Capital III, Chapter 26 - Part 1

Accumulation of Money-Capital. Its Influence on the Interest Rate

“"In England there takes place a steady accumulation of additional wealth, which has a tendency ultimately to assume the form of money. Now next in urgency, perhaps, to the desire to acquire money, is the wish to part with it again for some species of investment that shall yield either interest or profit; for money itself, as money, yields neither. Unless, therefore, concurrently with this ceaseless influx of surplus-capital, there is a gradual and sufficient extension of the field for its employment, we must be subject to periodical accumulations of money seeking investment, of more or less volume, according to the movement of events. For a long series of years, the grand absorbent of the surplus wealth of England was our public debt.... As soon as in 1816 the debt reached its maximum, and operated no longer as an absorbent, a sum of at least seven-and-twenty million per annum was necessarily driven to seek other channels of investment. What was more, various return payments of capital were made.... Enterprises which entail a large capital and create an opening from time to time for the excess of unemployed capital ... are absolutely necessary, at least in our country, so as to take care of the periodical accumulations of the superfluous wealth of society, which is unable to find room in the usual fields of application." (The Currency Theory Reviewed, London, 1845, pp. 32-34.)” ( p 414)

As was seen in Capital I, a powerful source of primary accumulation of capital, in Britain, in the 18th century, was the National Debt. The state engaged in what was essentially large-scale Keynesian fiscal intervention. The debt/GDP ratio rose to 250% (compared to around 70% currently) as large scale state spending on the building of infrastructure took place that was required for the Industrial Revolution, and creation of a modern capitalist economy. A similar process occurred after WWII.

The fiscal intervention, in the 18th century, acted as a source of primary accumulation, because the productive capacity existed to utilise the credit that was created on the back of state spending and borrowing. The borrowing is financed essentially by two sources. Firstly, as seen previously, one means of banks loaning out funds is to create deposits. If A wants to borrow £1 million from bank X, then bank X creates a deposit of £1 million in the account of A. A then spends this money, which creates deposits in the accounts of those to whom he makes payments, and so on.

If banks only retain 10% of deposits, and loan out the remaining 90%, the result is that credit is created that is ten times greater than the original money deposited. But, money did have to be deposited in the first place, or else had to be established as bank capital.

This bank capital, or these deposits, initially came from the wealth of the old exploiting classes, as well as from the profits from loaning out interest-bearing capital, that the banks had accrued over centuries.

As Mercantilism drew in large profits from trade, such as the Triangle Trade, shipping slaves in one direction, and sugar and other commodities in the other, as well as from huge amounts of plunder acquired by pirate/merchants, like Drake and Raleigh, so this money-capital grew. But, as industrial-capital proper develops, increasing amounts of surplus value is realised, as potential money-capital, which, for the reasons described in Capital II cannot all be advanced again immediately, as productive-capital. So, an increasing amount of capital assumes the form of money-capital.

But, to act as money-capital, it must be loaned out at interest. As the above quote indicates, in the period prior to 1816, it could be placed on deposit with banks who loaned it to the state, as well as creating additional sums of credit, on the back of those deposits, and it was also used by those with sufficient sums to buy government paper themselves directly.

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