The Role of Credit in Capitalist Production
Marx sets out the basic facts about credit, which the analysis of capital has so far disclosed. Firstly,
“Its necessary development to effect the equalisation of the rate of profit, or the movements of this equalisation, upon which the entire capitalist production rests.” (p 435)
In other words, the reason why the Law of the Tendency For the Rate of Profit To Fall, is important to capitalist production is that it describes why the rate of profit is higher in those spheres where the organic composition of capital is low, and why it falls increasingly as you move to spheres where the organic composition is higher. Because capital will always seek to move to where the highest rate of profit can be had, the law explains the allocation of capital towards those spheres where the organic composition is lower than average, and the rate of profit, therefore, higher than the average.
But, the movement of capital into these higher profit areas, must always be constricted, where it can only be achieved by means of the private capital held by a relatively small number of capitalist families.
Take a practical example. Josiah Wedgwood went from being a journeyman potter into a very rich capitalist pottery manufacturer. Yet, despite the increasing capital at his disposal, as the quantity of surplus value extracted rose massively, it was still limited by how much surplus value he could extract from his own business.
If the rate of profit in pottery manufacture was very high, it might justify a much greater accumulation of capital than was possible simply by the reinvestment of these private means. Consequently, insufficient capital would be invested in pottery manufacture, and the process of equalising the rate of profit would be slowed down.
Similarly, Wedgwood may see some other such industry such as steel production, where the rate was much higher than pottery manufacture. But, as a potter, and knowing nothing about steel production, he cannot simply close down his potbanks and invest his capital in steel production. Wedgwood did club together with other manufacturers in North Staffordshire to pool some of their capital, for other ventures, that were in their common interest, such as commissioning James Brindley to construct the Trent and Mersey Canal, so that they could more cheaply obtain the raw materials they needed, and send their commodities to market.
But, credit resolves the limitations that this “monopoly of private capital”, as Marx describes it, imposes as a fetter on capitalist production. Credit means that Wedgwood, or any other capitalist, engaged in a sphere of production where the rate of profit is higher than the average, is no longer constrained by their own limited private means. By obtaining credit, they can unlock vast amounts of money-capital, so as to expand their investment in productive-capital.
Similarly, if Wedgwood sees that profits in steel production are much higher than in pottery manufacture, rather than investing all of his profits each year in additional productive capacity, he can allocate some of his profits to deposits, which are, via the banking system, made available to capitalists in the steel industry.
But, this process is enhanced even further when the fetter imposed by the monopoly of private capital is “burst asunder” by the development and extension of joint stock companies. By this process, the “expropriation of the expropriators”, unfolds as the private capitalists who had expropriated the direct producers, and then the small capitalists, are themselves expropriated by the much larger socialised capital of the joint stock companies.
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