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　　ThefollowingextractsarealsotakenfromtheparliamentaryReportonCommercialDistress，1847-48——Owingtothecropfailureandfamineof1846-47large-scaleimportsoffoodstuffsbecamenecessary。”Thesecircumstancescausedtheimportsofthecountrytobeverylargelyinexcessover……

　　exports……aconsiderabledrainuponthebanks，andanincreasedapplicationtothediscountbrokers……forthediscountofbills……Theybegantoscrutinisethebills……Thefacilitiesofhousesthenbegantobeveryseriouslycurtailed，andtheweakhousesbegantofail。Thosehouseswhich……reliedupontheircredit……wentdown。Thisincreasedthealarmthathadbeenpreviouslyfelt；andthebankersandothersfindingthattheywouldnotrelywiththesamedegreeofconfidencethattheyhadpreviouslydoneuponturningtheirbillsandothermoneysecuritiesintobank-notes，forthepurposeofmeetingtheirengagements，stillfurthercurtailedtheirfacilities，andinmanycasesrefusedthemaltogether；theylockeduptheirbank-notes，inmanyinstancestomeettheirownengagements；theywereafraidofpartingwiththem……Thealarmandconfusionwereincreaseddaily；andunlessLordJohnRussell……hadissuedthelettertotheBank……universalbankruptcywouldhavebeentheissue”pp。74-75。Russell’slettersuspendedtheBankAct——ThepreviouslymentionedCharlesTurnertestifies:”Somehouseshadlargemeans，butnotavailable。ThewholeoftheircapitalwaslockedupinestatesintheMauritius，orindigofactories，orsugarfactories。

　　Havingincurredliabilitiestotheextentof&pound；500，000or&pound；600，000

　　theyhadnoavailableassetstopaytheirbills，andeventuallyitprovedthattopaytheirbillstheywereentirelydependentupontheircredit”

　　p。81。TheaforementionedS。Gurneysaid[1664]:”Atpresent1848thereisalimitationoftransactionandagreatsuperabundanceofmoney。”——

　　1763。Idonotthinkitwasowingtothewantofcapital；itwasowingtothealarmthatexistedthattherateofinterestgotsohigh。”

　　In1847Englandpaidatleast&pound；9milliongoldtoforeigncountriesforimportedfoodstuffs。Ofthisamount&pound；71/2millioncamefromtheBankofEnglandand11/2millionfromothersourcesp。245——Morris，GovernoroftheBankofEngland:”Thepublicstocksinthecountryandcanalandrailwayshareshadalreadybythe23rdofOctober1847beendepreciatedintheaggregatetotheamountof&pound；114，752，225”p。312。AgainMorris，whenquestionedbyLordG。Bentinck:”Areyounotawarethatallpropertyinvestedinstocksandproduceofeverydescriptionwasdepreciatedinthesameway；thatrawcotton，rawsilkandunmanufacturedwoolweresenttothecontinentatthesamedepreciatedprice……andthatsugar，coffeeandteaweresacrificedasatforcedsales？——Itwas……inevitablethatthecountryshouldmakeaconsiderablesacrificeforthepurposeofmeetingtheeffluxofbullionwhichhadtakenplaceinconsequenceofthelargeimportationoffood。”——”Donotyouthinkitwouldhavebeenbettertotrenchuponthe&pound；8，000，000

　　lyinginthecoffersoftheBankthantohaveendeavouredtogetthegoldbackagainatsuchasacrifice？——No，Idonot。”——Nowtothecommentariesonsuchheroism。DisraeliquestionsMr。W。Cotton，aDirectorandformerGovernoroftheBankofEngland:”WhatwastherateofdividendpaidtotheBankproprietorsin1844？——Itwas7percentfortheyear。”——”Whatisthedividend……for1847？——Ninepercent。”——”DoestheBankpaytheincometaxforitsproprietorsinthisyear？——Itdoes。”——”Diditdosoin1844？——Itdidnot。”[1]——”ThenthisBankActof1844hasworkedverywellfortheproprietors？……

　　Theresultis，thatsincethepassingoftheAct，thedividendtotheproprietorshasbeenraisedfrom7percentto9percent，andtheincometax，thatpreviouslytotheActwaspaidbytheproprietors，isnowpaidbytheBank？——

　　Itisso。”Nos。4356-61。

　　Mr。Pease，acountrybanker，hadthefollowingtosayconcerninghoardinginbanksduringthecrisisof1847:”4605。AstheBankwasobligedstilltoraiseitsrateofinterest，everyoneseemedapprehensive；countrybankersincreasedtheamountofbullionintheirhands，andincreasedtheirreserveofnotes，andmanyofuswhowereinthehabitofkeeping，perhaps，afewhundredpoundsofgoldandbank-notes，immediatelylaidupthousandsinourdesksanddrawers，astherewasanuncertaintyaboutdiscounts，andaboutourbillsbeingcurrentinthemarket，ageneralhoardingensued。”

　　AmemberoftheCommitteeremarks:”4691。Then，whatevermayhavebeenthecauseduringthelast12years，theresulthasbeenratherinfavouroftheJewandmoney-dealer，thantheproductiveclassesgenerally。”

　　Howmuchamoney-dealertakesadvantageoftimesofcrisisisrevealedbyTooke:”InthehardwaredistrictsofWarwickshireandStaffordshire，agreatmanyordersforgoodsweredeclinedtobeacceptedin1847，becausetherateofinterestwhichthemanufacturerhadtopayfordiscountinghisbillsmorethanabsorbedallhisprofit”No。5451。

　　Letusnowtakeanotherparliamentaryreportcitedearlier:ReportofSelectCommitteeonBankActs，communicatedfromtheCommonstotheLords，1857quotedfurtherasB。C。1857。InitMr。Norman，DirectoroftheBankofEnglandandaleadingfigureamongthechampionsoftheCurrencyPrinciple，isinterrogatedasfollows:”3635。Youstated，thatyouconsiderthattherateofinterestdepends，notupontheamountofnotes，butuponthesupplyanddemandofcapital。

　　Willyoustatewhatyouincludein’capital，’besidesnotesandcoin？——

　　Ibelievethattheordinarydefinitionof’capital’iscommoditiesorservicesusedinproduction。”——”3636。Doyoumeantoincludeallcommoditiesintheword’capital’whenyouspeakoftherateofinterest？——Allcommoditiesusedinproduction。”——”3637。Youincludeallthatintheword’capital，’

　　whenyouspeakofwhatregulatestherateofinterest？——Yes。Supposingacottonmanufacturertowantcottonforhisfactory，thewayinwhichhegoestoworktoobtainitis，probably，bygettinganadvancefromhisbanker，andwiththenotessoobtainedhegoestoLiverpool，andmakesapurchase。Whathereallywantsisthecotton；hedoesnotwantthenotesorthegold，exceptasameansofgettingthecotton。Orhemaywantthemeansofpayinghisworkmen；thenagain，heborrowsthenotes，andhepaysthewagesoftheworkmenwiththenotes；andtheworkmen，again，requirefoodandlodging，andthemoneyisthemeansofpayingforthose。”——”3638。

　　Butinterestispaidforthemoney？——Itis，inthefirstinstance；buttakeanothercase。Supposinghebuysthecottononcredit，withoutgoingtothebankforanadvance，thenthedifferencebetweentheready-moneypriceandthecreditpriceatthetimeatwhichheistopayforitisthemeasureoftheinterest。Interestwouldexistiftherewasnomoneyatall。”

　　Thisself-complacent。rubbishisquitefittingforthispillaroftheCurrencyPrinciple。First，thebrilliantdiscoverythatbank-notesorgoldaremeansofbuyingsomething，andthattheyarenotborrowedfortheirownsake。Andthisisadvancedtoexplainthattherateofinterestisregulated——butbywhat？Bythedemandandsupplyofcommodities，whichheretoforewasknowntoregulateonlythemarket-pricesofcommodities。

　　However，verydifferentratesofinterestarecompatiblewiththesamemarket-pricesofcommodities——Butnowthiscunning。Heisconfrontedwiththecorrectremark:”Butinterestispaidforthemoney，”which，ofcourse，containstheimplication:”Whathasinterestreceivedbythebanker，whodoesnotdealincommoditiesatall，todowiththesecommodities？

　　Anddonotmanufacturersreceivemoneyatthesamerateofinterest，althoughtheyinvestitinwidelydifferentmarkets，henceinmarketswithwidelydifferentconditionsofdemandandsupplyforthecommoditiesusedinproduction？”

　　Allthatthiscelebratedgeniushastosayinreplytothesequestionsisthatifthemanufacturerbuyscottononcredit”thedifferencebetweentheready-moneypriceandthecreditpriceatthetimeatwhichheistopayforitisthemeasureoftheinterest。”Quitethecontrary。TheprevailingrateofinterestwhoseregulationthegreatintellectNormanwasaskedtoexplainisthemeasureofthedifferencebetweenthecashpriceandthecreditpriceuntilpaymentisdue。Firstthecottonistobesoldatitscashprice，andthisisdeterminedbythemarket-price，itselfregulatedbythestateofsupplyanddemand。Saytheprice&pound；1，000。Thisconcludesthetransactionbetweenthemanufacturerandthecottonbrokersofarasbuyingandsellingisconcerned。Nowcomesasecondtransaction。Thisisonebetweenlenderandborrower。Thevalueof&pound；1，000isadvancedtothemanufacturerincotton，andhehastorepayitinmoney，say，inthreemonths。Andthreemonths’interestfor&pound；1000，determinedbythemarketrateofinterest，makesuptheextrachargeoverandabovethecashprice。Thepriceofcottonisdeterminedbysupplyanddemand。Butthepriceoftheadvancedvalueofcotton，of&pound；1，000advancedforthreemonths，isdeterminedbytherateofinterest。Andthisfact，thatcottonisthustransformedintomoney-capital，provestoMr。Normanthatinterestwouldexisteveniftherehadbeennomoney。Iftherewerenomoneyatall，therewouldcertainlybenogeneralrateofinterest。

　　Thereis，tobeginwith，avulgarconceptionofcapitalas”commoditiesusedinproduction。”Insofarasthesecommoditiesserveascapital，theirvalueascapital，asdistinctfromtheirvalueascommodities，isexpressedintheprofitwhichisderivedfromtheirproductiveormercantileemployment。Andtherateofprofitunderallcircumstanceshassomethingtodowiththemarket-priceofthepurchasedcommoditiesandwiththeirsupplyanddemand，butisdeterminedbyentirelydifferentcircumstances。

　　Andthereisnodoubtthattheinterestrateisgenerallylimitedbytherateofprofit。ButMr。Normanshouldtellusjusthowthislimitisdetermined。

　　Anditisdeterminedbythesupplyanddemandofmoney-capitalasdistinguishedfromtheotherformsofcapital。Itcouldbefurtherasked:Howaredemandandsupplyofmoney-capitaldetermined？Itisdoubtlesslytruethatatacitconnectionexistsbetweenthesupplyofmaterialcapitalandthesupplyofmoney-capital；and，likewise，thatthedemandofindustrialcapitalistsformoney-capitalisdeterminedbyconditionsofactualproduction。Insteadofenlighteningusonthispoint，Normanoffersusthesageopinionthatthedemandformoney-capitalisnotidenticalwiththedemandformoneyassuch；andthissagacityalone，becausehe，Overstone，andtheotherCurrencyprophets，constantlyhavepricksofconsciencesincetheyarestrivingtomakecapitaloutofmeansofcirculationassuchthroughtheartificialinterventionoflegislation，andtoraisetheinterestrate。

　　NowtoLordOverstone，aliasSamuelJonesLoyd，asheisaskedtoexplainwhyhetakes10%forhis”money”because”capital”issoscarceinhiscountry。”3653。Thefluctuationsintherateofinterestarisefromoneoftwocauses:analterationinthevalueofcapital”excellent！Valueofcapital，generallyspeaking，signifiespreciselytherateofinterest！Achangeintherateofinterestisthusmadetospringfromachangeintherateofinterest。”Valueofcapital，”aswehaveshownelsewhere，isneverconceivedotherwiseintheory。Orelse，ifLordOverstonemeanstherateofprofitbythephrase”valueofcapital”，thentheprofoundthinkerreturnstothenotionthattheinterestrateisregulatedbytherateofprofit！”oranalterationintheamountofmoneyinthecountry。Allgreatfluctuationsofinterest，greateitherintheirdurationorintheextentofthefluctuation，maybedistinctlytracedtoalterationsinthevalueofcapital。Twomorestrikingpracticalillustrationsofthatfactcannotbefurnishedthantheriseintherateofinterestin1847andduringthelasttwoyears1855-56；theminorfluctuationsintherateofinterest，whicharisefromanalterationinthequantityofmoney，aresmallbothinextentandinduration。Theyarefrequent，andthemorerapidandfrequenttheyare，themoreeffectualtheyareforaccomplishingtheirdestinedpurpose”，whichistoenrichbankerslikeOverstone。FriendSamuelGurneyexpressesitverynaivelybeforetheCommitteeofLords，C。D。1848[1857]:”1324。

　　Doyouthinkthatthegreatfluctuationsintherateofinterestwhichhavetakenplaceinthelastyearareadvantageousornottobankersordealersinmoney？——Ithinktheyareadvantageoustodealersinmoney。

　　Allfluctuationsintradeareadvantageoustotheknowingman。”——”1325。

　　Maynotthebankersuffereventuallyfromthehighratesofinterest，byimpoverishinghisbestcustomers？——No；Idonotthinkithasthateffectperceptibly。”——Voil&agrave；cequeparlerveutdire。[Thisiswhathadtobesaid——Ed。]

　　Weshalleventuallyreturntotheinfluenceofthequantityofavailablemoneyontherateofinterest。ButitistobenotedrightherethatOverstoneagainmakesaquidproquo。Thedemandformoney-capitalin1847

　　beforeOctobertherewasnoanxietyovermoneystringency，orthe”quantityofmoney，”ashecalleditincreasedforvariousreasons，suchasrisingpricesforcornandcotton，lackofbuyersofsugarduetoover-production，railwayspeculationandthecrash，overcrowdingofforeignmarketswithcottongoods，andtheforcedexportto，andimportfrom，Indiaforthepurposeofspeculationinbillsofexchange，whichwasdescribedabove。

　　Allthesethings，over-productioninindustryandunderproductioninagriculture——inotherwords，greatlydifferingcauses——gaverisetoanincreaseddemandformoney-capital，i。e。，forcreditandmoney。Theincreaseddemandformoney-capitalhaditsorigininthecourseoftheproductiveprocessitself。Butwhatevermayhavebeenthecause，itwasthedemandformoney-capitalwhichmadetheinterestrate，thevalueofmoney-capital，climb。IfOverstonemeanstosaythatthevalueofmoney-capitalrosebecauseitrose，thenitistautology。Butif，by”valueofcapital，”hemeansariseintherateofprofitasthecauseoftheriseintherateofinterest，weshallimmediatelyseethatthisiswrong。Thedemandformoney-capital，andconsequentlythe”valueofcapital，”mayriseeventhoughtheprofitmaydecrease；assoonastherelativesupplyofmoney-capitalshrinks，its”value”increases。WhatOverstonewishedtoproveisthatthecrisisof1847，andtheattendanthighinterestrate，hadnothingtodowiththe”quantityofmoney，”i。e。，withtheregulationsoftheBankActof1844whichhehadinspired；althoughitwas，indeed，connectedwiththem，inasmuchasthefearofexhaustingthebankreserve——acreationofOverstone——contributedamoneypanictothecrisisof1847-48。Butthisisnottheissuehere。Therewasadearthofmoney-capital，causedbytheexcessivevolumeofoperationscomparedtotheavailablemeansandprecipitatedbythedisturbanceinthereproductionprocessduetoacropfailure，over-investmentinrailways，over-production，particularlyofcottongoods，swindlingoperationsintradewithIndiaandChina，speculation，superfluoussugarimports，etc。Whatthepeople，whohadboughtcornat120shillingsperquarter，lackedwhenitfellto60shillings，werethe60shillingswhichtheyhadoverpaidandthecorrespondingcreditforthatamountinLombardStreetadvancesonthecorn。Itwasbynomeansalackofbank-notesthatpreventedthemfromconvertingtheircornintomoneyatitsoldpriceof120shillings。Thesameappliedtothosewhohadimportedanexcessofsugar，whichbecamealmostunsaleable。Itappliedlikewisetothegentlemenwhohadtieduptheirfloatingcapitalinrailwaysandreliedoncredittoreplaceitintheir”legitimate”business。ToOverstoneallthissignifiesa”moralsenseoftheenhancedvalueofhismoney。”

　　Butthisenhancedvalueofmoney-capitalcorrespondeddirectlyontheotherhandtothedepreciatedmoney-valueofrealcapitalcommodity-capitalandproductivecapital。Thevalueofcapitalintheoneformrosebecausethevalueofcapitalintheotherfell。Overstone，however，seekstoidentifythesetwovaluesofdifferentsortsofcapitalinasinglevalueofcapitalingeneral，andhetriestodosobyopposingbothofthemtoascarcityofthemediumofcirculation，ofavailablemoney。Butthesameamountofmoney-capitalmaybeloanedwithverydifferentquantitiesofthecirculationmedium。

　　Takehisexampleof1847。Theofficialbank-ratestoodat3to31/2%

　　inJanuary；4to41/2%inFebruary。InMarchitwasgenerally4%。Aprilpanic4to71/2%。May5to51/2%，June，onthewhole，5%。July5%。August5to51/2%。

　　September5%withtriflingvariationsof51/4，51/2，6%。October5，51/2，7%。November7-10%。December7to5%——Inthiscasetheinterestrosebecauseprofitsdecreasedandthemoney-valuesofcommoditiesfellenormously。If，therefore，Overstonesaysherethattherateofinterestrosein1847becausethevalueofcapitalrose，hecannotmeananythingbyvalueofcapitalbutthevalueofmoney-capital，andthevalueofmoney-capitalistherateofinterest，andnothingelse。

　　Butlaterheshowedtheclovenhoofandidentifiedthevalueofcapitalwiththerateofprofit。

　　Asforthehighrateofinterestpaidin1856，Overstonewasindeedignorantofthefactthatthiswaspartiallyasymptomthatthecreditjobberswerecomingtothefore，whopaidinterestnotfromtheirprofit，butwiththecapitalofothers；hemaintainedjustafewmonthsbeforethecrisisof1857that”businessisquitesound。”

　　Hetestifiedfurthermore:[B。C。1857]”3722。Thatideaoftheprofitsoftradebeingdestroyedbyariseintherateofinterestismosterroneous。

　　Inthefirstplace，ariseintherateofinterestisseldomofanylongduration；inthesecondplace，ifitisoflongduration，andofgreatextent，itisreallyariseinthevalueofcapital，andwhydoesvalueofcapitalrise？Becausetherateofprofitisincreased。”——Here，then，welearn，atlast，whatthemeaningof”valueofcapital”is。Furthermore，therateofprofitmaybehighforalengthyperiod，andyettheprofitofenterprisemayfallandtherateofinterestrisetoapointwhereitswallowsthegreaterportionoftheprofit。”3724。Theriseintherateofinteresthasbeeninconsequenceofthegreatincreaseinthetradeofthecountry，andthegreatriseintherateofprofits；andtocomplainoftheriseintherateofinterestasbeingdestructiveofthetwothings，whichhavebeenitsowncause，isasortoflogicalabsurdity，whichonedoesnotknowhowtodealwith——”Thisisjustaslogicalasifheweretosay:Theriseintherateofprofithasbeeninconsequenceoftheriseincommodity-pricesbyspeculation，andtocomplainthattheriseinpricesdestroysitsowncause，namely，speculation，isalogicalabsurdity，etc。Thatanythingcanultimatelydestroyitsowncauseisalogicalabsurdityonlyfortheusurerenamouredofthehighinterestrate。ThegreatnessoftheRomanswasthecauseoftheirconquests，andtheirconquestsdestroyedtheirgreatness。Wealthisthecauseofluxuryandluxuryhasadestructiveeffectonwealth。Thewiseacre！Theidiocyofthepresent-daybourgeoisworldcannotbebetterdescribedthanbytherespect，whichthe”logic”ofthemillionaire——

　　thedunghillaristocrat——inspiredinallEngland。Furthermore，ifahighrateofprofitandanexpansionofbusinessmaybecausesofahighinterestrate，ahighrateofinterestisbynomeansthereforeacauseofhighprofit。Thequestionispreciselywhethersuchahighinterestaswasactuallydiscoveredduringthecrisiscontinuedor，whatismore，reacheditsclimaxafterthehighrateofprofithadlonggonethewayofallflesh。”3718。Withregardtoagreatriseintherateofdiscount，thatisacircumstanceentirelyarisingfromtheincreasedvalueofcapital，andthecauseofthatincreasedvalueofcapitalIthinkanypersonmaydiscoverwithperfectclearness。Ihavealreadyalludedtothefactthatduringthe13yearsthisActhasbeeninoperation，thetradeofthiscountryhasincreasedfrom&pound；45，000，000to&pound；120，000，000。Letanypersonreflectuponalltheeventswhichareinvolvedinthatshortstatement；

　　lethimconsidertheenormousdemanduponcapitalforthepurposeofcarryingonsuchagiganticincreaseoftrade，andlethimconsideratthesametimethatthenaturalsourcefromwhichthatgreatdemandshouldbesupplied，namely，theannualsavingsofthiscountry，hasforthelastthreeorfouryearsbeenconsumedintheunprofitableexpenditureofwar。Iconfessthatmysurpriseis，thattherateofinterestisnotmuchhigherthanitis；

　　or，inotherwords，mysurpriseis，thatthepressureforcapitaltocarryonthesegiganticoperations，isnotfarmorestringentthanyouhavefoundittobe。”

　　Whatanamazingjumbleofwordsbyourlogicianofusury！Herehecomesagainwithhisincreasedvalueofcapital！Heseemstothinkthatthisenormousexpansionofthereproductionprocess，henceaccumulationofrealcapital，tookplaceononeside，andthatontheotherthereexisteda”capital”，forwhichtherearosean”enormousdemand”，inordertoaccomplishthisgiganticincreaseofcommerce！Wasnotthisenormousincreaseofproductionanincreaseofcapitalitself，andifitcreatedademand，diditnotalsocreatethesupply，and，simultaneously，anincreasedsupplyofmoney-capital？

　　Iftheinterestrateroseveryhigh，thenmerelybecausethedemandformoney-capitalincreasedstillmorerapidlythanitssupply，whichimplies，inotherwords，thatwiththeexpansionofindustrialproductionitsoperationonacreditbasisexpandedaswell。Thatistosay，theactualindustrialexpansioncausedanincreaseddemandfor”accommodation，”andthelatterdemandisevidentlywhatourbankermeansbythe”enormousdemandforcapital。”

　　Itwassurelynottheexpansionofthisdemandforcapitalalone，whichraisedtheexportbusinessfrom&pound；45to&pound；120million。

　　Andfurthermore，whatdoesOverstonemeanwhenhesaysthatthecountry’sannualsavingsswallowedbytheCrimeanWarformthenaturalsourceofsupplyforthisbigdemand？inthefirstplace，howdidEnglandachieveaccumulationin1792-1815，whichwasafardifferentwarfromthelittleCrimeanone？Inthesecondplace，ifthenaturalsourcewasdry，fromwhatsourcedidcapitalflowatall？ItiswellknownthatEnglanddidnotrequestloansfromforeigncountries。Yetifthereisanartificialsourcebesidesthenaturalone，itwouldhavebeenbestforanationtoutilisethenaturalsourceinwarandtheartificialoneinbusiness。Butifonlytheoldmoney-capitalwasavailable，coulditdoubleitseffectivenessthroughahighrateofinterest？Mr。Overstoneevidentlythinksthatthecountry’sannualsavingswhich，however，weresupposedtohavebeenconsumedinthiscaseareconvertedonlyintomoney-capital。Butifnorealaccumulation，i。e。，expansionofproductionandaugmentationofthemeansofproduction，hadtakenplace，whatgoodwouldtherebefromtheaccumulationofdebtor’smoneyclaimsonthisproduction？

　　Theincreaseinthe”valueofcapital”springingfromahighrateofprofitisidentifiedbyOverstonewithanincreasecausedbyagreaterdemandformoney-capital。Thisdemandmayclimbforreasonsquiteindependentoftherateofprofit。Hehimselfcitestheexampleofitsrisein4847

　　asaresultofthedepreciationofrealcapital。Dependingonwhatsuitshispurpose，heascribesthevalueofcapitaltorealcapitalormoney-capital。

　　Thedishonestyofourbankinglord，andhisnarrow-mindedbanker’spointofviewwithitsdidacticflavouringarefurtherrevealedinthefollowing:

　　3728。Question:”Youhavestatedthattherateofdiscountisofnomaterialmomentyouthinktothemerchant；willyoubekindenoughtostatewhatyouconsidertheordinaryrateofprofit？——”Mr。Overstonedeclaresthatitis”impossible”toanswerthisquestion——”3729。Supposingtheaveragerateofprofittobe，say，from7to10%，avariationoffrom2to7or8%intherateofdiscountmustmateriallyaffecttherateofprofit，mustitnot？”Thisquestionitselflumpstogethertherateofprofitofenterprisewiththerateofprofit，and。passesoverthefactthattherateofprofitisthecommonsourceofinterestandprofitofenterprise。Theinterestratemayleavetherateofprofituntouched，butnottheprofitofenterprise。

　　Overstonereplied:”Inthefirstplacepartieswillnotpayarateofdiscountwhichseriouslyinterruptstheirprofits；theywilldiscontinuetheirbusinessratherthandothat。”Yes，iftheycandosowithoutruiningthemselves。Solongastheirprofitishigh，theypaythediscountbecausetheywishto，andwhenitislow，becausetheyhaveto。”Whatisthemeaningofdiscount？Whydoesapersondiscountabill？……Becausehewantstoobtainthecommandofagreaterquantityofcapital。”Halte-l&agrave；！becausehewantstoanticipatethereturninmoneyofhistied-upcapitalandtopreventhisbusinessfromstopping；becausehemustmeetpaymentsdue。Hedemandsmorecapitalonlywhenbusinessisgood，orwhenhespeculatesonanother’scapital，thoughbusinessmaybebad。Thediscountisbynomeanssimplyadevicetoexpandbusiness。”Andwhydoeshewanttoobtainthecommandofagreaterquantityofcapital？Becausehewantstoemploythatcapital；andwhydoeshewanttoemploythatcapital？Becauseitisprofitabletohimtodoso；itwouldnotbeprofitabletohimtodosoifthediscountdestroyedhisprofit。”

　　Thissmuglogicianassumesthatbillsofexchangearediscountedonlyforthepurposeofexpandingbusiness，andthatbusinessisexpandedbecauseitisprofitable。Thefirstassumptioniswrong。Theordinarybusinessmandiscounts，inordertoanticipatethemoney-formofhiscapitalandtherebytokeephisprocessofreproductioninflow；notinordertoexpandhisbusinessorsecureadditionalcapital，butinordertobalancethecredithegivesbythecredithereceives。Andifhewantstoexpandhisbusinessoncredit，discountingbillswilldohimlittlegoodbecauseitismerelyconversionofthemoney-capitalwhichhealreadyhasinhishandsfromoneformintoanother；hewillrathertakeadirectloanforalongerperiod。

　　Thecreditswindlerwillgethisaccommodationbillsdiscountedtoexpandhisbusinessactivity，tocoveronesqualidbusinessdealbyanother；nottomakeprofitsbuttoobtainpossessionofanother’scapital。

　　AfterMr。Overstonehasthusidentifieddiscountingwithborrowingadditionalcapitalinsteadofwithconvertingbillsrepresentingcapitalintohardcash，hebeatsaninstantretreatassoonasthescrewsareappliedtohim——3730。Question:”Merchantsbeingengagedinbusiness，musttheynotforacertainperiodcarryontheiroperationsindespiteofanytemporaryincreaseintherateofdiscount？”——Overstone:”Thereisnodoubtthatinanyparticulartransaction，ifapersoncangethiscommandofcapitalatalowrateofinterestratherthanatahighrateofinterest，takeninthatlimitedviewofthematter，thatisconvenienttohim。”——Butitisaveryunlimitedpointofview，ontheotherhand，whichenablesMr。Overstonequitesuddenlytounderstandonlyhis，Lanker’scapital，as”capital，”andtoassumethatthemanwhodiscountsabillofexchangewithhimisamanwithoutcapital，justbecausehiscapitalexistsintheformofcommodities，orbecausethemoney-formofhiscapitalisabillofexchange，whichMr。Overstoneconvertsintoanothermoney-form。

　　3732。”WithreferencetotheActof1844，canyoustatewhathasbeenabouttheaveragerateofinterestinproportiontotheamountofbullionintheBank；woulditbeafactthatwhentheamountofbullionhasbeenabout&pound；9，000，000or&pound；10，000，000therateofinteresthasbeen6or7percent，andthatwhenithasbeen&pound；16，000，000，therateofinteresthasbeen，say，from3to4percent？”Theexaminerwishestopresshimtoexplaintherateofinterest，sofarasitisinfluencedbytheamountofbullionintheBank，onthebasisoftherateofinterest，sofarasitisinfluencedbythevalueofcapital。——”Idonotapprehendthatthatisso……butifitis，thenIthinkwemusttakestillmorestringentmeasuresthanthoseadoptedbytheActof1844，becauseifitbetruethatthegreaterthestoreofbullion，thelowertherateofinterest，weoughttosettowork，accordingtothatviewofthematter，toincreasethestoreofbulliontoanindefiniteamount，andthenweshouldgettheinterestdowntonothing。”——Theexaminer，Cayley，unmovedbythispoorjoke，continues:”3733。Ifthatbeso，supposingthat&pound；5，000，000ofbullionwastoberestoredtotheBank，inthecourseofthenextsixmonthsthebullionthenwouldamount，say，to&pound；16，000，000，andsupposingthattherateofinterestwasthustofallto3or4percent，howcoulditbestatedthatthatfallintherateofinterestarosefromagreatdecreaseofthetradeofthecountry？——Isaidthattherecentriseintherateofinterest，notthatthefallintherateofinterest，wascloselyconnectedwiththegreatincreaseinthetradeofthecountry。”——ButwhatCayleysaysisthis:Ifariseofinterestratetogetherwithacontractionofthegoldreserve，isanindicationofanexpansioninbusiness，thenafalloftheinterestratetogetherwithanexpansionofthegoldreserve，mustbeanindicationofacontractionofbusiness。Overstonehasnoanswertothis——

　　3736。Question:”Iobservedyou”inthetextalways”YourLordship””tosaythatmoneywastheinstrumentforobtainingcapital。”Preciselythisisthemistake，toconceivemoneyasaninstrument；itisaformofcapital。”UnderadrainofbullionoftheBankofEnglandisnotthegreatstrain，onthecontrary，forcapitaliststoobtainmoney？”——

　　Overstone:”No，itisnotthecapitalists，itisthosewhoarenotcapitalists，whowanttoobtainmoneyandwhydotheywanttoobtainmoney？……

　　Becausethroughthemoneytheyobtainthecommandofthecapitalofthecapitalisttocarryonthebusinessofthepersonswhoarenotcapitalists。”——

　　Herehedeclarespoint-blankthatmanufacturersandmerchantsarenotcapitalists，andthatthecapitalist’scapitalisonlymoney-capital——”3737。Arenotthepartieswhodrawbillsofexchangecapitalists？——Thepartieswhodrawbillsofexchangemaybe，andmaynotbe，capitalists。”——

　　Hereheisstuck。

　　Heisthenaskedwhethermerchants’billsofexchangerepresentcommoditieswhichhavebeensoldorshipped。Hedeniesthatthesebillsrepresentthevalueofcommoditiesinthesamewaythatabank-noterepresentsgold。

　　3740，3741。Thisissomewhatinsolent。”3742。Isitnotthemerchant’sobjecttogetmoney？——No；gettingmoneyisnottheobjectindrawingthebill；gettingmoneyistheobjectindiscountingthebill。”——Drawingbillsofexchangeisconvertingcommoditiesintoaformofcredit-money，justasdiscountingbillsofexchangeisconvertingthiscredit-moneyintoanother，namelybank-notes。Atanyrate，Mr。Overstoneadmitsherethatthepurposeofdiscountingistoobtainmoney。Awhileagohesaidthatdiscountingwasawaynotofconvertingcapitalfromoneformintoanother，butofobtainingadditionalcapital。”3743。Whatisthegreatdesireofthemercantilecommunityunderpressureofpanic，suchasyoustatetohaveoccurredin1825，1837and1839；istheirobjecttogetpossessionofcapitalorthelegaltender？——Theirobjectistogetthecommandofcapitaltosupporttheirbusiness。”——

　　Theirpurposeistoobtainmeansofpaymentforduebillsofexchangeonthemselves，onaccountoftheprevailinglackofcredit，sothattheywillnothavetolettheircommoditiesgobelowprice。Iftheyhavenocapitalatallthemselves，theyreceiveitalongwiththemeansofpayment，becausetheyreceivevaluewithoutanequivalent。Theurgetoobtainmoneyassuchconsistsalwaysinthewishtoconvertvaluefromtheformofcommoditiesorcreditor’sclaimsintotheformofmoney。Hence，evenasidefromthecrises，thegreatdifferencebetweenborrowingcapitalanddiscount，thelatterbeingamereconversionofmoneyclaimsfromoneformintoanother，orintorealmoney。

　　[Itakethelibertyatthispointinmycapacityofeditortointerpolateafewremarks。

　　WithrespecttoNorman，aswellasLoyd-Overstone，thebankerisalwaystheonewho”advancescapital”toothers，andhiscustomersarethosewhodemand”capital”fromhim。Thus，Overstonesaysthatpeoplehavebillsofexchangediscountedthroughhim，”becausetheywishtoobtainthecommandofcapital”3729，andthatitispleasantforsuchpeopleiftheycan”getcommandofcapitalatalowrateofinterest”3730。”Moneyistheinstrumentforobtainingcapital”3736，andduringapanicthegreatdesireofthemercantilecommunityisto”getthecommandofcapital”3743。ForallofLoyd-Overstone’sconfusionoverwhatcapitalis，itisatleastclearthathedesignateswhatthebankergivestohisclientascapital，asacapitalwhichtheclientdidnotformerlypossess，butwhichwasadvancedtohimtosupplementwhathealreadypossessed。

　　Thebankerhasbecomesoaccustomedtoactasdistributorthroughloans

　　ofthesocialcapitalavailableinmoney-formthatheconsiderseveryfunctionwherebyhehandsoutmoney，asloaning。Allthemoneyhepaysoutappearstohimasaloan。Ifthemoneyisdirectlyloaned，thisisliterallytrue。

　　Ifitisinvestedinthebill-discountingbusiness，itisinfactadvancedbyhimselfuntilthebillbecomesdue。Thenotionthusgrowsonhimthatallthepaymentshemakesareadvances；furthermore，thattheyareadvancesnotmerelyinthesensethateveryinvestmentofmoneywiththeobjectofderivinginterestorprofit，iseconomicallyconsideredanadvanceofmoneywhichtheownerofmoneyconcerned，inhiscapacityofprivateindividual，makestohimselfinhiscapacityasentrepreneur，butadvancesinthedefinitesensethatthebankerlendshisclientasumofmoneywhichaugmentsthecapitalalreadyatthelatter’sdisposal。

　　Itisthisconception，which，transferredfromthebanker’sofficetopoliticaleconomy，hascreatedtheconfusingcontroversy，whetherthatwhichthebankerplacesathisclient’sdisposalinhardcashiscapitalormeremoney，amediumofcirculation，orcurrency。Todecidethis——

　　fundamentallysimple——controversy，wemustputourselvesintheplaceofabankclient。Italldependsonwhatthiscustomerrequestsandreceives。

　　Ifthebankallowsitsclientaloansimplyonhispersonalcredit，withoutanysecurityonhispart，thenthematterisclear。Hethencertainlyreceivesanadvanceofdefinitevalueasasupplementtothecapitalhehasalreadyinvested。Hereceivesitintheformofmoney；hence，notmerelymoney，butalsomoney-capital。

　　If，ontheotherhand，hereceivestheadvanceagainstsecurities，etc。，thenitisanadvanceinthesenseofmoneypaidtohimonconditionthathepayitback。Butitisnotanadvanceofcapital。Forthesecuritiesalsorepresentcapital，andalargeramountatthatthantheadvance。Therecipientthereforereceiveslesscapital-valuethanhedepositsassecurity；

　　thisrepresentsforhimnoacquisitionofadditionalcapital。Hedoesnotenterintothetransactionbecauseheneedscapital-hehasthatinhissecurities-butbecauseheneedsmoney。Herewe，therefore，haveanadvanceofmoney，notofcapital。

　　Iftheloanisgrantedbydiscountingbills，theneventheformofanadvancedisappears。Thenitispurelyamatterofbuyingandselling。

　　Thebillpassesbyendorsementintothepossessionofthebank，whilethemoneypassesintothepossessionoftheclient。Thereisnoquestionofanyreturnpaymentonhispart。Iftheclientbuyshardcashwithabillofexchangeorsomesimilarinstrumentofcredit，itisnomoreandnolessanadvancethanwerehetobuycashmoneywithhisothercommodities，suchascotton，iron，orcorn。Stilllesscanthisbecalledanadvanceofcapital。Everypurchaseandsalebetweenonemerchantandanotherisatransferofcapital。Butanadvanceofcapitaloccursonlywhenthetransferofcapitalisnotreciprocal，butunilateralandforaperiodoftime。Anadvanceofcapitalthroughdiscountcan，therefore，onlyoccurwhenabillisaspeculativeone，whichdoesnotrepresentanysoldcommodities，andnobankerwilltakesuchabillifheisawareofitsnature。Intheregulardiscountingbusinessthebankclientdoesnot，therefore，receiveanadvance，eitherofcapitalorofmoney。Whathereceivesismoneyforsoldcommodities。

　　Thecasesinwhichthecustomerdemandsandreceivescapitalfromabankarethusclearlydistinguishedfromthose，inwhichhemerelyreceivesanadvanceofmoney，orbuysmoneyfromthebank。AndsinceleastofallMr。Loyd-OverstoneeveradvancedhisfundswithoutcollateralexceptontherarestoccasionshewasthebankerofmyfirminManchester，itislikewiseevidentthathislyricdescriptionsofthegreatquantitiesofcapitalloanedbygenerousbankerstomanufacturersinneedofcapitalaregrossinventions。

　　Bytheway，inChapterXXXIIMarxsaysessentiallythesamething:”Thedemandformeansofpaymentisameredemandforconvertibilityintomoney，sofarasmerchantsandproducershavegoodsecuritiestooffer；

　　itisademandformoney-capitalwheneverthereisnocollateral，sothatanadvanceofmeansofpaymentgivesthemnotonlytheformofmoneybutalsotheequivalenttheylack，whateveritsform，withwhichtomakepayment。”——AndagaininChapterXXXIII:”Underadevelopedsystemofcredit，withthemoneyconcentratedinthehandsofbankers，itisthey，atleastnominally，whoadvanceit。Thisadvancerefersonlytomoneyincirculation。Itisanadvanceofcirculation，notanadvanceofcapitalswhichitcirculates。”Mr。Chapman，whoshouldknow，likewisecorroboratesthisconceptionofthediscountingbusiness:B。C。

　　1857:”Thebankerhasthebill，thebankerhasboughtthebill。”Evid。

　　Question5139。

　　Weshall，however，returntothissubjectinChapterXXVIII——F。

　　E。]”3744。Willyoubegoodenoughtodescribewhatyouactuallymeanbytheterm慶apital？”——Overstone:”Capitalconsistsofvariouscommodities，bymeansofwhichtradeiscarriedon；thereisfixedcapitalandthereiscirculatingcapital。Yourships，yourdocks，yourwharves……arefixedcapital；yourprovisions，yourclothes，etc。，arecirculatingcapital。””3745。Isthecountryoppressedunderadrainofbullion？——Notintherationalsenseoftheword。”ThencomestheoldRicardiantheoryofmoney。……”Inthenaturalstateofthingsthemoneyoftheworldisdistributedamongstthedifferentcountriesoftheworldincertainproportions，thoseproportionsbeingsuchthatunderthatdistributionofmoneytheintercoursebetweenanyonecountryandalltheothercountriesoftheworldjointlywillbeanintercourseofbarter；butdisturbingcircumstanceswillarisetoaffectthatdistribution，andwhenthosearise，acertainportionofthemoneyofanygivencountrypassestoothercountries。”——”3746。YourLordshipnowusestheterm憁oney。？Iunderstoodyoubeforetosaythatitwasalossofcapital——Thatwhatwasalossofcapital？”——”3747。

　　Theexportofbullion？——No，Ididnotsayso。Ifyoutreatbullionascapital，nodoubtitisalossofcapital；itispartingwithacertainproportionofthosepreciousmetalswhichconstitutethemoneyoftheworld。”——”3748。IunderstoodYourLordshiptosaythatanalterationintherateofdiscountwasameresignofanalterationinthevalueofcapital？——

　　Idid。”——”3749。AndthattherateofdiscountgenerallyalterswiththestateofthestoreofbullionintheBankofEngland？——Yes，butIhavealreadystatedthatthefluctuationsintherateofinterest，whicharisefromanalterationinthequantityofmoney”whathethereforemeanshereisthequantityofactuallyexistinggold”inacountry，areverysmall。””3750。Then，doesYourLordshipmeanthatthereisalesscapitalthantherewas，whenthereisamorecontinuousyettemporaryincreaseintherateofdiscountthanusual？——Less，inonesenseoftheword。Theproportionbetweencapitalandthedemandforitisaltered；itmaybebyanincreaseddemand，notbyadiminutionofthequantityofcapital。”Butamomentagoitwascapital=moneyorgold，andalittlebeforethathehadexplainedtheriseininterestratebyahighrateofprofit，duetoanexpansionratherthanacontractionofbusinessorcapital。”3751。Whatisthecapitalwhichyouparticularlyalludeto？——Thatdependsentirelyuponwhatthecapitaliswhicheachpersonwants。Itisthecapitalwhichthecountryhasatitscommandforconductingitsbusiness，andwhenthatbusinessisdoubled，theremustbeagreatincreaseinthedemandforthecapitalwithwhichitistobecarriedon。”Thisshrewdbankerdoublesfirstthebusinessactivityandthenthedemandforcapitalwithwhichitistobedoubled。Allheseesishisclient，whoasksMr。Loydformorecapitalbywhichtodoublethevolumeofhisbusiness。——”Capitalislikeanyothercommodity”butaccordingtoMr。Loydcapitalisnothingbutthetotalityofcommodities，”itwillvaryinitsprice”hence，commoditieschangetheirpricetwice，onetimeascommoditiesandthesecondascapital，”accordingtothesupplyanddemand。””3752。ThechangesintherateofdiscountaregenerallyconnectedwiththechangesintheamountofgoldwhichthereisinthecoffersoftheBank。IsitthatcapitaltowhichYourLordshiprefers？——No。”——”3753。

　　CanYourLordshippointtoanyinstanceinwhichtherehasbeenalargestoreofcapitalintheBankofEnglandconnectedwithahighrateofdiscount？——

　　TheBankofEnglandisnotaplaceforthedepositofcapital，itisaplaceforthedepositofmoney。”——”3754。YourLordshiphasstatedthattherateofinterestdependsupontheamountofcapital；willyoubekindenoughtostatewhatcapitalyoumean，andwhetheryoucanpointtoanyinstanceinwhichtherehasbeenalargestoreofbullionintheBankandatthesametimeahighrateofinterest？——Itisveryprobableaha！

　　thattheaccumulationofbullionintheBankmaybecoincidentwithalowrateofinterest，becauseaperiodinwhichthereisadiminisheddemandforcapital”namely，money-capital；theperiodtowhichreferenceismadehere，1844and1845，wasaperiodofprosperity”isaperiod，duringwhich，ofcourse，themeansorinstrumentthroughwhichyoucommandcapitalmayaccumulate。”——”3755。ThenyouthinkthatthereisnoconnectionbetweentherateofdiscountandtheamountofbullioninthecoffersoftheBank？——

　　Theremaybeaconnection，butit。isnotaconnectionofprinciple”

　　hisBankActof1844，however，madeitaprincipleoftheBankofEnglandtoregulatetheinterestratebythequantityofbullionillitspossession，”theremaybeacoincidenceoftime。”——”3758。DoIrightlyunderstandyoutosay，that。thedifficultyofmerchantsinthiscountry，underastateofpressure，inconsequenceofahighrateofdiscount，isingettingcapital，andnotingettingmoney？——YouareputtingtwothingstogetherwhichIdonotjoininthatform；theirdifficultyisingettingcapital，andtheirdifficultyalsoisingettingmoney……Thedifficultyofgettingmoneyandthedifficultyofgettingcapitalisthesamedifficultytakenintwosuccessivestagesofitsprogress。”——Herethefishiscaughtinthenetagain。Thefirstdifficultyistodiscountabillofexchange，ortoobtainaloanagainstthesecurityofcommodities。Itisthedifficultyofconvertingcapital，oracommercialtokenofcapitalintomoney。Andthisdifficultyismanifested，amongotherthings，inahighrateofinterest。

　　Butassoonasthemoneyisobtained，whatistheseconddifficulty？Doesanyoneeverfindanydifficultyingettingridofhismoneywhenitismerelyamatterofpaying？Andifitisamatterofbuying，hasanyoneeverhadanydifficultyinpurchasingduringtimesofcrisis？And，forthesakeofargument，shouldthisrefertoaspecificdearthincorn，cotton，etc。，thisdifficultycouldonlyappearinthepriceofthesecommodities，notinthevalueofmoney-capital，i。e。，notintherateofinterest；

　　andthisdifficultyisovercome，inthefinalanalysis，bythefactthatourmannowhasthemoneytobuythem。””3760。Butahigherrateofdiscountisanincreaseddifficultyofgettingmoney？——Itisanincreaseddifficultyofgettingmoney，butitisnotbecauseyouwanttohavethemoney；itisonlytheform”andthisformbringsprofitintothebanker’spocket”inwhichtheincreaseddifficultyofgettingcapitalpresentsitselfaccordingtothecomplicatedrelationsofacivilisedstate。””3763。Overstone’sreply:Thebankeristhego-betweenwhoreceivesdepositsontheoneside，andontheotherappliesthosedeposits，entrustingthem，intheformofcapital，tothehandsofpersons，who，etc。”

　　Atlastwehavewhathemeansbycapital。Heconvertsmoneyintocapitalby”entrusting”it，lesseuphemistically，byloaningitatinterest。

　　AfterMr。Overstonehasstatedthatachangeintherateofdiscountisnotessentiallyconnectedwithachangeinquantityofthegoldreserveinabank，orinthequantityofavailablemoney，butthatthereisatbestonlyacoincidenceintime，herepeats:”3805。Whenthemoneyinthecountryisdiminishedbyadrain，itsvalueincreases，andtheBankofEnglandmustconformtothatalterationinthevalueofmoney”hence，thevalueofmoneyascapital；inotherwords，therateofinterest，forthevalueofmoneyasmoney，comparedwithcommodities，remainsthesame，”whichismeantbythetechnicaltermofraisingtherateofinterest。””3819。Ineverconfoundthosetwo。”——Meaningmoneyandcapital，andforthesimplereasonthatheneverdifferentiatedbetweenthem。”3834。Theverylargesum，whichhadtobepaid”forcornin4847，”whichwasinpointoffactcapital，forthesupplyofthenecessaryprovisionsofthecountry。””3844。Thevariationsintherateofdiscounthavenodoubtaverycloserelationtothestateofthereserve”oftheBankofEngland，”becausethestateofthereserveistheindicatoroftheincreaseorthedecreaseofthequantityofmoneyinthecountry；andinproportionasthemoneyinthecountryincreasesordecreases，thevalueofthatmoneywillincreaseordecrease，andthebank-rateofdiscountwillconformtothatchange。”——

　　Thus，OverstoneadmitsherewhatheemphaticallydeniedinNo。3755——”3842。Thereisanintimateconnectionbetweenthem。”Meaningthequantityofbullionintheissuedepartment，ontheonehand，andthereserveofnotesinthebankingdepartment，ontheother。Hereheexplainsthechangeintherateofinterestbythechangeinthequantityofmoney。Butthisstatementiswrong。Thereservemayshrinkbecausethecirculatingmoneyinthecountryincreases。Thisisthecasewhenthepublictakesmorenotesandthehoardofmetaldoesnotdecrease。Butinsuchcasetheinterestraterises，becausethenthebankingcapitaloftheBankofEnglandislimitedbytheActof1844。Buthedarenotmentionthis，becauseduetothislawthetwodepartmentshavenothingtodowithoneanother。”3859。Ahighrateofprofitwillalwayscreateagreatdemandforcapital；

　　agreatdemandforcapitalwillraisethevalueofit。”——Here，atlast，wehavetheconnectionbetweenahighrateofprofitandademandforcapitalasOverstoneconceivesit。Now，ahighrateofprofitprevailedin，forexample，1844-45inthecottonindustry，becauserawcottonwascheap，andremainedso，whereasthedemandforcottongoodswasstrong。ThevalueofcapitalandinanearlierStatementOverstonecallscapitalthatwhicheveryoneneedsinhisbusiness，inthiscasethereforethevalueofrawcotton，wasnotincreasedforthemanufacturer……Thehighrateofprofitmayhaveinducedsomecottonmanufacturertoobtainmoneyoncreditforthepurposeofexpandinghisbusiness。Therebyhisdemandroseformoney-capital，butfornothingelse。”3889。Bullionmayormaynotbemoney，justaspapermayormaynotbeabank-note。””3896。DoIcorrectlyunderstandYourLordshipthatyougiveuptheargument，whichyouusedIn1840，thatthefluctuationsinthenotesoutoftheBankofEnglandoughttoconformtothefluctuationsintheamountofbullion？——Igiveitupsofarasthis……thatnowwiththemeansofinformationwhichwepossess，thenotesoutoftheBankofEnglandmusthaveaddedtothemthenoteswhichareinthebankingreserveoftheBankofEngland。”——Thisissuperlative。ThearbitraryprovisionthattheBankmaymakeoutasmanypapernotesasithasgoldinthetreasuryand14

　　millionmore，implies，ofcourse，thatitsissueofnotesfluctuateswiththefluctuationsofthegoldreserve。Butsincethepresent”meansofinformationwhichwepossess”clearlyshowedthatthemassofnotes，whichtheBankcanthusmanufactureandwhichtheissuedepartmenttransferstothebankingdepartment——thatthiscirculationbetweenthetwodepartmentsoftheBankofEngland，fluctuatingwiththefluctuationsofthegoldreserve，doesnotdeter-minethefluctuationsinthecirculationofbank-notesoutsidetheBankofEngland，thenthelatter——therealcirculation——becomesamatterofindifferencetothebankadministration，andthecirculationbetweenthetwodepartmentsoftheBank，whosedifferencefromtherealcirculationismirroredinthereserve，alonebecomesdecisive。TotheoutsideworldthisinternalcirculationissignificantonlybecausethereserveindicateshowclosetheBankisapproachingthelegalmaximumofitsnoteissue，andhowmuchitsclientscanstillreceivefromthebankingdepartment。

　　ThefollowingisabrilliantexampleofOverstone抯malafides:”4243。Doesthequantityofcapital，doyouthink，oscillatefrommonthtomonthtosuchadegreeastoalteritsvalueinthewayexhibitedoflateyearsintheoscillationsintherateofdiscount？——Therelationbetweenthedemandandthesupplyofcapitalmayundoubtedlyfluctuateevenwithinshortperiods……IfFrancetomorrowputoutanoticethatshewishestoborrowaverylargeloan，thereisnodoubtthatitwouldimmediatelycauseagreatalterationinthevalueofmoney，thatistosay，inthevalueofcapital，inthiscountry。””4245。IfFranceannounces，thatshewantssuddenly，foranypurpose，30million’sworthofcommoditiestherewillbeagreatdemandforcapital，tousethemorescientificandthesimplerterm。””4246。Thecapital，whichFrancewouldwishtobuywithherloan，isonething，andthemoneywithwhichshebuysitisanother，isitthemoney，whichaltersinvalue，ornot？——Weseemtoberevivingtheoldquestion，whichIthinkismorefitforthechamberofastudentthanforthiscommitteeroom。”——Andwiththisheretires，butnotintothechamberofastudent。[2]

　　FOOTNOTES[1]Inotherwords，formerlytheyfirstfixedthedividend，andthendeductedtheincometaxasthedividendwaspaidtotheindividualstockholder；

　　after1844，however，theBankfirstpaidtheincometaxonitstotalprofit，andthenpaidthedividend”freeofincometax。”Thesamenominalpercentagesare，therefore，higherinthelattercasebytheamountofthetax——

　　F。E。

　　[2]MoreonOverstone’sconfusionoftermsinmattersconcerningcapitalatthecloseofChapterXXXII——[F。E。]

　　Capital，Vol。3，Chapter27KarlMarxCAPITALVol。III

　　THEPROCESSOF

　　CAPITALISTPRODUCTIONASAWHOLEPartV

　　DIVISIONOFPROFITINTOINTERESTANDPROFIT

　　OFENTERPRISE。

　　INTEREST-BEARINGCAPITALCHAPTER27

　　TheRoleofCreditinCapitalistProductionThegeneralremarks，whichthecreditsystemsofarelicitedfromus，werethefollowing:

　　I。Itsnecessarydevelopmenttoeffecttheequalisationoftherateofprofit，orthemovementsofthisequalisation，uponwhichtheentirecapitalistproductionrests。

　　II。Reductionofthecostsofcirculation。

　　1Oneoftheprincipalcostsofcirculationismoneyitself，beingvalueinitself。Itiseconomisedthroughcreditinthreeways。

　　A。Bydroppingawayentirelyinagreatmanytransactions。

　　B。Bytheacceleratedcirculationofthecirculatingmedium。[1]Thiscorrespondsinpartwithwhatistobesaidunder2。Ontheonehand，theaccelerationistechnical；i。e。，withthesamemagnitudeandnumberofactualturnoversofcommoditiesforconsumption，asmallerquantityofmoneyormoneytokensperformsthesameservice。Thisisboundupwiththetechniqueofbanking。Ontheotherhand，creditacceleratesthevelocityofthemetamorphosesofcommoditiesandtherebythevelocityofmoneycirculation。

　　C。Substitutionofpaperforgoldmoney。

　　2Acceleration，bymeansofcredit，oftheindividualphasesofcirculationorofthemetamorphosisofcommodities，laterthemetamorphosisofcapital，andwithitanaccelerationoftheprocessofreproductioningeneral。

　　Ontheotherhand，credithelpstokeeptheactsofbuyingandsellinglongerapartandservestherebyasabasisforspeculation。Contractionofreservefunds，whichmaybeviewedintwoways:asareductionofthecirculatingmedium，ontheonehand，and，ontheother，asareductionofthatpartofcapitalwhichmustalwaysexistintheformofmoney。[2]

　　III。Formationofstockcompanies。Thereby:

　　1Anenormousexpansionofthescaleofproductionandofenterprises，thatwasimpossibleforindividualcapitals。Atthesametime，enterprisesthatwereformerlygovernmententerprises，becomepublic。

　　2Thecapital，whichinitselfrestsonasocialmodeofproductionandpresupposesasocialconcentrationofmeansofproductionandlabour-power，isheredirectlyendowedwiththeformofsocialcapitalcapitalofdirectlyassociatedindividualsasdistinctfromprivatecapital，anditsundertakingsassumetheformofsocialundertakingsasdistinctfromprivateundertakings。

　　Itistheabolitionofcapitalasprivatepropertywithintheframeworkofcapitalistproductionitself。

　　3Transformationoftheactuallyfunctioningcapitalistintoameremanager，administratorofotherpeople’scapital，andoftheownerofcapitalintoamereowner，ameremoney-capitalist。Evenifthedividendswhichtheyreceiveincludetheinterestandtheprofitofenterprise，i。e。，thetotalprofitforthesalaryofthemanageris，orshouldbe，simplythewageofaspecifictypeofskilledlabour，whosepriceisregulatedinthelabour-marketlikethatofanyotherlabour，thistotalprofitishenceforthreceivedonlyintheformofinterest，i。e。，asmerecompensationforowningcapitalthatnowisentirelydivorcedfromthefunctionintheactualprocessofreproduction，justasthisfunctioninthepersonofthemanagerisdivorcedfromownershipofcapital。Profitthusappearsnolongeronlythatportionofit，theinterest，whichderivesitsjustificationfromtheprofitoftheborrowerasamereappropriationofthesurplus-labourofothers，arisingfromtheconversionofmeansofproductionintocapital，i。e。，fromtheiralienationvis-&agrave；-vistheactualproducer，fromtheirantithesisasanother’spropertytoeveryindividualactuallyatworkinproduction，frommanagerdowntothelastday-labourer。Instockcompaniesthefunctionisdivorcedfromcapitalownership，hencealsolabourisentirelydivorcedfromownershipofmeansofproductionandsurplus-labour。Thisresultoftheultimatedevelopmentofcapitalistproductionisanecessarytransitionalphasetowardsthereconversionofcapitalintothepropertyofproducers，althoughnolongerastheprivatepropertyoftheindividualproducers，butratherasthepropertyofassociatedproducers，asoutrightsocialproperty。Ontheotherhand，thestockcompanyisatransitiontowardtheconversionofallfunctionsinthereproductionprocesswhichstillremainlinkedwithcapitalistproperty，intomerefunctionsofassociatedproducers，intosocialfunctions。

　　Beforewegoanyfurther，thereisstillthefollowingeconomicallyimportantfacttobenoted:Sinceprofithereassumesthepureformofinterest，undertakingsofthissortarestillpossibleiftheyyieldbareinterest，andthisisoneofthecauses，stemmingthefallofthegeneralrateofprofit，sincesuchundertakings，inwhichtheratioofconstantcapitaltothevariableissoenormous，donotnecessarilyenterintotheequalisationofthegeneralrateofprofit。

　　[SinceMarxwrotetheabove，newformsofindustrialenterpriseshavedeveloped，asweknow，representingthesecondandthirddegreeofstockcompanies。Thedailygrowingspeedwithwhichproductionmaybeenlargedinallfieldsoflarge-scaleindustrytoday，isoffsetbytheever-greaterslownesswithwhichthemarketfortheseincreasedproductsexpands。Whattheformerturnsoutinmonths，canscarcelybeabsorbedbythelatterinyears。Addtothistheprotectivetariffpolicy，bywhicheveryindustrialcountryshutsitselfofffromallothers，particularlyfromEngland，andalsoartificiallyincreasesdomesticproductioncapacity。Theresultsareageneralchronicover-production，depressedprices，fallingandevenwhollydisappearingprofits；inshort，theoldboastedfreedomofcompetitionhasreachedtheendofitstetherandmustitselfannounceitsobvious，scandalousbankruptcy。Andineverycountrythisistakingplacethroughthebigindustrialistsofacertainbranchjoininginacartelfortheregulationofproduction。Acommitteefixesthequantitytobeproducedbyeachestablishmentandisthefinalauthorityfordistributingtheincomingorders。Occasionallyeveninternationalcartelswereestablished，asbetweentheEnglishandGermanironindustries。Buteventhisformofassociationinproductiondidnotsuffice。Theantagonismofinterestsbetweentheindividualfirmsbrokethroughitonlytoooften，restoringcompetition。