Tuesday, 29 March 2016

Capital III, Chapter 30 - Part 4

Each capital will need to retain a reserve fund of money-capital, so as to be able to meet its own obligations, therefore, should one of these payments owed to it fail, totally or partially. Failure to retain such a reserve leaves a firm vulnerable to a cash flow crisis, and many firms, particularly in times of buoyant trade, go out of business, not because they are making losses, but because they have not provided themselves with sufficient liquidity to pay their bills on time, should any problem arise in being paid themselves.

Marx comments that despite all of this credit issued between companies, it does not do away with the need for cash. He cites the need for cash to pay wages and taxes etc. But, today even that requirement is diminished. Both wages and taxes are paid by electronic transfer into the recipient's bank account, and when it is considered that, in turn, electronic transfers are made for regular payments, such as direct debits, to cover things such as utility bills, gym membership, and so on, it can be seen to what extent, even in this respect, the need for cash has been reduced.

For example, if I work for the local council, to which the local gym owes business rates, or rent, it pays these each month by electronic transfer. At the same time, the Council pays my wages from the funds transferred to it, whilst out of my wages I pay a gym fee. To the extent all these transfers cancel each other out, no money is required.  In reality here, the commodity I sell to the Council, my labour-power, is bought, not with money, but with the commodity, the gym sells to me, leisure facilities, with the Council here standing in the same role as the landlords, in the Tableau Economique.

There, as Marx explains, in Theories of Surplus Value, the landlords begin the year with £2000 of money, received the previous year in rent from farmers, but this money, Marx sets out was really just a money form, of the landlords legal claim to a physical proportion of the farmer's output, which in previous times would have comprised the rent in kind.  When the landlords buy £1,000 of manufactured goods from industry (the sterile class) they do so, in reality, not with money, but with the £1,000 of commodities produced by farmers, to which they had claim.  Similarly, industry buys £1,000 of food from farmers, to provide the wages of its workers.  It pays for this with money, but when farmers then buy £1,000 of manufactured goods from industry, this money flows back to industry.  In reality, therefore, the farmers have bought these manufactured goods, not with money, but with the £1,000 of food they previously sold to industry.  This exchange could just as easily have been effected by industry, handing an IOU, or some other similar piece of paper to the farmers, which would be redeemed when they sold manufactured goods to farmers.  This was, indeed the basis of commercial credit.

The extent to which these electronic transfers reduces the need for money was shown by the effect on De La Rue, who print bank notes for the Bank of England, and saw the demand for such work fall significantly.  Bills of exchange were replaced by bank cheques, and have today been replaced by electronic transfers.  Companies simply settle their accounts by such direct electronic transfers, but individuals too conduct most of their transactions electronically, at least in the highly banked economies.  A problem with payment by cheque was that the size of purchase was limited, because cheques could be written for which funds did not exist in the payers bank account, which is why cheques had to be covered with a bank card, which provided a guarantee for the payee up to £100. But, the development of technology, and the Internet means this problem does not exist, now, because a payment by bank card, can first verify that sufficient funds exist in the payer's bank account, before completing the transaction.

However, the fact that all of these payments can be made by electronic transfers from one account to another, rather than by cash does not change the need for a money balance to be held in each account, because all of these counterbalancing payments will not be made at the same time or in a convenient sequence, so that one provides the funds to pay another etc.  

If my £1,000 wages are paid into the bank, on the 20th of each month, but I have a bill for £100 to pay on the 25th, of each month, then I still need to make sure I have a balance of at least £100 in the account on the 25th.

“We have seen in the discussion of the reproduction process (Vol II, Part III) that the producers of constant capital exchange, in part, constant capital among themselves. As a result, the bills of exchange can, more or less, balance each other out.” (p 480)

This was the point made in Capital II, that if we have two departments of the economy, the total value of the production is comprised of c + v + s. However, it is only v + s, which takes part in the total social exchange. The constant capital consumed in Department I, is exchanged within the department by its producers, and thereby cancels each other out.

This kind of cancelling out can occur wherever businesses in different industries engage in mutual exchanges. For example, a coal mine may sell coal to a steel maker, but the steel maker may also sell steel for supports to the col mine. However, there are lots of instances where this is not the case, and where therefore, settlement must be made by a money payment.

“For example, the claim of the spinner on the weaver is not settled by the claim of the coal-dealer on the machine-builder. The spinner never has any counter-claims on the machine-builder, in his business, because his product, yarn, never enters as an element in the machine-builder’s reproduction process. Such claims must, therefore, be settled by money.” (p 480)

The limit of commercial credit is the extent of the reserves of capitalists to cover these inevitable disruptions in its flow, and the extent of any of these disruptions in the flow. The longer the duration of the credit, the greater the potential for disruption, and so the greater the need for a larger reserve to cover that possibility.

“And, furthermore, the returns are so much less secure, the more the original transaction was conditioned upon speculation on the rise or fall of commodity-prices. But it is evident that with the development of the productive power of labour, and thus of production on a large scale: 1) the markets expand and become more distant from the place of production; 2) credits must, therefore, be prolonged; 3) the speculative element must thus more and more dominate the transactions. Production on a large scale and for distant markets throws the total product into the hands of commerce; but it is impossible that the capital of a nation should double itself in such a manner that commerce should itself be able to buy up the entire national product with its own capital and to sell it again. Credit is, therefore, indispensable here; credit, whose volume grows with the growing volume of value of production and whose time duration grows with the increasing distance of the markets. A mutual interaction takes place here. The development of the production process extends the credit, and credit leads to an extension of industrial and commercial operations.” (p 481)

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