Capital III, Chapter 31 - Part 1

Money Capital and Real Capital. II

1. TRANSFORMATION OF MONEY INTO LOAN CAPITAL

There can be an accumulation of loan capital without this being an indication of an actual accumulation of industrial capital.

“The transformation of money into loanable money-capital is a much simpler matter than the transformation of money into productive capital. But two things should be distinguished here: 

1. the mere transformation of money into loan capital;
   
2. the transformation of capital or revenue into money, which is transformed into loan capital. 

It is only the latter point which can involve a positive accumulation of loan capital connected with an actual accumulation of industrial capital.” (p 494)

The initial primary accumulation of capital, for example, arises before, and as a condition for the accumulation of industrial capital. Money hoards from a range of sources may be mobilised to form loan capital. But, its only where industrial production occurs, surplus value is produced, and this surplus value assumes the form of money-capital, that it represents an indication of real capital accumulation.

“We have already seen that a large build-up or surplus of loan capital can occur, which is connected with productive accumulation only to the extent that it is inversely proportional to it.” (p 494)

This occurs at two phases of the cycle. At the stage of stagnation, or the Winter phase of the long wave cycle, the demand for money-capital is contracted because investment in productive-capital is contracted and consequently, also, the amount of capital held as commodity-capital is reduced, both because lower stocks are held and because individual commodity values are lower. Yet, during this period, the general annual rate of profit begins to rise. Unemployed labour-power reduces wages; the lower demand for inputs reduces the market price of materials; new inventions cause moral depreciation of fixed capital and raise productivity levels. A rising rate and mass of profit, in these conditions, means the supply of money-capital rises, relative to its demand, so that the rate of interest falls. These are the conditions that create the basis for a new period of prosperity, or the Spring phase of the long wave cycle.

“... and, secondly, when the improvement begins, but when commercial credit still does not use bank credit to a great extent. In the first case, money-capital, which was formerly employed in production and commerce, appears as idle loan capital; in the second case, it appears used to an increasing extent, but at a very low rate of interest, because the industrial and commercial capitalists now prescribe terms to the money-capitalist. The surplus of loan capital expresses, in the first case, a stagnation of industrial capital, and in the second, a relative independence of commercial credit from banking credit — based on the fluidity of the returns, short-term credit, and a preponderance of operations with one's own capital.” (p 494-5)

In other words, in this second phase, where prosperity develops, the demand for money-capital rises, to the extent that the vibrant economic conditions lead to increased investment in productive-capital, rising stocks and values of commodity-capital. But, these same conditions mean that not only is the general annual rate of profit rising, but now the mass of profit is rising more rapidly too. Consequently, firms are able to utilise their own more liquid conditions to fund their activities internally, without resort to the money market. So, they are able to dictate terms to money-capitalists, in relation to what they are prepared to pay for loan capital.

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