentsbeforeitbecomesdue。Uponthisassumptionitwouldappear,thatbyendorsementalonepropertychangedhands,bymeansofbillsofexchange,tothevalueoftwicefivehundredandtwenty-eightmillion,or£1,056,000,000,beingattherateofmorethan£3,000,000perday,inthecourseoftheyear1839。Wemaysafelythereforeconclude,thatdepositsandbillsofexchangetogether,performthefunctionsofmoney,bytransferringpropertyfromhandtohandwithouttheaidofmoney,toanextentdailyofnotlessthan£18,000,000”p。93。

  Tookesaysthefollowingaboutcreditingeneral:”Credit,initsmostsimpleexpression,istheconfidencewhich,well,orill-founded,leadsapersontoentrustanotherwithacertainamountofcapital,inmoney,oringoodscomputedatavalueinmoneyagreedupon,andineachcasepayableattheexpirationofafixedterm。Inthecasewherethecapitalislentinmoney,thatiswhetherinbank-notes,orinacashcredit,orinanorderuponacorrespondent,anadditionfortheuseofthecapitalofsomuchuponevery£100ismadetotheamounttoberepaid。Inthecaseofgoodsthevalueofwhichisagreedintermsofmoney,constitutingasale,thesumstipulatedtoberepaidincludesaconsiderationfortheuseofthecapitalandfortherisk,tilltheexpirationoftheperiodfixedforpayment。Writtenobligationsofpaymentatfixeddatesmostlyaccompanythesecredits,andtheobligationsorpromissorynotesafterdatebeingtransferable,formthemeansbywhichthelenders,iftheyhaveoccasionfortheuseoftheircapital,intheshapewhetherofmoneyorgoods,beforetheexpirationofthetermofthebillstheyhold,aremostlyenabledtoborrowOrtobuyonlowerterms,byhavingtheirowncreditstrengthenedbythenamesonthebillsinadditiontotheirown。”InquiryintotheCurrencyPrinciple,p。87。

  Ch。Coquelin,DuCréditetdesBanquesdansL’Industrie,RevuedesDeuxMondes,1842,Tome31:”Ineverycountrythemajorityofcredittransactionstakesplacewithinthecircleofindustrialrelations……Theproduceroftherawmaterialadvancesittotheprocessingmanufacturer,andreceivesfromthelatterapromisetopayonacertainday。Themanufacturer,havingcompletedhisshareofthework,inhisturnadvanceshisproductonsimilartermstoanothermanufacturer,whohastoprocessitfurther,andinthiswaycreditstretchesonandon,fromonetotheother,rightuptotheconsumer。Thewholesaledealergivestheretailercommoditiesoncredit,whilereceivingcreditfromamanufacturerorcommissionagent。

  Allborrowwithonehandandlendwiththeother,sometimesmoney,butmorefrequentlyproducts。Inthismanneranincessantexchangeofadvances,whichcombineandintersectinalldirections,takesplaceinindustrialrelations。Thedevelopmentofcreditconsistspreciselyinthismultiplicationandgrowthofmutualadvances,andthereinistherealseatofitspower。”

  Theothersideofthecreditsystemisconnectedwiththedevelopmentofmoney-dealing,which,ofcourse,keepsstepundercapitalistproductionwiththedevelopmentofdealingincommodity。WehaveseenintheprecedingpartChap。XIXhowthecareofthereservefundsofbusinessmen,thetechnicaloperationsofreceivinganddisbursingmoney,ofinternationalpayments,andthusofthebulliontrade,areconcentratedinthehandsofthemoney-dealers。Theothersideofthecreditsystem——themanagementofinterest-bearingcapital,ormoney-capital,developsalongsidethismoney-dealingasaspecialfunctionofthemoney-dealers。Borrowingandlendingmoneybecomestheirparticularbusiness。Theyactasmiddlemenbetweentheactuallenderandtheborrowerofmoney-capital。Generallyspeaking,thisaspectofthebankingbusinessconsistsofconcentratinglargeamountsoftheloanablemoney-capitalinthebankers’hands,sothat,inplaceoftheindividualmoney-lender,thebankersconfronttheindustrialcapitalistsandcommercialcapitalistsasrepresentativesofallmoneylenders。

  Theybecomethegeneralmanagersofmoney-capital。Ontheotherhandbyborrowingfortheentireworldofcommerce,theyconcentratealltheborrowersvis-à-visallthelenders。Abankrepresentsacentralisationofmoney-capital,ofthelenders,ontheonehand,andontheotheracentralisationoftheborrowers。Itsprofitisgenerallymadebyborrowingatalowerrateofinterestthanitreceivesinloaning。

  Theloanablecapitalwhichthebankshaveattheirdisposalstreamstotheminvariousways。Inthefirstplace,beingthecashiersoftheindustrialcapitalists,allthemoney-capitalwhicheveryproducerandmerchantmusthaveasareservefund,orreceivesinpayment,isconcentratedintheirhands。Thesefundsarethusconvertedintoloanablemoney-capital。

  Inthisway,thereservefundofthecommercialworld,becauseitisconcentratedinacommontreasury,isreducedtoitsnecessaryminimum,andaportionofthemoney-capitalwhichwouldotherwisehavetolieslumberingasareservefund,isloanedoutandservesasinterest-bearingcapital。Inthesecondplace,theloanablecapitalofthebanksisformedbythedepositsofmoney-capitalistswhoentrustthemwiththebusinessofloaningthemout。Furthermore,withthedevelopmentofthebankingsystem,andparticularlyassoonasbankscametopayinterestondeposits,moneysavingsandthetemporarilyidlemoneyofallclassesweredepositedwiththem。Smallamounts,eachinitselfincapableofactinginthecapacityofmoney-capital,mergetogetherintolargemassesandthusformamoneypower。Thisaggregationofsmallamountsmustbedistinguishedasaspecificfunctionofthebankingsystemfromitsgo-betweenactivitiesbetweenthemoney-capitalistsproperandtheborrowers。Inthefinalanalysis,therevenues,whichareusuallybutgraduallyconsumed,arealsodepositedwiththebanks。

  Theloanismadewereferherestrictlytocommercialcreditbydiscountingbillsofexchange——byconvertingbillsofexchangeintomoneybeforetheycomedue——andbyadvancesofvariouskinds:directadvancesonpersonalcredit,loansagainstsecurities,suchasinterest-bearingpaper,governmentpaper,stocksofallsorts,and,notably,overdraftsagainstbillsoflading,dockwarrants,andothercertifiedtitlesofownershipofcommoditiesandoverdrawingdeposits,etc。

  Thecreditgivenbyabankermayassumevariousforms,suchasbillsofexchangeonotherbanks,chequesonthem,creditaccountsofthesamekind,andfinally,ifthebankisentitledtoissuenotes——bank-notesofthebankitself。Abank-noteisnothingbutadraftuponabanker,payableatanytimetothebearer,andgivenbythebankerinplaceofprivatedrafts。Thislastformofcreditappearsparticularlyimportantandstrikingtothelayman,first,becausethisformofcredit-moneybreaksoutoftheconfinesofmerecommercialcirculationintogeneralcirculation,andservesthereasmoney;andbecauseinmostcountriestheprincipalbanksissuingnotes,beingapeculiarmixtureofnationalandprivatebanks,actuallyhavethenationalcredittobackthem,andtheirnotesaremoreorlesslegaltender;becauseitisapparentherethatthebankerdealsincredititself,abank-notebeingmerelyacirculatingtokenofcredit。Butthebankeralsohastodowithcreditinallitsotherforms,evenwhenheadvancesthecashmoneydepositedwithhim。Infact,abank-notesimplyrepresentsthecoinofwholesaletrade,anditisalwaysthedepositwhichcarriesthemostweightwithbanks。ThebestproofofthisisfurnishedbytheScottishbanks。

  Specialcreditinstitutions,likespecialformsofbanks,neednofurtherconsiderationforourpurpose。”Thebusinessofbankers……maybedividedintotwobranches……Onebranchofthebanker’sbusinessistocollectcapitalfromthosewhohavenotimmediateemploymentforit,andtodistributeortransferittothosewhohave。Theotherbranchistoreceivedepositsoftheincomesoftheircustomers,andtopayouttheamount,asitiswantedforexpenditurebythelatterintheobjectsoftheirconsumption……Theformerbeingacirculationofcapital,thelatterofcurrency……”One”relatestotheconcentrationofcapitalontheonehandandthedistributionofitontheother,”theother”isemployedinadministeringthecirculationforlocalpurposesofthedistrict。”Tooke,InquiryintotheCurrencyPrinciple,pp。36,37。Weshallreverttothispassagelater,inChapterXXVIII。

  ReportsofCommittees,Vol。VIII。CommercialDistress,Vol。11,PartI,1847-48,MinutesofEvidence。FurtherquotedasCommercialDistress,1847-48。Intheforties,whendiscountingbillsofexchangeinLondon,21-daydraftsofonebankonanotherwereoftenacceptedinlieuofbanknotes。

  TestimonyofJ。Pease,countrybanker,Nos。4638and4645。Accordingtothesamereport,bankerswereinthehabitofgivingsuchbillsofexchangeregularlyinpaymenttotheircustomerswhenevermoneywastight。Ifthereceiverwantedbank-notes,hehadtorediscountthisbill。Forthebanksthisamountedtoaprivilegeofcoiningmoney。Messrs。Jones,LloydandCo。madepaymentsinthisway”fromtimeimmemorial,”assoonasmoneywasscarceandtherateofinterestroseabove5%。Thecustomerwasgladtogetsuchbanker’sbillsbecausebillsfromJones,LoydandCo。wereeasierdiscountedthanhisown;besides,theyoftenpassedthroughtwentytothirtyhands。Ibid。,Nos。901to904,905,992。

  Alltheseformsservetomakethepaymentsclaimtransferable——”Thereisscarcelyanyshapeintowhichcreditcanbecast,inwhichitwillnotattimesbecalledtoperformthefunctionsofmoney;andwhetherthatshapebeabank-note,orabillofexchange,orabanker’scheque,theprocessisineveryessentialparticularthesame,andtheresultisthesame。”Fullarton,OntheRegulationofCurrencies,2nded。,London,1845,p。38——”Bank-notesarethesmallchangeofcredit”p。51。

  ThefollowingfromJ。W。Gilbart’sTheHistoryandPrincipleofBanking,London,1834:”Thetradingcapitalofabankmaybedividedintotwoparts:theinvestedcapital,andtheborrowedbankingcapitalp。117。”Therearethreewaysofraisingabankingorborrowedcapital。First,byreceiving;secondly,bytheissuingofnotes;thirdly,bythedrawingofbills。Ifapersonwilllendme£100fornothing,andIlendthat£100toanotherpersonatfourpercentinterest,then,inthecourseofayear,Ishallgain£4bythetransaction。Again,ifapersonwilltakemy憄romisetopay?”Ipromisetopay”istheusualformulaforEnglishbank-notes”andbringitbacktomeattheendoftheyear,andpaymefourpercentforit,justthesameasthoughIhadlenthim100sovereigns,thenIshallgain£4bythattransaction;andagain,ifapersoninacountrytownbringsme£100onconditionthat,twenty-onedaysafterwards,IshallpaythesameamounttoapersoninLondon,thenwhateverinterestIcanmakeofthemoneyduringthetwenty-onedays,willbemyprofit。Thisisafairrepresentationoftheoperationsofbanking,andofthewayinwhichabankingcapitaliscreatedbymeansofdeposits,notes,andbills”p。117。”Theprofitsofabankeraregenerallyinproportiontotheamountofhisbankingorborrowedcapital……Toascertaintherealprofitofabank,theinterestupontheinvestedcapitalshouldbedeductedfromthegrossprofit,andwhatremainsisthebankingprofit”p。118。”Theadvancesofbankerstotheircustomersaremadewithotherpeople’smoney”p。146。”Preciselythosebankerswhodonotissuenotes,createabankingcapitalbythediscountingofbills。Theyrendertheirdiscountssubservienttotheincreaseoftheirdeposits。TheLondonbankerswillnotdiscountexceptforthosehouseswhohavedepositaccountswiththem”

  p。119。”Apartywhohashadbillsdiscounted,andhaspaidinterestonthewholeamount,mustleavesomeportionofthatamountinthehandsofthebankerwithoutinterest。Bythismeansthebankerobtainsmorethanthecurrentrateofinterestonthemoneyactuallyadvanced,andraisesabankingcapitaltotheamountofthebalanceleftinhishands”pp。

  119-20。Economisingonreservefunds,deposits,cheques:”Banksofdepositservetoeconomisetheuseofthecirculatingmedium。Thisisdoneupontheprincipleoftransferoftitles……Thusitisthatbanksofdeposit……

  areenabledtosettlealargeamountoftransactionswithasmallamountofmoney。Themoneythusliberated,isemployedbythebankerinmakingadvances,bydiscountorotherwise,tohiscustomers。Hencetheprincipleoftransfergivesadditionalefficiencytothedepositsystem……”p。

  123。”Itmattersnotwhetherthetwoparties,whohavedealingswitheachother,keeptheiraccountswiththesamebankerorwithdifferentbankers;

  for,asthebankersexchangetheirchequeswitheachotherattheclearinghouse……Thedepositsystemmightthus,bymeansoftransfers,becarriedtosuchanextentaswhollytosupersedetheuseofametalliccurrency。

  Wereeverymantokeepadepositaccountatabank,andmakeallhispaymentsbycheques,moneymightbesuperseded,andchequesbecomethesolecirculatingmedium。Inthiscase,however,itmustbesupposedthatthebankerhasthemoneyinhishands,orthechequeswouldhavenovalue”p。124。Centralisationoflocaltransactionsinthehandsofthebanksiseffected1throughbranchbanks。Countrybankshavebranchestablishmentsinthesmallertownsoftheirdistrict,andLondonbanksindifferentdistrictsofthecity。

  2Throughagencies。”EachcountrybankeremploysaLondonagenttopayhisnotesorbills……andtoreceivesumsthatmaybelodgedbypartiesresidinginLondonfortheuseofpartiesresidinginthecountry”p。127。

  Eachbankeracceptsthenotesofothers,butdoesnotreissuethem。Inalllargercitiestheycometogetheronceortwiceaweekandexchangetheirnotes。ThebalanceispaidbyadraftonLondonp。134。”Itistheobjectofbankingtogivefacilitiestotrade,andwhatevergivesfacilitiestotradegivesfacilitiestospeculation。Tradeandspeculationareinsomecasessonearlyallied,thatitisimpossibletosayatwhatprecisepointtradeendsandspeculationbegins……Wherevertherearebanks,capitalismorereadilyobtained,andatacheaperrate。Thecheapnessofcapitalgivesfacilitiestospeculation,justinthesamewayasthecheapnessofbeefandofbeergivesfacilitiestogluttonyanddrunkenness”pp。

  137,438。”Asbanksofcirculationalwaysissuetheirownnotes,itwouldseemthattheirdiscountingbusinesswascarriedonexclusivelywiththislastdescriptionofcapital,butitisnotso。Itisverypossibleforabankertoissuehisownnotesforallthebillshediscounts,andyetnine-tenthsofthebillsinhispossessionshallrepresentrealcapital。

  For,althoughinthefirstinstance,thebanker’snotesaregivenforthebill,yetthesenotesmaynotstayincirculationuntilthebillbecomesdue——thebillmayhavethreemonthstorun,thenotesmayreturninthreedays”p。172。”Theoverdrawingofacashcreditaccountisaregularmatterofbusiness;itis,infact,thepurposeforwhichthecashcredithasbeengranted……Cashcreditsaregrantednotonlyuponpersonalsecurity,butalsouponthesecurityofthePublicFunds”pp。174,175。”Capitaladvanced,bywayofloan,onthesecuritiesofmerchandise,wouldproducethesameeffectsasifadvancedinthediscountingofbills。Ifapartyborrows1400onthesecurityofhismerchandise,itisthesameasthoughhehadsoldhismerchandisefora8100bill,andgotitdiscountedwiththebanker。Byobtainingthisadvanceheisenabledtoholdoverthismerchandiseforabettermarket,andavoidsasacrificewhich,otherwise,bemightbeinducedtomake,inordertoraisethemoneyforurgentpurposes”pp。

  180-81。

  TheCurrencyTheoryReviewed,etc。,pp。62-63:”Itisunquestionablytruethatthe£1,000whichyoudepositatAtodaymaybereissuedtomorrow,andformadepositatB。Thedayafterthat,reissuedfromB,itmayformadepositatC……andsoontoinfinitude;andthatthesame£1,000inmoneymaythus,byasuccessionoftransfers,multiplyitselfintoasumofdepositsabsolutelyindefinite。Itispossible,therefore,thatnine-tenthsofallthedepositsintheUnitedKingdommayhavenoexistencebeyondtheirrecordinthebooksofthebankerswhoarerespectivelyaccountableforthem……ThusinScotland,forinstance,currencymostlypapermoneyatthathasneverexceeded13million,thedepositsinthebanksareestimatedat£27million……Unlessarunonthebanksbemade,thesame£1,000would,ifsentbackuponitstravels,cancelwiththesamefacilityasumequallyindefinite。Asthesame£1,000

  withwhichyoucancelyourdebttoatradesmantoday,maycancelhisdebttothemerchanttomorrow,themerchant’sdebttothebankthedayfollowing,andsoonwithoutend;sothesame£1,000maypassfromhandtohand,andbanktobank,andcancelanyconceivablesumofdeposits。”

  [WehaveseenthatGilbartknewevenin1834that”whatevergivesfacilitiestotradegivesfacilitiestospeculation。Tradeandspeculationareinsomecasessonearlyallied,thatitisimpossibletosayatwhatprecisepointtradeendsandspeculationbegins。”Theeasieritistoobtainadvancesonunsoldcommodities,themoresuchadvancesaretaken,andthegreaterthetemptationtomanufacturecommodities,ordumpalreadymanufacturedcommoditiesindistantmarkets,justtoobtainadvancesofmoneyonthem。

  Towhatextenttheentirebusinessworldofacountrymaybeseizedbysuchswindling,andwhatitfinallycomesto,isamplyillustratedbythehistoryofEnglishbusinessduring1845-47。Itshowsuswhatcreditcanaccomplish。Beforepassingontothefollowingexamples,afewpreliminaryremarks。

  Atthecloseof1842thepressurewhichEnglishindustrysufferedalmostuninterruptedlysince1837,begantolift。DuringthefollowingtwoyearsforeigndemandforEnglishmanufacturedgoodsincreasedstillmore;1845

  and1846markedaperiodofgreatestprosperity。In1843theOpiumWarhadopenedChinatoEnglishcommerce。Thenewmarketgaveanewimpetustothefurtherexpansionofanexpandingindustry,particularlythecottonindustry。”Howcanweeverproducetoomuch?Wehavetoclothe300millionpeople,”aManchestermanufacturersaidtothiswriteratthetime。Butallthenewlyerectedfactorybuildings,steam-engines,andspinningandweavingmachinesdidnotsufficetoabsorbthesurplus-valuepouringinfromLancashire。Withthesamezealaswasshowninexpandingproduction,peopleengagedinbuildingrailways。Thethirstforspeculationofmanufacturersandmerchantsatfirstfoundgratificationinthisfield,andasearlyasinthesummerof1844。Stockwasfullyunderwritten,i。e。,sofarastherewasmoneytocovertheinitialpayments。Asfortherest,timewouldshow!Butwhenfurtherpaymentsweredue——Question1059,C。

  D。1848/57,indicatesthatthecapitalinvestedinrailwaysin1846-47

  amountedto£75million——recoursehadtobetakentocredit,andinmostcasesthebasicenterprisesofthefirmhadalsotobleed。

  Andinmostcasesthesebasicenterpriseswerealreadyover-burdened。

  Theenticinglyhighprofitshadledtofarmoreextensiveoperationsthanjustifiedbytheavailableliquidresources。Yettherewascredit-easytoobtainandcheap。Thebankdiscountratestoodlow:13/4to23/4%in1844,lessthan3%untilOctober1845,risingto5%forawhileFebruary1846,thendroppingagainto31/4%

  inDecember1846。TheBankofEnglandhadanunheard-ofsupplyofgoldinitsvaults。Allinlandquotationswerehigherthaneverbefore。Whythenallowthissplendidopportunitytoescape?Whynotgoinforallonewasworth?WhynotsendallonecouldmanufacturetoforeignmarketswhichpinedforEnglishgoods?AndwhyshouldnotthemanufacturerhimselfpocketthedoublegainarisingfromsellingyarnandfabricsintheFarEast,andthereturncargoinEngland?

  ThusarosethesystemofmassconsignmentstoIndiaandChinaagainstadvancepayments,andthissoondevelopedintoasystemofconsignmentspurelyforthesakeofgettingadvances,asdescribedingreaterdetailinthefollowingnotes,whichledinevitablytoover-floodingthemarketsandacrash。

  Thecrashwasprecipitatedbythecropfailureof1846。England,andparticularlyIreland,requiredenormousimportsoffoodstuffs,notablycornandpotatoes。ButthecountrieswhichsuppliedthemcouldbepaidwiththeproductsofEnglishindustryonlytoaverylimitedextent。Preciousmetalshadtobegivenout。Goldworthatleastninemillionwassentabroad。

  OfthisamountnolessthansevenandahalfmillioncamefromthetreasuryoftheBankofEngland,whosefreedomofactiononthemoney-marketwastherebyconsiderablyimpaired。Otherbanks,whosereservesweredepositedwiththeBankofEnglandandwerepracticallyidenticalwiththoseofthatBank,werethusalsocompelledtocurtailaccommodationofmoney。Therapidandeasyflowofpaymentswasobstructed,firsthereandthere,thengenerally。

  Thebankingdiscountrate,still3to31/2%inJanuary1847,roseto7%inApril,whenthefirstpanicbrokeout。Thesituationeasedsomewhatinthesummer6’1/2%,6%,butwhenthenewcropfailedaswellpanicbrokeoutafreshandevenmoreviolently。

  TheofficialminimumbankdiscountroseinOctoberto7andinNovemberto10%;i。e。,theoverwhelmingmassofbillsofexchangewasdiscountableonlyatoutrageousratesofinterest,ornolongerdiscountableatall。

  Thegeneralcessationofpaymentscausedthefailureofseveralleadingandverymanymedium-sizedandsmallfirms。TheBankitselfwasindangerduetothelimitationsimposedbytheartfulBankActof4844。ThegovernmentyieldedtothegeneralclamourandsuspendedtheBankActonOctober25,therebyeliminatingtheabsurdlegalfettersimposedontheBank。Nowitcouldthrowitssupplyofbank-notesintocirculationwithouthindrance。

  Thecreditofthesebank-notesbeinginpracticeguaranteedbythecreditofthenation,andthusunimpaired,themoneystringencywasthusinstantlyanddecisivelyrelieved。Naturally,quiteanumberofhopelesslyenmeshedlargeandsmallfirmsfailednevertheless,butthepeakofthecrisiswasovercome,thebankingdiscountdroppedto5%inDecember,andinthecourseof1848anewwaveofbusinessactivitybeganwhichtooktheedgeofftherevolutionarymovementsonthecontinentin1849,andwhichinauguratedinthefiftiesanunprecedentedindustrialprosperity,butthenendedagain-inthecrashof1857——F。E。]

  I。AdocumentissuedbytheHouseofLordsin1848dealswiththecolossaldepreciationofgovernmentpaperandbondsduringthe1847crisis。AccordingtoitthedepreciationofOctober23,1847,comparedwiththelevelinFebruaryofthesameyear,amountedto:

  OnEnglishgovernmentbonds£93,824,217

  Ondockandcanalstock£1,358,288

  Onrailwaystock£19,570,820

  Total£114,762,325II。WithreferencetotheswindleinEastIndiantrade,inwhichdraftswerenolongerdrawnbecausecommoditieswerebeingbought,butrathercommoditieswereboughttobeabletomakeoutdiscountabledraftsconvertibleintomoney,theManchesterGuardianofNovember24,1847,remarks:

  Mr。AinLondoninstructsaMr。BtobuyfromthemanufacturerCinManchestercommoditiesforshipmenttoaMr。DinEastIndia。BpaysC

  insixmonths’draftstobemadeoutbyConB。Bsecureshimselfbysixmonths’draftsonA。AssoonasthegoodsareshippedAmakesoutsixmonths’

  draftsonDagainstthemailedbilloflading。慣heshipperandtheco-signeewerethusbothputinpossessionoffunds——monthsbeforetheyactuallypaidforthegoods;and,verycommonly,thesebillswererenewedatmaturity,onpretenceofaffordingtimeforthereturnsinalongtrade。?Unfortunately,lossesbysuchatrade,insteadofleadingtoitscontraction,leddirectlytoitsincrease。Thepoorermenbecame,thegreaterneedtheyhadtopurchase,inordertomakeup,bynewadvances,thecapitaltheyhadlostonthepastadventures。Purchasesthusbecame,notaquestionofsupplyanddemand,butthemostimportantpartofthefinanceoperationsofafirmlabouringunderdifficulties。Butthisisonlyonesideofthepicture。Whattookplaceinreferencetotheexportofgoodsathome,wastakingplaceinthepurchaseandshipmentofproduceabroad。HousesinIndia,whohadcredittopasstheirbills,werepurchasersofsugar,indigo,silk,orcotton-notbecausethepricesadvisedfromLondonbythelastoverlandmailpromisedaprofitonthepricescurrentinIndia,butbecauseformerdraftsupontheLondonhousewouldsoonfalldue,andmustbeprovidedfor。Whatwaysosimpleastopurchaseacargoofsugar,payforitinbillsupontheLondonhouseattenmonths’date,transmittheshippingdocumentsbytheoverlandmail;and,inlessthantwomonths,thegoodsonthehighseas,orperhapsnotyetpassedthemouthoftheHoogly,werepawnedinLombardStreet——puttingtheLondonhouseinfundseightmonthsbeforethedraftsagainstthosegoodsfelldue。Andallthiswentonwithoutinterruptionordifficulty,aslongasbill-brokershadabundanceofmoney慳tcall,?toadvanceonbillsofladinganddockwarrants,andtodiscount,withoutlimit,thebillsofIndiahousesdrawnupontheeminentfirmsinMincingLane。”

  [ThisfraudulentprocedureremainedinvoguesolongasgoodstoandfromIndiahadtoroundtheCapeinsailingvessels。ButeversincetheyarebeingshippedinsteamboatsviatheSuezCanalthismethodoffabricatingfictitiouscapitalhasbeendeprivedofitsbasis——thelongfreightvoyage。

  AndeversincethetelegraphinformstheEnglishbusinessmanabouttheIndianmarketandtheIndianmerchantabouttheEnglishmarket,onthesamedaythismethodhasbecometotallyimpracticable——F。E。]

  III。ThefollowingistakenfromthequotedReportonCommercialDistress,1847-48:”InthelastweekofApril1847,theBankofEnglandadvisedtheRoyalBankofLiverpoolthatitwouldthereafterreduceitsdiscountbusinesswiththelatterbankbyone-half。Theannouncementoperatedwithpeculiarhardshiponthisaccount,thatthepaymentsintoLiverpoolhadlatterlybeenmuchmoreinbillsthanincash;andthemerchantswhogenerallybroughttotheBankalargeproportionofcashwithwhichtopaytheiracceptances,hadlatterlybeenabletobringonlybillswhichtheyhadreceivedfortheircottonandotherproduce,andthatIncreasedveryrapidlyasthedifficultiesincreased……Theacceptances……whichtheBankhadtopayforthemerchants,wereacceptancesdrawnchieflyuponthemfromabroad,andtheyhavebeenaccustomedtomeetthoseacceptancesbywhateverpaymenttheyreceivedfortheirproduce……Thebillsthatthemerchantsbrought……

  inlieuofcash,whichtheyusuallybrought……wereofvariousdates,andofvariousdescriptions;aconsiderablenumberofthemwerebankers’bills,ofthreemonths’date,thelargebulkbeingcottonbills。Thesebillsofexchange,whenbankers’bills,wereacceptedbyLondonbankers,andbymerchantsineverytradethatwecouldmention——theBrazilian,theAmerican,theCanadian,theWestIndian……Themerchantsdidnotdrawuponeachother;

  butthepartiesintheinterior,whohadpurchasedproducefromthemerchants,remittedtothemerchantsbillsonLondonbankers,orbillsonvariouspartiesinLondon,orbillsuponanybody。TheannouncementoftheBankofEnglandcausedareductionofthematuritytermsofbillsdrawnagainstsalesofforeignproducts,frequentlyextendingtooverthreemonths”pp。

  26,27。

  TheperiodofprosperityinEnglandfrom1844to1847,was,asdescribedabove,connectedwiththefirstgreatrailwayswindle。Theabove-namedreportmakesthefollowingreferencetotheeffectofthisswindleonbusinessingeneral:InApril1847”almostallmercantilehouseshadbeguntostarvetheirbusinessmoreorless……bytakingpartoftheircommercialcapitalforrailways”p。42。”Loansweremadeonrailwaysharesatahighrateofinterest,say,8%,byprivateindividuals,bybankersandbyfire-offices”

  p。66。”Loanstosogreatanextentbycommercialhousestorailwaysinducedthemtoleantoomuchuponbanksbythediscountofpaper,wherebytocarryontheircommercialoperations”p。67。Question:”Shouldyousaythattherailwaycallshadhadagreateffectinproducingthepressurewhichtherewas”onthemoney-market”inAprilandOctober”1847?——

  Answer:”IshouldsaythattheyhadhadhardlyanyeffectatallinproducingthepressureinApril;IshouldimaginethatuptoApril,andup,perhaps,tothesummer,theyhadincreasedthepowerofbankersinsomerespectsratherthandiminishedit;fortheexpenditurehadnotbeennearlysorapidasthecalls;theconsequencewas,thatmostofthebankshadratheralargeamountofrailwaymoneyintheirhandsinthebeginningoftheyear。”

  ThisiscorroboratedinnumerousstatementsmadebybankersinC。D。1848-57。”Inthesummerthatmeltedgraduallyaway,andonthe31stofDecemberitwasmateriallyless。Onecause……ofthepressureinOctoberwasthegradualdiminutionoftherailwaymoneyinthebankers’hands;betweenthe22ndofAprilandthe31stofDecembertherailwaybalancesinourhandswerereducedone-third;andtherailwaycallshavealsohadthiseffectthroughouttheKingdom;theyhavebeengraduallydrainingthedepositsofbankers”pp。43,44——SamuelGurneyheadoftheill-famedfirmofOverend,GurneyandCo。similarlysays:”Duringtheyear1846……therehadbeenaconsiderabledemandforcapital,fortheestablishmentofrail-ways……

  butitdidnotincreasethevalueofmoney……Therewasacondensationofsmallsumsintolargemasses,andthoselargemasseswereusedinourmarket;sothat,uponthewhole,theeffectwastothrowmoremoneyintothemoney-marketoftheCitythantotakeitout”[p。159]。

  A。Hodgson,DirectoroftheLiverpoolJoint-StockBank,showshowmuchbillsofexchangemayconstituteareserveforbankers:”Ithasbeenourhabittokeepatleastnine-tenthsofallourdeposits,andallmoneywehaveofotherpersons,inourbillcase,inbillsthatarefallingduefromdaytoday……somuchso,thatduringthetimeoftherun,thebillsfallingduewerealmostequaltotheamountoftheranuponusdaybyday”

  p。53。

  Speculativebills——”5092。Whowerethosebillsagainstsoldcottongenerallyacceptedby?”——R。Gardner,thecottonmanufacturerrepeatedlymentionedinthiswork:”Producebrokers:apersonbuyscotton,andplacesitinthehandsofabroker,anddrawsuponthatbroker,andgetsthebillsdiscounted。”——”5094。AndtheyaretakentothebanksatLiverpool,anddiscounted?——Yes,andinotherpartsbesides……Ibelieveifithadnotbeenfortheaccommodationthusgranted,andprincipallybytheLiverpoolbanks,cottonwouldneverhavebeensohighlastyearasitwasby11/1d。or2d。apound。”——”600。Youhavestatedthatavastamountofbillswereputincirculation,drawnbyspeculatorsuponcottonbrokersinLiverpool;doesthatsystemextendtoyouradvanceonacceptancesuponcolonialandforeignproduceaswellasoncotton?”A。Hodgson,aLiverpoolbanker:”Itreferstoallkindsofcolonialproduce,buttocottonmostespecially。”——”601。Doyou,asabanker,disencourageasfarasyoucanthatdescriptionofpaper?——Wedonot;weconsideritaverylegitimatedescriptionofpaper,whenkeptinmoderation。Thisdescriptionofpaperisfrequentlyrenewed。”

  SwindlingintheEastIndianandChineseMarket,1847——CharlesTurnerheadofoneoftheleadingEastIndianhousesinLiverpool:”WeareallawareoftheeventswhichhavetakenplaceasregardstheMauritiustrade,andothertradesofthatkind。Thebrokershavebeeninthehabit……

  notonlyofadvancingupongoodsaftertheirarrivaltomeetthebillsdrawnagainstthosegoods,whichisperfectlylegitimate,anduponthebillsoflading……but……theyhaveadvanceduponproducebeforeitwasshipped,andinsomecasesbeforeitwasmanufactured。Now,tospeakofmyownindividualinstance:IhaveboughtbillsinCalcuttatotheextentofsixorseventhousandpoundsinoneparticularinstance;theproceedsofthebillswentdowntotheMauritius,tohelpinthegrowthofsugar;

  thosebillscametoEngland,andabovehalfofthemwereprotested;forwhentheshipmentsofsugarcameforward,insteadofbeingheldtopaythosebills,ithadbeenmortgagedtothirdparties……beforeitwasshipped,infactalmostbeforeitwasboiled”p。78。”Nowmanufacturersareinsistinguponcashbutitdoesnotamounttomuch,becauseifabuyerhasanycreditinLondon,hecandrawuponthehouse,andgetthebilldiscounted;hegoestoLondon,wherediscountsnowarecheap;hegetsthebilldiscounted,andpayscashtothemanufacturer……Ittakestwelvemonths,atleast,fortheshipperofgoodstogethisreturnfromIndia……amanwithtenorfifteenthousandpoundswouldgointotheIndiantrade;hewouldopenacreditwithahouseinLondon,toaconsiderableextent,givingthathouseonepercent;he,drawinguponthehouseinLondon,ontheunderstandingthattheproceedsofthegoodsthatgooutaretobereturnedtothehouseinLondon,butitbeingperfectlyunderstoodbybothpartiesthatthemaninLondonistobekeptoutofacashadvance;thatistosay,inotherwords,thebillsaretoberenewedtilltheproceedscomehome。ThebillswerediscountedatLiverpool,Manchester……orinLondon……manyofthemlieintheScotchbanks”p。79——”786。ThereisonehousewhichfailedinLondontheotherday,andinexaminingtheiraffairs,atransactionofthissortwasprovedtohavetakenplace;thereisahouseofbusinessatManchester,andanotheratCalcutta;theyopenedacreditaccountwithahouseinLondontotheextentof£200,000;thatistosay,thefriendsofthishouseinManchester,whoconsignedgoodstotheEastIndiaHousefromGlasgowandfromManchester,hadthepowerofdrawinguponthehouseinLondontotheextentof£200,000;atthesametime,therewasanunderstandingthatthecorrespondinghouseinCalcuttaweretodrawupontheLondonhousetotheextentof£200,000;withtheproceedsofthosebillssoldinCalcutta,theyweretobuyotherbills,andremitthemtothehouseinLondon,totakeupthefirstbillsdrawnfromGlasgow……

  Therewouldhavebeen£600,000ofbillscreateduponthattransaction。”——”971。Atpresent,ifahouseinCalcuttapurchaseacargo”forEngland,”andgivetheirownbillsupontheircorrespondentinLondoninpayment,andtheysendthebillsofladinghometothiscountry,thosebillsoflading……immediatelybecomeavailabletotheminLombardStreetforadvances,andtheyhaveeightmonths’useofthemoneybeforetheircorrespondentsarecalledupontopay。”

  IV。In1848asecretcommitteeoftheHouseofLordsinvestigatedthecausesofthe1847crisis。Theevidencegiventothecommitteewasnotpublished,however,until1857MinutesofEvidence,takenbeforetheSecretCommitteeoftheH。ofL。appointedtoinquireintotheCausesofDistress,etc。,1857;quotedasC。D。1848/57。HereMr。Lister,DirectoroftheUnionBankofLiverpool,testified,amongotherthings,tothefollowing:”2444。Inthespringof1844therewasanundueextensionofcredit……

  becauseamantransferredpropertyfrombusinessintorailwaysandwasstillanxioustocarryonthesameextentofbusiness。Heprobablyfirstthoughtthathecouldselltherailwaysharesataprofitandreplacethemoneyinhisbusiness。Perhapshefoundthatcouldnotbedone,andhethengotcreditinhisbusinesswhereformerlyhepaidincash。Therewasanextensionofcreditfromthatcircumstance。””2500。Werethosebills……uponwhichthebankshadsustainedalossbyholdingthem,principallybillsuponcornorbillsuponcotton?-Theywerebillsuponallkindsofproduce,cornandcottonandsugar,allforeignproduceofalldescriptions。Therewasscarcelyanythingperhapswiththeexceptionofoil,thatdidnotgodown。”——”2506。Abrokerwhoacceptsabillwillnotacceptitwithoutagoodmarginastothevalue。””2512。Therearetwokindsofbillsdrawnagainstproduce;thefirstistheoriginalbilldrawnabroaduponthemerchant,whoimportsit……

  Thebillswhicharedrawnagainstproducefrequentlyfallduebeforetheproducearrives。Themerchant,therefore,whenitarrives,ifhehasnotsufficientcapital,hastopledgethatproducewiththebrokertillhehastimetosellthatproduce。ThenanewspeciesofbillisimmediatelydrawnbythemerchantinLiverpooluponthebroker,onthesecurityofthatproduce……Thenitisthebusinessofthebankertoascertainfromthebrokerwhetherhehastheproduce,andtowhatextenthehasadvanceduponit。Itishisbusinesstoseethatthebrokerhaspropertytoprotecthimselfifhemakesaloss。””2516。Wealsoreceivebillsfromabroad……AmanbuysabillabroadonEngland,andsendsittoahouseinEngland;wecannottellwhetherthatbillisdrawnprudentlyorimprudently,whetheritisdrawnforproduceorforwind。””2533。Yousaidthatalmosteverykindofforeignproducewassoldatagreatloss。Doyouthinkthatthatwasinconsequenceofunduespeculationinthatproduce?——Itarosefromaverylargeimport,endtherenotbeinganequalconsumptiontotakeitoff。Itappearsthatconsumptionfelloffagreatdeal。”——”2534。InOctoberproducewasalmostunsaleable。”

  Howageneralsauvequipeutdevelopsattheheightofacrisisisrevealedinthesamereportbyafirst-rateexpert,theesteemedcraftyQuaker,SamuelGurney,ofOverend,GurneyandCo。:”1262……Whenapanicexistsamandoesnotaskhimselfwhathecangetforhisbank-notes,orwhetherheshallloseoneortwopercentbysellinghisexchequerbills,orthreepercent。Ifheisundertheinfluenceofalarmhedoesnotcarefortheprofitorloss,butmakeshimselfsafeandallowstherestoftheworldtodoastheyplease。”

  V。ConcerningthemutualsatiationofthetwomarketsMr。Alexander,amerchantintheEastIndiatrade,testifiesbeforetheCommitteeofthe,LowerHouseontheBankActof1857quotedasB。C。1857:”4330。Atthepresentmoment,ifIlayout6s。inManchester,Iget5s。backinIndia;

  ifIlayout6s。inIndia,Iget5s。backinLondon。”SothattheIndianmarketis,therefore,druggedbyEngland,andtheEnglishbyIndia。Thiswas,indeed,thecaseinthesummerof1857,barelytenyearsafterthebitterexperienceof1847!

  Capital,Vol。3,Chapter26KarlMarxCAPITALVol。III

  THEPROCESSOF

  CAPITALISTPRODUCTIONASAWHOLEPartV

  DIVISIONOFPROFITINTOINTERESTANDPROFIT

  OFENTERPRISE。

  INTEREST-BEARINGCAPITALCHAPTER26

  AccumulationofMoney-Capital。

  ItsInfluenceontheInterestRate”InEnglandtheretakesplaceasteadyaccumulationofadditionalwealth,whichhasatendencyultimatelytoassumetheformofmoney。Nownextinurgency,perhaps,tothedesiretoacquiremoney,isthewishtopartwithitagainforsomespeciesofinvestmentthatshallyieldeitherinterestorprofit;formoneyitself,asmoney,yieldsneither。Unless,therefore,concurrentlywiththisceaselessinfluxofsurplus-capital,thereisagradualandsufficientextensionofthefieldforitsemployment,wemustbesubjecttoperiodicalaccumulationsofmoneyseekinginvestment,ofmoreorlessvolume,accordingtothemovementofevents。Foralongseriesofyears,thegrandabsorbentofthesurpluswealthofEnglandwasourpublicdebt……Assoonasin1816thedebtreacheditsmaximum,andoperatednolongerasanabsorbent,asumofatleastseven-and-twentymillionperannumwasnecessarilydriventoseekotherchannelsofinvestment。Whatwasmore,variousreturnpaymentsofcapitalweremade……Enterpriseswhichentailalargecapitalandcreateanopeningfromtimetotimefortheexcessofunemployedcapital……areabsolutelynecessary,atleastinourcountry,soastotakecareoftheperiodicalaccumulationsofthesuperfluouswealthofsociety,whichisunabletofindroomintheusualfieldsofapplication。”TheCurrencyTheoryReviewed,London,1845,pp。32-34。

  Of1845thesameworksays:”Withinaveryrecentperiodpriceshavesprungupwardsfromthelowestpointofdepression……Consolstouchpar……ThebullioninthevaultsoftheBankofEnglandhas……exceededinamountthetreasureheldbythatestablishmentsinceitsinstitution。Sharesofeverydescriptionrangeatpricesontheaveragewhollyunprecedented,andinteresthasdeclinedtorateswhichareallbutnominal。IfthesebenotevidencesthatanotherheavyaccumulationofunemployedwealthexistsatthishourinEngland,thatanotherperiodofspeculativeexcitementisathand。”Ibid。,p。36。”Although……theimportofbullionisnosuresignofgainupontheforeigntrade,yet,intheabsenceofanyexplanatorycause,itdoesprimafacierepresentaportionofit。”J。G。Hubbard,TheCurrencyandtheCountry,London,1843,pp。40-411。”Suppose……thatataperiodofsteadytrade,fairprices……andfull,butnotredundantcirculation,adeficientharvestshouldgiveoccasionforanimportofcorn,andanexportofgoldtothevalueoffivemillion。Thecirculation[meaning,asweshallpresentlysee,idlemoney-capitalratherthanmeansofcirculation——F。E。]wouldofcoursebereducedbythesameamount。Anequalquantityofthecirculationmightstillbeheldbyindividuals,butthedepositsofmerchantsattheirbankers,thebalancesofbankerswiththeirmoney-broker,andthereserveintheirtill,willallbediminished,andtheimmediateresultofthisreductionintheamountofunemployedcapitalwillbeariseintherateofinterest。Iwillassumefrom4percentto6。Tradebeinginasoundstate,confidencewillnotbeshaken,butcreditwillbemorehighlyvalued。”Ibid。,p。42。”Butimagine……thatallpricesfall……Thesuperfluouscurrencyreturnstothebankersinincreaseddeposits-theabundanceofunemployedcapitallowerstherateofinteresttoaminimum,andthisstateofthingslastsuntileitherareturnofhigherpricesoramoreactivetradecallthedormantcurrencyintoservice,oruntilitisabsorbedbyinvestmentsinforeignstocksorforeigngoods”

  p。68。

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