Capital III, Chapter 25 - Part 2

The bank or discount house that takes a bill of exchange, in return for cash, does so in return for charging interest on it, to cover the period until the bill falls due for payment. By allowing the buyer of commodities to pay via a bill of exchange, that is only due for payment at some future date, the supplier has provided credit to the buyer, in the shape of a loan of commodity-capital. The bank, in discounting the bill, provides credit by advancing money-capital against it.

As Marx and Engels describe later, this also opens up the potential for various frauds and the expansion of fictitious capital, because money can then be borrowed, using the bills as collateral. This encourages the supply of commodities whether there is a market for them or not, simply in order to obtain bills of exchange that can be used as collateral against the borrowing of cash.

It was seen earlier, in Chapter 19, that as capitalist production, and the circulation of commodities, expands the need arises for all of the book-keeping of payments to become a separate, specialised activity. This money-dealing capital, as merely a means of effecting the movement of money around the system, develops in the same way that merchant capital develops as an independent form of capital to facilitate the movement of commodities around the system.

“The other side of the credit system is connected with the development of money-dealing, which, of course, keeps step under capitalist production with the development of dealing in commodities. We have seen in the preceding part (Chap. XIX) how the care of the reserve funds of businessmen, the technical operations of receiving and disbursing money, of international payments, and thus of the bullion trade, are concentrated in the hands of the money-dealers. The other side of the credit system — the management of interest-bearing capital, or money-capital, develops alongside this money-dealing as a special function of the money-dealers. Borrowing and lending money becomes their particular business. They act as middlemen between the actual lender and the borrower of money-capital. Generally speaking, this aspect of the banking business consists of concentrating large amounts of the loanable money-capital in the bankers' hands, so that, in place of the individual money-lender, the bankers confront the industrial capitalists and commercial capitalists as representatives of all moneylenders. They become the general managers of money-capital. On the other hand by borrowing for the entire world of commerce, they concentrate all the borrowers vis-à-vis all the lenders. A bank represents a centralisation of money-capital, of the lenders, on the one hand, and on the other a centralisation of the borrowers. Its profit is generally made by borrowing at a lower rate of interest than it receives in loaning.” (p 402-3)

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