Capital III, Chapter 31 - Part 2

“The speculators, who count on the credit capital of other people, have not yet appeared on the field; the people who work with their own capital are still far removed from approximately pure credit operations. In the former phase, the surplus of loan capital is directly opposite to expressing actual accumulation. In the second phase, it coincides with a renewed expansion of the reproduction process — it accompanies it, but is not its cause. The surplus of loan capital is already decreasing, i.e., it is still only relative compared to the demand. In both cases, the expansion of the actual process of accumulation is promoted by the fact that the low interest — which coincides in the first case with low prices and in the second, with slowly rising prices — increases that portion of the profit which is transformed into profit of enterprise. This takes place to an even greater extent when interest rises to its average level during the height of the period of prosperity, when it has indeed grown, but not relative to profit.” (p 495)

This later phase is the boom phase, in Marx’s terminology, and the Summer phase of the long wave cycle. In this phase, growth continues above the average level, but the general annual rate of profit begins to decline. As a result, the demand for money-capital outstrips the supply and interest rates begin to rise to the average level.

But, besides these phases of the cycle, loan capital can be accumulated for technical reasons. The fact that banks began to pay interest on deposits attracted additional funds. The more efficient operation of the banking system of itself releases funds, because the need for reserves is reduced. In a similar way, the increased turnover of capital results in a release of capital, that can be used as additional loan capital.

“Although this loan capital, which, for this reason, is also called floating capital, always retains the form of loan capital only for short periods of time (and should indeed also be used for discounting only for short periods of time), there is a continual ebb and flow of it. If one draws some away, another adds to it. The mass of loanable money-capital thus grows quite independently of the actual accumulation (we are not speaking here at all about loans for a number of years but only of short-term ones on bills of exchange and deposits).” (p 495)

For example, if a rise in productivity means that the turnover of capital rises, so that capital has to be advanced for only nine weeks, rather than ten weeks, a saving of 10% in the advanced capital is achieved. This may appear either as capitals going to the money market less frequently, or in released capital being sent out into the money-market. But, under these conditions, capitals will be looking to take advantage of the conditions to expand. If a new machine has raised productivity, that has caused the turnover time to be reduced, and resulted in the release of advanced capital, when possible, the capital may wish to buy additional such machines, thereby increasing their demand for money-capital, as actual accumulation of industrial capital ensues.

This release of circulating capital, that is temporarily made available, to be used as loan capital, is also then termed floating capital. Marx notes the comments of Mr. Weguelin, Governor of the Bank of England, to the Bank Committee, that the size of this floating capital did not vary much. But, Marx notes, it makes a considerable difference whether this floating capital is being provided by the money-capitalist, or by the productive-capitalist themselves. In the latter case, the supply of additional money-capital, arising from the accumulation of industrial capital, meets the demand, and thereby prevents any rise in the rate of interest.

Marx comments on the way, for the bankers, everything appears more or less inverted.

“It is truly wonderful how in this credit gibberish of the money-market all categories of political economy receive a different meaning and a different form. Floating capital is the expression there for circulating capital, which is, of course, something quite different, and money is capital, and bullion is capital, and bank-notes are circulation, and capital is a commodity, and debts are commodities, and fixed capital is money invested in hard-to-sell paper!” (p 496)

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