Tuesday, 1 March 2016

Capital III, Chapter 28 - Part 1

Medium of Circulation and Capital; Views of Tooke and Fullarton

Marx begins by quoting Tooke.

“"The business of bankers, setting aside the issue of promissory notes payable on demand, may be divided into two branches, corresponding with the distinction pointed out by Dr. (Adam) Smith of the transactions between dealers and dealers, and between dealers and consumers. One branch of the bankers' business is to collect capital from those who have not immediate employment for it, and to distribute or transfer it to these who have. The other branch is to receive deposits of the incomes of their customers, and to pay out the amount, as it is wanted for expenditure by the latter in the objects of their consumption ... the former being a circulation of capital, the latter of currency."(Tooke, Inquiry into the Currency Principle, London, p. 36.) The first is "the concentration of capital on the one hand and the distribution of it on the other"; the latter is "administering the circulation for local purposes of the district." (Ibid., p. 37.)” Note 89, p 442)

But, he says, a better description is given by J. G. Kinnear.

“"Money ... is employed to perform two operations essentially distinct.... As a medium of exchange between dealers and dealers, it is the instrument by which transfers of capital are effected; that is, the exchange of a certain amount of capital in money for an equal amount of capital in commodities. But money employed in the payment of wages and in purchase and sale between dealers and consumers is not capital, but income; that portion of the incomes of the community, which is devoted to daily expenditure. It circulates in constant daily use, and is that alone which can, with strict propriety, be termed currency. Advances of capital depend entirely on the will of the Bank and other possessors of capital, for borrowers are always to be found; but the amount of the currency depends on the wants of the community, among whom the money circulates, for the purposes of daily expenditure." (J. G. Kinnear, The Crisis and the Currency, London, 1847 [pp. 3-4].)” (ibid)

The problem with Tooke's description is that it fails to make the distinction between money and money-capital. Many modern economists make the same mistake, which is why we see the common error by which the rate of interest is thought to be a function of the demand and supply of money, rather than the demand and supply for money-capital.

Tooke thinks that the distinction is between money acting to circulate revenue as opposed to circulating capital. But, as Marx sets out, in fact, in both these functions, money is acting as money, as means of circulation. Whether it is circulating revenue or capital, therefore, is not significant. The real difference is between money acting as money – means of circulation or payment - or acting as capital, i.e. interest bearing capital.

“Currency circulates on the one hand as coin (money), so far as it promotes the expenditure of revenue, hence the traffic between the individual consumers and the retail merchants, to which category belong all merchants who sell to the consumers — to the individual consumers as distinct from productive consumers or producers. Here money circulates in the function of coin, although it continually replaces capital.” (p 443)

In other words, the retail merchants possess commodity-capital, in the form of commodities. As these commodities are sold, they obtain money for them, which is money as revenue, in the hands of consumers. The money they receive, therefore, continually replaces the capital they had in the form of commodities.

“In so far as money promotes the transfer of capital, however, either as a means of purchase (medium of circulation) or as a means of payment, it is capital. It is, therefore, neither its function as a means of purchase, nor that as a means of payment, which distinguishes it from coin, for it may also act as a means of purchase between one dealer and another so far as they buy from one another in hard cash, and also as a means of payment between dealer and consumer so far as credit is given and the revenue consumed before it is paid. The difference is, therefore, that in the second case this money not only replaces the capital for one side, the seller, but is expended, advanced, by the other side, the buyer, as capital.” (p 443)

A capitalist, A, buys raw cotton, from capitalist B, in order to spin it into yarn. The money they use for this purpose is no different from the money used by any other consumer, to purchase raw cotton from B, but who do not buy it for productive purposes. The money here acts as money, as a means of purchase. The fact that this money is expended by a capitalist to buy this raw cotton from another capitalist does not change the fact that the money acted as currency, as a means of circulation or payment.

What distinguishes A's purchase of raw cotton from B, from that of any other consumer, who buys raw cotton from B is precisely the fact that it was bought for productive purposes, i.e. to create profit. Had A bought it for other purposes, the money would not have acted as capital.

“The difference, then, is in fact that between the money-form of revenue and the money-form of capital, but not that between currency and capital, for a certain quantity of money circulates in the transactions between dealers as well as in the transactions between consumers and dealers. It is, therefore, equally currency in both functions.” (p 443)

No comments: