Thursday, 31 March 2016

Capital III, Chapter 30 - Part 6

All of this is fine so long as the reproduction process continues without any hitches. But, the reproduction process inevitably does encounter hitches, for all the reasons previously outlined, by which commodity-production and exchange involves a series of contradictions, stemming from the separation of production and consumption.  (See my book setting these out in more detail - Marx and Engels Theories of Crisis)

These contradictions necessarily manifest themselves in a breakdown of the circuit of capital in one of its three stages. Even if commodities are sold, they may be sold later than is required to ensure that payment is available to cover debts, or commodities may be sold at prices below what is required to reproduce the capital consumed in their production. 

“As soon as a stoppage takes place, as a result of delayed returns, glutted markets, or fallen prices, a superabundance of industrial capital becomes available, but in a form in which it cannot perform its functions. Huge quantities of commodity-capital, but unsaleable. Huge quantities of fixed capital, but largely idle due to stagnant reproduction. Credit is contracted 1) because this capital is idle, i.e., blocked in one of its phases of reproduction because it cannot complete its metamorphosis; 2) because confidence in the continuity of the reproduction process has been shaken; 3) because the demand for this commercial credit diminishes.” (p 483)

Credit contracts because each business that already has too much stock, does not require to buy more. But, that does not apply to their requirement for money-capital. To stay in business they still need money to pay bills for rent, heating and lighting, wages and so on, as well as to cover any outstanding bills to suppliers. They need money to cover the fact that they do not have money coming in from their own sales, their commodity-capital is not being metamorphosed into potential money-capital. In this way, the demand for credit moves in the opposite direction away from commercial credit, to the need for bank credit.

“During the crisis itself, since everyone has products to sell, cannot sell them, and yet must sell them in order to meet payments, it is not the mass of idle and investment-seeking capital, but rather the mass of capital impeded in its reproduction process, that is greatest just when the shortage of credit is most acute (and therefore the rate of discount highest for banker’s credit).” (p 483)

In other words, firms do not want to buy on credit, because they are already overstocked, but firms also do not want to sell on credit, because they need cash. The need for cash leads them to seek to discount more bills at the bank, because what they actually require here is not money-capital, but money, liquidity.  But for the lender of money-capital, they are not concerned whether the borrower needs it as money-capital, or simply as liquidity.  For them it is money-capital, upon which they seek the market rate of interest.  This increased demand for money-capital, at a time when its supply is constrained, pushes interest rates higher.

The crisis is not a consequence of credit, rather the contraction of credit is a consequence of the crisis, of the fact that industrial capital has been overproduced.

“Factories are closed, raw materials accumulate, finished products flood the market as commodities. Nothing is more erroneous, therefore, than to blame a scarcity of productive capital for such a condition. It is precisely at such times that there is a superabundance of productive capital, partly in relation to the normal, but temporarily reduced scale of reproduction, and partly in relation to the paralysed consumption.” (p 483)

Its not that there is lots of money-capital available waiting to be loaned out, but that there is lots of physical capital that cannot be employed, or cannot be realised. In fact, the available money-capital is in demand to keep businesses afloat.

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