Commercial Credit - Part 1 of 5

Marx distinguishes between commercial credit and bank credit. He also distinguishes between credit and loan capital, or interest-bearing capital. Credit operates within the circuit of capital, whereas interest-bearing capital stands outside it.

Credit is a means of payment. It reduces the need for money within the economy. If A owes B £10, and B owes C £10, and C owes A £10, there is no need for money to settle affairs. As the simplest form of credit, A gives B an IOU for £10, B endorses it, and hands it to C, who in turn endorses it and hands it to A, who then scraps it. This is the basis of commercial credit.

Imagine a society where peasant producers provide their own wool from sheep. In their cottage, they spin the wool, by hand, before weaving the spun yarn, using a hand loom. Having provided themselves with woollen cloth, they can then cut it, and sew it to produce clothes. The clothes may be for their own use, or as commodity production increases, they may be to sell at the market. Until the finished clothes are completed, and sold, the peasant has value tied up in wool, yarn, and cloth, which cannot be realised, and so is unavailable to be used to continue the production process.

What the peasant is doing is to lend commodity-capital to himself at each of these different stages of the production process. As commodity production and exchange develops further this becomes more obvious. Each of these stages becomes the function of different producers, a farmer, spinner, weaver, and tailor, and possibly a merchant. The individual peasant producer spends time producing wool, then spinning it, weaving it, and then making it into clothes. They only need to realise the value of the clothes at the end of the process, because it is only then that they need to reproduce the wool, so as to start the process again. But, in more developed commodity production, with a more developed division of labour, that is not possible, because the merchant must continually have more clothes to sell, the tailor must continually be cutting and sewing cloth, and so able to keep buying cloth from the weaver, who must be continually weaving, requiring yarn to weave, and the spinner must be continually spinning, and having wool to spin.

If the merchant has money-capital, they can buy clothes from the tailor, and provided they sell them quick enough, they will have money to be able to buy more clothes from the tailor. The tailor, with the money they have earned, can buy cloth from the weaver, and the weaver can in turn by yarn from the spinner, who buys wool from the farmer. But, there is an obvious limitation here. It requires that the process be started. The individual peasant producer, who only sold their surplus, might be reasonably confident they could sell the finished clothes, and so would produce the wool required, and so on, at each stage. But, here, the merchant needs to be confident that they can sell the clothes at the market. Some of the customers for those clothes will be the weaver, the spinner and the farmer, and their workers. However, to be customers, they need income, which means employment in farming, spinning, weaving and tailoring. It seems a chicken and egg situation, and this is just in one set of related industries.

In fact, of course, this kind of generalised commodity production, which is a pre-requisite for capitalist production, did not spring into existence from nowhere, but developed out of previous forms of production, so that there already were farmers, just as there were people undertaking spinning, weaving and tailoring, along with, therefore, existing stocks of wool, yarn, cloth and finished clothes.

Forward To Part 2