2) TRANSFORMATION OF CAPITAL OR REVENUE INTO MONEY THAT IS TRANSFORMED INTO LOAN CAPITAL
“We will consider here the accumulation of money-capital, in so far as it is not an expression either of a stoppage in the flow of commercial credit or of an economy — whether it be an economy in the actual circulating medium or in the reserve capital of the agents engaged in reproduction.” (p 501)
In 1852 and 1853, the Australian and Californian gold rushes led to an extraordinary inflow of gold, that was deposited with the Bank of England. In exchange, depositors received bank notes. The deposits significantly increased the Bank's capital, facilitating its lending operations. The mass of gold deposited rose in 1853 to more than £22 million, and the Bank reduced the discount rate to 2%.
Meanwhile, the bank notes issued to depositors went into circulation.
“The accumulation of all money-lending capitalists naturally always takes place directly in money-form, whereas we have seen that the actual accumulation of industrial capitalists is accomplished, as a rule, by an increase in the elements of reproductive capital itself. Hence, the development of the credit system and the enormous concentration of the money-lending business in the hands of large banks must, by themselves alone, accelerate the accumulation of loanable capital, as a form distinct from actual accumulation. This rapid development of loan capital is, therefore, a result of actual accumulation, for it is a consequence of the development of the reproduction process, and the profit which forms the source of accumulation for these money-capitalists is only a deduction from the surplus-value which the reproductive ones filch (and it is at the same time the appropriation of a portion of the interest from the savings of others). Loan capital accumulates at the expense of both the industrial and commercial capitalists.” (p 502)
This occurs for a number of reasons, and by various means. As Marx has described, the interest pocketed by the money-capitalists is only a division of the surplus value produced by the productive-capitalists. When the rate of profit is high, during periods of prosperity, the rate of interest may be low, because of the increased supply of money-capital. But, the mass of profit obtained by the banks may still be high, simply because of the volume of loans they provide. The bank makes its profit, not on the absolute level of interest rates, but on the difference between the rate it pays, and the rate it receives. In fact, with lower absolute rates, the volume of loans is likely to be greater because of greater demand, so the bank will make more profit on this higher volume and size of loans.
In times of crisis, the bank will make profits by charging high rates of interest to those businesses desperate for funds to stay afloat, sometimes absorbing all of the firm's profits. But, also during such periods, various securities will fall in price. The price of government and commercial bonds will crash, share prices will drop.
Often, the bank will obtain these at low prices, as security, from businesses needing loans, or may obtain them even more cheaply as businesses sell them to obtain liquidity. But, the banks may also simply buy them in the open market, at these depressed levels, knowing that they will recover at some later date.
“It is at such times that the money-capitalists buy this depreciated paper in huge quantities which in the later phases soon regains its former level and rises above it. It is then sold again and a portion of the money-capital of the public is thus appropriated. That portion which is not sold yields a higher interest because it was bought below par.” (p 502)
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