Capital III, Chapter 30 - Part 8

Marx then turns from the commercial credit between capitalists to bank credit; the loans made to productive and merchant capital. The two forms of credit can seem to merge. For example, a producer sells goods on credit, and presents the bill of exchange to the bank, to be discounted. The producer had granted credit to their customer, but, in reality, the bank has not advanced capital to the supplier. Rather the supplier has sold the bill of exchange to the bank. They have sold it to the bank at a lower price than its face value, because they have obtained money by doing so, sooner than they otherwise would. But, it is not an advance of capital to them, not a loan, because they have nothing to repay.

If the industrialist discounts the bill via a bill broker or discount house, this does not change the situation. It simply means they have sold it to this third party, who finances it via credit advanced to them by their own banker. In turn, the banker advances to the broker, the money-capital of their depositors.

“The depositors consist of the industrial capitalists and merchants themselves and also of workers (through savings-banks) — as well as ground-rent recipients and other unproductive classes. In this way every individual industrial manufacturer and merchant gets around the necessity of keeping a large reserve fund and being dependent upon his actual returns.” (p 484)

In addition to the individual capitalists reducing their need to retain their own individual reserve funds, for this purpose, by these means, the same thing is achieved by firms having overdraft facilities and revolving credit at the bank. By these means, the overall requirement for reserve funds is reduced by having one social reserve fund, large enough to meet the average requirement, and funded out of society's savings and revenues.

A similar thing is achieved by capital, in establishing social insurance funds, like the welfare state. Where individuals must provide for their own sickness, old age, unemployment and retirement, the savings funds they require for this will be considerable, because each individual must prepare for the worst, rather than the average circumstances. This is why, in China, families save around 50% of their income. But, this is economically inefficient. Large amounts of money is tied up, as well as the potential for additional consumption being restrained. So, the Chinese state is looking at the provision of a welfare state, for the same reason that all other industrialised capitalist states did, because that way a reserve fund equal only to the average requirements need be maintained, thereby releasing huge sums of potential revenue, for the development of the domestic market that the Chinese economy requires.

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