Capital III, Chapter 26 - Part 12

As Marx points out, an advance of money-capital, via a loan, is a means of obtaining capital, because it is an advance of value, with nothing being given in exchange for it. By contrast, when a bill is discounted, the person who draws the bill is already in possession of capital – in the form of commodity-capital. They do not obtain capital by discounting the bill, they simply effect its transformation from commodity-capital into money or money-capital. The reason they discount the bill is the need, not for additional capital, but just for immediate liquidity, in order to ensure that they can meet the necessary payments. And the reason this is important is described by Marx.

In order to make payments, the capitalist requires money. The normal circuit of functioning capital provides this money, as the commodity-capital is transformed into money via the sale of commodities. But, the payment for those commodities may be delayed or may not be completed. If market conditions change, the capitalist, in order to sell the commodities, and thereby obtain the money required, to meet their own commitments, may have to sell at a market price lower than they anticipated.

By discounting the bill, at the point the goods are shipped, the capitalist obtains a certain amount of funds, and pays an amount of discount on the bill for the benefit of having this certain amount now, as opposed to an uncertain amount in the future. In fact, this is also the basis on which the Futures Markets are developed.

“The urge to obtain money as such consists always in the wish to convert value from the form of commodities or creditor's claims into the form of money. Hence, even aside from the crises, the great difference between borrowing capital and discount, the latter being a mere conversion of money claims from one form into another, or into real money.” (p 427)

Engels interjects as editor, at this point, to note that bankers like Norman and Overstone had got so used to the idea that their customers demanded capital from them, and the bankers provided capital, that they came to see all the payments they made as being advances of capital, whereas in reality, as with the discounting of bills, what they were advancing was only money not capital.

It could only be an advance of capital, if it provided the recipient with capital they did not already have. That is the case in relation to an uncolatteralised loan, for example. But, the bill of exchange simply represented capital in the form of commodity-capital, owned by the manufacturer or merchant. The banker, by discounting the bill, did not provide the capitalist with capital, they did not already possess, they simply enabled the form of that capital to be immediately transformed from its form as commodity-capital into money, and therefore, potential money-capital. The banker advanced merely money, not money-capital.

This banker's view, that all the money they pay out is therefore an advance of capital was also transferred into the realm of political economy.

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