Monday, 14 March 2016

Capital III, Chapter 29 - Part 1

Component Parts of Bank Capital

In the previous chapter, Marx had demonstrated that Fullarton, and the Currency School, confused the distinction between money as medium of circulation and money as means of payment, with the distinction between money as currency and money-capital.

“In subsequent analyses, we shall demonstrate that money-capital is being confused here with moneyed capital in the sense of interest-bearing capital, while in the former sense, money-capital is always merely a transient form of capital — in contradistinction to the other forms of capital, namely, commodity-capital and productive capital.” (p 463)

In fact, this was elaborated in Capital II, and referred to earlier, in Capital III. Money-capital, as simply a phase in the cycle of industrial capital, must always be merely transient, in the way that Marx describes. Productive-capital remains as productive-capital for as long as it is engaged in the production process, and this can be for a more or less prolonged period. Commodity-capital remains commodity-capital for as long as it takes to sell the commodities, which again may be a more or less prolonged period. But, money-capital is different. As soon as commodities are sold, their money equivalent, the money-capital value, is thereby realised. But, no sooner as it is realised, this money-capital exists only as potential money-capital.

Under simple reproduction, for example, a portion of this capital value, equal to the produced surplus value, is never transformed into money-capital, because it becomes instead revenue in the hands of the capitalist, to be used for their unproductive consumption. But, even under extended reproduction, as Marx points out, simple reproduction remains at its heart. A portion of the realised surplus value is always transformed into revenue.

Only when the money realised from the sale is allocated for the purchase of productive-capital does the money become definitely money-capital, rather than potential money-capital, in the shape of a money hoard. But, then, no sooner than it is so allocated than it ceases being in the form of money-capital, and assumes the form of productive-capital.

It is only where money-capital takes on an independent existence, in the hands of money-capitalists, and where this money capital itself becomes a commodity, as interest-bearing capital, that the transient nature disappears. Bank capital consists of money, which in Marx's time comprised gold, and notes and coins, and also securities. To those unfamiliar with accounting practices, it may seem odd that this capital seems to split in two. As part of double entry book-keeping, one side represents an asset, that is the actual money, productive or commodity capital acquired, whilst the other side represents a liability. For any business this side is always considered a liability, because it is capital that has been provided to the business, and is owed to those that provided it. 

For example, a firm issues shares which bring in £1 million in money. The money is deposited in the bank, and appears on the right-hand, asset side of the balance sheet. But, a balance sheet must always balance, and so on the left hand, liabilities side of he balance sheet appears as equal amount, as issued share capital, because this is money owed to the shareholders, who are creditors of the company.

The cash a bank obtains from depositors, represent an asset.
It forms part of its capital, which it uses to produce profits
from lending.  The deposit itself is a liability, because it is
money lent to it, and which must be paid back.
This is equally true for a bank, but even more so, in the sense that for it, money itself is the equivalent of its productive-capital. An industrial capital that has raised £1 million from a share sale, does not leave this money in the bank, but buys machines and materials. The value of these then appear as assets on the right hand side of its balance sheet, and it uses these along with the labour-power it buys to produce commodities, and profits. But, for a bank, its means of creating profits is not by producing commodities, but by using the money it obtains as money-capital, as a commodity, which it sells, and thereby obtains a profit.

The money-capital that the bank obtains comes from external owners of money-capital, be they private owners or shareholders, who lend this capital to the bank in return for a share of its profits. But, unlike other businesses, it obtains money from money being deposited with it. Once again, the money the bank then has in its possession constitutes an asset, whereas the deposit constitutes a liability, because the deposit is the property of someone else, it is money owed by the bank.

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