“A gives away his money not as money, but as capital. No transformation occurs in the capital. It merely changes hands. Its real transformation into capital does not take place until it is in the hands of B. But for A it becomes capital as soon as he gives it to B. The actual reflux of capital from the processes of production and circulation takes place only for B. But for A the reflux assumes the same form as the alienation. The capital returns from B to A. Giving away, i.e., loaning money for a certain time and receiving it back with interest (surplus-value) is the complete form of the movement peculiar to interest-bearing capital as such.” (p 348)
For productive-capital, the period of the return of capital, to its starting point, the turnover time, is determined by material constraints – the production time required for the specific type of commodity, the minimum quantity of production required for a working period, the circulation time required to sell the commodities, and convert money-capital once more into productive-capital.
But, for interest bearing capital, this is not the case. Its time of return depends solely upon the legal agreements entered into between lender and borrower. The expansion of the capital is solely a function of this agreed time-scale. This expansion appears to be completely separated from the actual process of the expansion of the capital, in production, without which the payment of this interest would be impossible.
“Loaning money as capital — its alienation on the condition of it being returned after a certain time-presupposes, therefore, that it will be actually employed as capital, and that it actually flows back to its starting-point. The real cycle made by money as capital is, therefore, the premise for the legal transaction by which the borrower must return the money to the lender. If the borrower does not use the money as capital, that is his own business. The lender loans it as capital, and as such it is supposed to perform the functions of capital, which include the circuit of money-capital until it returns to its starting-point in the form of money.” (p 349)
In that case, the borrower must find other ways of acquiring the additional value that must be paid as interest, as well as the return of the original capital-value. Either way, the only way that the interest can be paid is if the borrower acquires a larger sum of value than the sum of value they borrowed. Taken from the viewpoint of the total social capital, the only way that interest can be repaid is if this total social capital expands, i.e. if additional value is created within the economy. Otherwise, the interest must be paid by actually destroying a portion of the total social capital. Instead of this capital value being reproduced, as constant or variable capital, it would simply go as revenue, as money that leaves the circuit of capital, and simply forms revenue, circulating in the realm of money and commodities.
That was the situation that faced the emerging productive capital in the Mediterranean states in the Middle Ages, which was ultimately destroyed, at birth, by the rapaciousness of merchant and interest bearing capital. Whenever interest-bearing capital is in a position to impose itself in this way, it acts as a constraint on the development of productive capital.
“This lending, therefore, is the appropriate form of alienating value as capital, instead of alienating it as money or commodities. It does not follow, however, that lending cannot also take the form of transactions which have nothing to do with the capitalist process of reproduction.” (p 350)
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