Thursday, 21 April 2016

Capital III, Chapter 32 - Part 5

Increasingly, with the development of capitalism, the very basis of many of the myths developed by its apologists are thereby undermined. For example, in so far as abstinence and hoarding of money occurs, it is increasingly those who have least share in the society's consumption fund to whom this function devolves. It is the workers, whose condition is most precarious, who must constrict their consumption, even in the better times, so as to acquire savings to cover them in the times when they do not have employment. The point is described eloquently in Robert Tressell's “The Ragged Trousered Philanthropists”.

But, it is the small savings of the millions of workers that are then mobilised by the banks to provide as money-capital for the productive-capitalists. It is not the abstinence from consumption of the capitalist, whose consumption becomes ever more lavish, that provides this saving. And, in the process, it is the small savings of these workers that are then put at risk, even though they have no benefit from that risk or control over it. It is the savings of these workers that are lost when banks fail.

“The last illusion of the capitalist system, that capital is the fruit of one’s own labour and savings, is thereby destroyed. Not only does profit consist in the appropriation of other people’s labour, but the capital, with which this labour of others is set in motion and exploited, consists of other people’s property, which the money-capitalist places at the disposal of the industrial capitalists, and for which he in turn exploits the latter.” (p 508)

Even where money is in the form of an actual money commodity, such as gold, a large portion of money-capital must be fictitious. In other words, it is in the form of claims to value rather than in the form of an actual store of gold. For example, suppose capitalist A has £100 of profits, realised in the form of gold sovereigns. He takes them to the bank, and they become a deposit. Already, this £100 represents money-capital for A. He has loaned it to the bank, and receives interest from the bank in return. Whether it becomes money-capital for the bank depends on whether it can loan this £100 to someone else, or whether it sits as simply money in its safe rather than in A's safe.

But, for A, the £100 no longer exists as gold coins. It exists only as fictitious capital, as a claim, in the shape of a certificate of deposit, to £100 of gold plus interest.

The bank lends the £100 of gold coins to B, who uses it to buy productive-capital. The £100 of gold coins now no longer exists for either A or the bank, but only for B. But, a further £100 of fictitious capital has now been created, even though, in terms of gold money, only the original £100 of gold sovereigns exists.

This additional £100 of fictitious capital exists because the bank now has a claim for £100 plus interest from B, in respect of the loan that has been provided. If B now spends this £100 of gold coins on productive-capital, those who sell it obtain sovereigns in payment. B does not have capital in the form of money, but in the form of productive-capital.

If we assume that C represents all of these other recipients, C then deposits the £100 in the bank. A further £100 of fictitious capital is then created, because the £100 of gold coins no longer exists for C. Instead, they have been exchanged for a deposit certificate giving C a claim to £100 plus interest. When the bank then lends these £100 of sovereigns to D, a further £100 of fictitious capital is created and so on, even though only £100 in gold sovereigns continues to exist.

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