Capital III, Chapter 36 - Part 10

Even with the huge levels of money printing and consequent depreciation of currency values, of the last thirty years, the system of floating exchange rates, based around the dollar, as global reserve currency, has survived even through the financial crisis of 2008, without any need to revert to precious metal, as seemed possible during the global currency crisis of the 1970's. That may be because the huge reduction in the value of commodities that has taken place concurrently with the depreciation of currencies, has meant that there has been no large scale, global commodity price inflation. Maybe if that develops in the coming period, faith in paper currencies and credit money will again be shaken, requiring a return to a closer relation to precious metal, but for now there seems to be no reason why that has to be the case, provided the expansion of currency supply and credit is kept within the required limits.

The banking system is the artificial product of capitalism. Marx notes that the Bank of England has immense power over commerce and industry even though they remain independent from it. Similarly,

“The banking system, so far as its formal organization and centralization is concerned, is the most artificial and most developed product turned out by the capitalist mode of production, a fact already expressed in 1697 in Some Thoughts of the Interests of England. This accounts for the immense power of an institution such as the Bank of England over commerce and industry, although their actual movements remain completely beyond its province and it is passive toward them. The banking system possesses indeed the form of universal book-keeping and distribution of means of production on a social scale, but solely the form.” (p 606)

The analysis of the formation of a general rate of profit and prices of production showed how firms share, via competition, in the total surplus value produced, and how this same competition to obtain at least the average profit, results in the reallocation of capital. However, as Marx demonstrated, in previous chapters, this pure theoretical model does not reflect reality.

The more capital develops the more difficult it is for physical capital to be reallocated from one sphere to some alternative, higher profit sphere. Similarly, the more difficult it is to enter any sphere of production, for any new capital, the more the minimum efficient level of production increases. The need for ever larger concentrations of capital meant that the monopoly of private capital acted as a fetter on production, and so it was swept away by the development of socialised capital in the form of the joint stock companies, and co-operatives.

But, for these companies, unlike the private capitalist enterprises, the driving force of the rate of profit no longer plays the same role. Worker owned co-operatives have different dynamics tied to the long-term stability of employment and income of their workers. The the shareholders in joint stock companies are money-capitalists, paid a small rate of interest on their investment, as dividends, rather than profits. A large portion of the profit of enterprise can then be accumulated or invested elsewhere. The professional managers of the business have their own interests to attend to, in securing their own future employment and income, which may not be so directly tied to maximising the immediate rate of profit.

For these reasons, Marx says these mammoth companies do not participate in the formation of the general rate of profit. But, also for these reasons, the banking system as essentially the book-keeping system of the total social capital, can play an increased role in bringing about the reallocation of capital. Marx, had he witnessed the later developments, could also have related the function of the Stock Exchange in this role.

The stock exchange acts like a giant central planning authority in continuously reallocating capital to where the rate of profit is highest, and thereby equalising that rate. But, instead of reallocating real productive-capital, it only reallocates fictitious capital, moving money towards the shares of those companies with higher returns and away from those with lower returns. It equalises not the rate of profit on productive-capital, but the rate of return on money-capital, and does so not by influencing prices of production, but the prices of shares.

“This social character of capital is first promoted and wholly realized through the full development of the credit and banking system. On the other hand this goes farther. It places all the available and even potential capital of society that is not already actively employed at the disposal of the industrial and commercial capitalists so that neither the lenders nor users of this capital are its real owners or producers. It thus does away with the private character of capital and thus contains in itself, but only in itself, the abolition of capital itself. By means of the banking system the distribution of capital as a special business, a social function, is taken out of the hands of the private capitalists and usurers. But at the same time, banking and credit thus become the most potent means of driving capitalist production beyond its own limits, and one of the most effective vehicles of crises and swindle.” (p 607)

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