Usurer's Capital

As the occasional exchange of products developed into the regular exchange of commodities, on the basis of their values, this occurs first as a process of barter. But, even under barter, it becomes possible to utilise credit. If A agrees to exchange 10 metres of linen for 10 litres of wine from B, but B does not have the wine immediately available, then B can give A a marker promising to supply the wine at some future point. The original meaning of credit is trust, and so, as long as A trusts B to make good on their marker, such a transaction, on the basis of credit, is possible. Of course, it still means that A and B must be able to value their commodities on the basis of the labour-time required for their production. Having, thereby, determined the proportions in which these commodities will exchange, their exchange-value, B can give A a marker detailing the quantity of wine they will provide at this future date. This can take the form of a stick on which this quantity is notched, or of a baked tablet conveying similar data. In either case, the marker is broken in half with each participant to the exchange retaining their half to be matched up when the final trade is undertaken, and the marker redeemed. The use of the baked tablet is possibly the origin for the development of coins as money tokens. 

As Marx describes, in Capital I, Chapter III, discussing the Value-Form, as these exchanges increase, a single commodity comes to be separated out from all others to act as a universal equivalent form of value. The value of any commodity can then be measured as being a quantity of this general commodity – the money commodity. Now, the markers themselves can be simply tokens representing a quantity of this money commodity. The development of a money commodity also means that it is not necessary for trust to exist between the participants in the exchange. A can sell 10 metres of linen to B, who A may not know, so long as B gives them, in exchange, the appropriate quantity of the money commodity, i.e. the money price of linen. A may or may not, then, at some future time, utilise this same money to buy 10 litres of wine from B, C – M – C. Its on this basis, as Marx sets out in Theories of Surplus Value, Chapter 17, that, with the intervention of money, the overproduction of commodities can occur, because having sold their linen, and obtained money, A is under no obligation to convert this money once more into B's wine, or any other commodity. Money has acted to separate production from consumption, and contrary to Say's Law, also supply from demand. 

“At a given moment, the supply of all commodities can be greater than the demand for all commodities, since the demand for the general commodity, money, exchange-value, is greater than the demand for all particular commodities, in other words the motive to turn the commodity into money, to realise its exchange-value, prevails over the motive to transform the commodity again into use-value.” 

(Theories of Surplus Value, Chapter 17) 

In order for this to occur, either the buyer must pay the seller actually in the given quantity of the money-commodity, or else the buyer must be able to give the seller a money token representing this quantity of money that the seller is confident in being itself redeemable for the given amount of value. That means that precious metal coins must be trusted to contain the correct amount of metal, or else there must be trust that these coins can be used as currency on that basis. As gold becomes the most common money commodity, goldsmiths become the minters of coinage, but the coinage itself is backed by the state, i.e. it becomes fiat money. 

But, as soon as money comes into existence, so too does the potential to lend this money. The goldsmiths who coin gold are the obvious people who can perform this function. But, if a goldsmith provides someone with a given amount of money as a loan, there is little incentive for them to do so unless the money they get back is more than what they loaned out. When A sells 10 metres of linen to B, and only later gets back 10 litres of wine, what they get back is a different use value, which is the whole basis of the exchange in the first place, but the goldsmith gets back no different use value than they advanced. The only basis for such a transaction, therefore, is to obtain a greater quantity of that same use value. 

The goldsmiths, who also own strongrooms to store gold, can, therefore, also form the basis for the development of banking, because as well as having stores of gold coins, which they can lend, they can also offer to safely store the gold of others. But, its not only the goldsmiths that accumulate money hoards that can be loaned at interest. Merchants also accumulate money hoards, because the whole basis of their operations is unequal exchange, M – C – M`. The merchant buys low and sells high, and obtains a profit on alienation in the process. This profit appears as a money surplus. Although, the motivation of the merchant is always to use this increased amount of money to buy an increased quantity of commodities, so as to sell more, (M – C – M`. M2 – C2 – M2`) and thereby obtain an even greater profit, there are always points at which they have a hoard of money, which has not been utilised to buy additional commodities. That money can itself then always be loaned at interest. Indeed, there is an obvious attraction in cutting out the intervening operation in M – C – M`, and going straight to M – M`, for the merchant, provided that the amount of interest they obtain is at least comparable to the commercial profit they would otherwise have obtained. 

As Marx points out, the times when money needs to be borrowed in these precapitalist modes of production are rare. The economies are based upon direct production, with peasant producers producing the bulk of their own consumption needs, and producing commodities where they have a comparative advantage, again only for the purpose of exchanging these commodities for other use values that they cannot, or cannot efficiently, produce for themselves. But, the purpose of production, and of exchange is only for consumption. Rents, taxes and tithes are also paid either as Labour Rent, or as Rent In Kind, and only later as Money Rent. Money only needs to be borrowed where individuals have suffered some catastrophe. The main borrowers of money tends to be the state itself, often to raise armies to fight wars, so as to expand their domain, and the potential for additional rents. With prescriptions against lending at interest for Christians, such lending became undertaken by Jews and Lombards. Such activity is described, for example, in the Walter Scott novel, Ivanhoe. 

With the number of money lenders itself limited, and the borrowers only those who must resort to it out of desperation, interest rates are very high. As Marx notes, quoting Massie, 

““All Reasoning about natural Interest from the Rate which the Government pays for Money, is, and unavoidably must be fallacious; Experience has shown us, they neither have a agreed nor preserved a Correspondence with each other; and Reason tells us never can; for the one has its Foundation in Profit, and the other in Necessity; the former of which has Bounds, but the latter none: The Gentleman who borrows Money to improve his Land, and the Merchant or Tradesman who borrow to carry on Trade, have Limits, beyond which they will not go; if they can get 10 per cent by Money, they may give 5 per cent for it; but they will not give 10; whereas he who borrows through Necessity, has nothing else to determine by, and this admits of no Rule at all” (pp. 31-32).” 

(Theories of Surplus Value, Part 1, Addenda) 

And, similarly, in Capital III, Marx sets out that it is where, during a crisis, firms borrow money not to use as money-capital, to accumulate, but merely as currency, to pay bills, so as to stay in businesses, that they too are led to pay whatever rate of interest is required to do so, and so interest rates reach their highest levels during such periods. The same explains why it is those that are most desperate who pay the highest interest rates to payday lenders and loan sharks. On the one hand they are desperate and forced to pay whatever interest is required, and on the other the lenders prepared to lend to them are few and far between because they represent a bad credit risk. 

Many of those who found themselves in this position, and then defaulted on their loans became debt slaves. In these precapitalist societies, there is no point in the money lender or merchant, turning an independent producer, who defaults into a wage labourer, because there is no basis in such societies for capitalist production. The market is not large enough to justify capitalist production, so as to obtain economies of scale, required to undercut other independent producers. There is no motivation for the money lender or merchant to take over the means of production of the ruined independent producer, and turn them into their wage labourer. Consequently, Marx says, in all of these precapitalist modes of production, the operation of usurer's capital is to convert the independent producers into slaves and serfs, and in the process also undermines production itself. It performs a reactionary role. 

However, when the conditions for capitalist production arise, these same processes bring about a revolutionary change. Now usurer's capital and merchant capital ruins independent producers, but now, the money-lender, or the merchant, has an incentive to take over the means of production of the ruined producers. At first, this may take the form of the merchant organising large-scale production for the market, simply on the basis of the Putting Out System. The independent producer continues to work in their cottage, using their own tools, but the merchant provides them with material, paying them a price for the finished product, which is, in reality only a payment of wages. The independent producer has become a wage labourer, the merchant/money lender has become a productive capitalist, their money has become money-capital, and their means of production has become productive-capital. 

But, this process also undermines the usurer and the merchant. As soon as productive-capital develops, the realised money profits of industrial capital make available vastly increased quantities of money-capital. This increased supply of money-capital means that market rates of interest are reduced substantially. Initially, as capitalist states seek to encourage industrial development they even impose such a condition, by introducing legal limits on the rate of interest. But, also, as Massie says in the quote earlier, the industrial capitalist not only provides their own additional money-capital, via realised profits, but they will not borrow at rates of interest that exceed the rate of profit they can obtain from such investment. So, not only is the supply of money-capital increased substantially, but the demand for that money-capital is also, thereby constrained, bringing about the demise of usury as a dominant form of interest-bearing capital. 

In addition, as Marx describes the development of capitalist production means that in their dealings with each other the capitalist producers can largely remove the requirement for money as means of circulation, because they organise their transactions on the basis of commercial credit. This reduction in demand for money as currency, at least in relative terms, as the volume and value of production and commodity circulation increases, itself undermines the power of money-lending capital. As soon, as productive capital develops, therefore, both commercial capital and interest-bearing capital is subordinated to it.

Back To Summary