Understanding The US Political Crisis - Part 11

Money Capital

Huge transnational banks may have similar interests to multinational firms and commercial capital. They will want to see usually open borders, and the development of large common markets, like the EU, because these facilitate their international operations. By contrast, small nationally based capitals may not only have no such interest, but actually see it as a threat, as a source of increased taxation and regulation etc.

Yet, this transnational bank and the back street loan shark are both money-capitalists. Both make their profits from being able to borrow cheap and lend dear. The banking maxim was always said to be based on the 3-6-3 principle – borrow at 3%, lend at 6% and be on the golf course by 3 p.m.

But, there is a significant difference between the money and merchant capitalists on the one side and the productive capitalists on the other, besides the fact that the former make their profits parasitically from the latter. It is that whilst the productive capitalists desire continuous and preferably expanding production, the money and merchant capitalists only require a continuous and preferably expanding volume of money in circulation.

The more the money-capitalists can lend, the more profit on the interest differential they make. The more money thrown into circulation, the more commodities are bought, which benefits the merchant capitalists, but not necessarily the productive capitalists, as the commodities sold may be imported. Where the increased money thrown into circulation goes not into buying commodities, but into property and financial assets, this not only benefits money-capital, it also damages productive-capital.

Money-capital benefits because it pushes up the price of financial assets, and thereby creates fictitious capital that acts as collateral to finance yet further borrowing, which leads to speculation and asset price bubbles. These may result in banks themselves going bust, as happened in 2007-9, and is likely to happen when the current bubble bursts. But, in the past, they have also been occasions when money-capital has been able to seize real assets, put up as collateral, as borrowers default.

Although, industrial capital may benefit from increased money being thrown into circulation initially, it almost inevitably loses out in the longer-term. In the late 1980's increased money supply facilitated borrowing by consumers, especially as it inflated property prices that could be used as collateral for further borrowing. As a result, it meant that low wages could be supplemented by borrowing to sustain living standards and consumption.

Industrial capital, as with all capital, thereby benefited as lower wages led to higher profits. But, for the reasons set out above, it was mostly money-capital and merchant capital that benefited. Money-capital benefited as lending soared, merchant capital as consumer spending soared on the back of it.

But, as industrial capital, in the US and UK, became increasingly uncompetitive for many mass produced commodities, compared to Asia, the benefit of lower wages was insufficient to maintain their profits. In fact, the Thatcherite/Reaganite policy, based on the needs of small capital, had been counter-productive, because it had mitigated against a shift of productive-capital to where higher profits were being achieved in the newer, high value, relatively high wage sectors of those economies.

Moreover, the short term benefit of lower wages, for industrial capital comes at the cost of higher wages later. The value of labour-power is based upon what workers have to spend to buy the commodities required for their reproduction. If they have to borrow money to cover part of that cost today, the interest they have to pay on that borrowing forms part of the cost tomorrow. In short, it simply represents a further transfer of surplus value from the hands of the industrial capitalist to that of the money-capitalist.

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