It is perhaps in the domain of the theory of money that the difficulties arising from the incompletion of Marx’s magnum opus, Capital, are greatest. In any case, they have inevitably given rise to misunderstandings, some of them more or less self-serving, and numerous are the critics of Marx who, on the basis of a superficial reading of his work, claim to demonstrate either that the Marxist theory of money is applicable at best to embryonic forms of the modern economy, or that Marx was forced, in the Second and Third Books of his work, to contradict the laws he himself had stated in the First Book in order to take account of the ‘concrete reality’ of developed capitalist relations, which, according to these critics, defy Marxist interpretation. This story is as old as the radical antagonism between the Marxist method and results and those of vulgar political economy: to be convinced of this, one need only read Engels’ prefaces to the last two Books of Capital, published after Marx’s death from the manuscripts he left behind.

The fact remains that the purely material difficulties are real and that it is important, for the use of militants, to try to overcome them. This was the aim of the presentation at the Party’s general meeting, which we are reporting on here. Whatever the obvious shortcomings in the drafting of the last two Books of Capital, it can be said without seeking paradox that it is indeed a finished, complete work. Indeed, the general plan, perfectly established from the outset in its guidelines, as evidenced by a comparison with A Contribution to the Critique of Political Economy of 1859 ⁽¹⁾, is sufficiently clear to serve as a sure guide throughout the most particular analyses, provided one has grasped the profound unity that binds the different parts of Capital together, despite the specific nature of their object. The dominant characteristics of the whole, although from a literary point of view one might contrast Book I, brilliantly completed in all its details, with the other two, which remain in the state of very detailed sketches, are therefore coherence and rigour. That the same can be said of Marxist theory in general is something we would be wary of attributing to the purely scientific virtues of Marx; on the contrary, we see it as a mark, in the realm of doctrinal weapons, of the universal, radical and, in a certain sense, definitive character of the social revolution that bourgeois society is pregnant with.

Regarding money, Marx approaches its study from the first part of Book I, but in a manner that may surprise and sometimes repel ⁽²⁾. Instead of starting with money as it functions in the developed capitalist economy, he occupies himself on the contrary with money in its most abstract, but also simplest form, money in its pure state, so to speak, and therefore stripped of its capitalist determinations. This is obviously not a matter of chance or of some ‘Hegelian whim’, but the result of a scientific requirement that goes beyond the purely historical aspect of things while encompassing it. Indeed, just as the commodity economy appeared well before the capitalist economy, which nevertheless remains, but in its own way, an economy whose wealth ‘presents itself as an “immense accumulation of commodities”’ ⁽³⁾, so too was the capitalist mode of production not the only one to use the production relation ‘money’. A historical view of the succession of modes of production would suppose therefore the study of the commodity and of money before the study of capital proper. But there is more. Understanding the capitalist mode of production itself supposes an understanding of the relations of production from which it developed, even and especially if it impressed upon them its own mark. Understanding the nature and role of the commodity and money in the capitalist mode of production therefore requires highlighting the characteristics of these modes of production considered in their pure state, abstracted for a time from their particular historical determinations. By comparing his method with that of the natural sciences, Marx himself has moreover endeavoured to make this necessity felt:

‘The value-form, whose fully developed shape is the money-form, is very elementary and simple. Nevertheless, the human mind has for more than 2,000 years sought in vain to get to the bottom of it all, whilst on the other hand, to the successful analysis of much more composite and complex forms, there has been at least an approximation. Why? Because the body, as an organic whole, is more easy of study than are the cells of that body. In the analysis of economic forms, moreover, neither microscopes nor chemical reagents are of use. The force of abstraction must replace both. But in bourgeois society, the commodity-form of the product of labour – or value-form of the commodity – is the economic cell-form. To the superficial observer, the analysis of these forms seems to turn upon minutiae. It does in fact deal with minutiae, but they are of the same order as those dealt with in microscopic anatomy’ (Preface to the first German edition of Capital).

Physiology, which studies the overall functioning of the living being, cannot, of course, content itself with adding up the results obtained from the study of the cell, arbitrarily separated from the whole for the convenience of research; nevertheless, it can only advance in the overall knowledge it pursues by taking cellular ‘minutiae’ as its basic material.

The same approach can be found in the Marxist study of money and of the capitalist mode of production in general. The first part of Capital, examining ‘commodities and money’, is therefore by no means a heavy appetiser that can be skipped in order to get to the main course more quickly, as some have believed, but rather an indispensable preparation for the proper ‘digestion’ of the whole. The misadventures of economists who have taken the opposite approach, seeking to grasp the nature of the most sophisticated form of money, credit money, before knowing what money itself really was, would suffice to prove, a contrario, the validity of this method. We will therefore follow Marx’s plan here: starting from the study of the nature and functions of money in the simple circulation of commodities, we will finally come to the study of money as it has been ‘perfected’ by the development of the capitalist mode of production. Such an exposition is obviously very fragmentary insofar as it isolates the monetary production relation from the others. It therefore presupposes the fundamental laws of the capitalist economy explained elsewhere in Capital, on the one hand, and, on the other hand, can only have a limited purpose: the presentation of the Marxist theory of money allows us, at best, to grasp its function in the capitalist economy, to understand how money serves capital; it cannot therefore, under any circumstances, substitute for a study of the fundamental relations of production in capitalism. In this area, the Marxist is distinguished from the banker in that they do not share the alienated view of the economic world that is necessarily the banker’s; the Marxist knows that monetary relations are only reflections of deeper relations of production, which are in turn, in the final analysis, relations between men or, to put it better, between social classes.

Let us first assume that we are dealing with a society of independent producers, i.e. masters of their own means of production and therefore also of their products (artisans and peasants who own the land). If the progress of the productive forces is sufficient to have already led to a technical division of labour, each producer cannot, on their own, produce the entire set of objects necessary to satisfy their needs: the blacksmith cannot feed himself with the tools he makes any more than the farmer can do without those tools to successfully cultivate his crops. The exchange of products is therefore necessary, each producer holding use values (tools, clothing, food, etc.) that exceed their personal needs, while having to obtain other use values that they do not produce. In its simplest form, barter, the exchange will be carried out in a determined quantitative relation between commodities of different use values. During the exchange, when the commodities change hands simultaneously, however, they will appear to be equal to each other, regardless of the differences that allow us to distinguish them and which precisely determine their respective use values (their usefulness regarding the satisfaction of human needs). If one quintal of wheat is exchanged for 40 metres of cloth, it is because, from a certain point of view, which obviously has nothing to do with utility, use value, and therefore the satisfaction of needs, that quintal of wheat is indeed equal to these 40 metres of cloth. Now then, the only property common to these two commodities, very different in all other respects, is that they are products of human labour, that their production required a certain expenditure of human labour. The equality:

1 quintal of wheat = 40 metres of cloth
which asserts itself during the exchange itself, masks a deeper equality of which it is only the expression, namely ⁽⁴⁾:

Expenditure of human labour power to produce 1 quintal of wheat = expenditure of human labour to produce 40 metres of cloth.

At this stage, any particular commodity can therefore express its value in terms of other commodities produced, so that a series of equivalences of the following type is established, which mutually express the exchange values of the various commodities:
 
x commodity A = y commodity B = z commodity C = etc...

However, this embryonic form of commodity circulation requires that, at the time of exchange, the two commodities be actually face-to-face. The wheat producer must meet the cloth producer at the precise moment when he needs cloth and has a surplus of wheat, while the cloth producer offers cloth while desiring wheat. Exchanges are thus subject to a double limitation, in time and space. It would only take adding a third character for it to become inextricable: the tailor needs cloth, but the weaver does not want to renew his wardrobe; as for the farmer, he does indeed need clothes, but it is the weaver who wants to stock up on wheat, not the tailor – and we know that the diversification of production that goes hand in hand with the development of productive forces will quickly multiply to infinity the number of producers bringing different commodities to market. Furthermore, while our farmer can easily divide his wheat production into as many parts as necessary, the tailor will cut and sew at least one whole garment; provided that the garment has an exchange value equal to half a quintal of wheat, but the tailor only needs a quarter of a quintal, the market transaction cannot be concluded.

All these limitations inherent in the barter of commodities will be overcome by the introduction of money and the activity of a particular social class, that of merchants. What is money, currency? First and foremost, a commodity like any other, that is to say, a product of human labour; it can therefore also be exchanged for other commodities and participate in the series of equalities that express the reciprocal exchange value of commodities:
 
1 quintal of wheat = 40 metres of cloth = etc. = 100 grams of gold.

After much trial and error, precious metals, especially gold and silver, ended up playing exclusively the role of general equivalent for commodities. Instead of exchanging directly with each other, commodities are therefore first exchanged for gold, according to the quantitative ratio determined by their exchange value and that of gold; it is only through the intermediary of gold that commodities are finally exchanged for one another. At this stage, our equivalences have changed, commodities cease to express their values reciprocally, gold alone expresses their values to all:

1 quintal of wheat 40 metres of cloth 1 tonne of iron, etc...

}

= 100 grams of gold

The fact that gold (or silver) establishes itself in this role as the universal standard of exchange values and consequently excludes all other commodities, stems from its physico-chemical properties: practically unalterable, wearing out very little, it can also be easily divided; it can therefore always express, provided its weight is varied, exchange values very different from one another (of course, this same property belongs to wheat, iron, etc., but it is the combination of unalterability and divisibility that has tipped the balance in favour of gold). We thus see that gold plays its role as general equivalent insofar as it is first and foremost a commodity (G) like any other and, secondly, a commodity possessing particular physical characteristics ⁽⁵⁾.

The advent of money thus introduces a separation between the two complementary operations of exchange, selling and buying, or, more precisely, it makes exchange possible even if these two operations must be separated in time or space. In barter, buying and selling were simultaneous:

G ≡➛ G ⁽⁶⁾
when money appears, exchange can be symbolised by:

G ≡➛ M ≡➛ G

The seller will dispose of their commodity in exchange for gold, which will enable them to acquire, later or on another market, one or more commodities with a total exchange value equal to that of the commodity they sold, but with a different use value. At the same time, the figure of the merchant appears; holder of money, they will be a buyer here and a seller elsewhere; the lively support of money, they will enable it to play its economic role to the full: bringing together producers of commodities, even if they are distant from each other or if they bring their commodities to market on different dates.

Having briefly summarised these results of Marxist analysis, we must now examine the functions of money more closely. All of these functions stem from the role of general equivalent that money assumes, but they nonetheless each deserve a specific analysis. It is, in fact, a matter of bringing out the very characteristics of money as such, characteristics that will remain even when money, as trade develops under the impulse of capitalism, changes form. Money makes it possible to measure exchange values, it is an instrument for the circulation of commodities and it can, moreover, be put into reserves, hoarded; these are its three main functions or, more precisely, we can only speak of money in the proper sense when these three distinct but interrelated functions are effectively fulfilled. Let us consider them in turn.

This function derives directly from the formation of the general equivalent, as we have briefly described above:

‘[P]rice, in its general meaning, is but value in the form of money’ (Capital, Book III), or again: ‘Gold becomes the measure of value because the exchange value of all commodities is measured in gold, is expressed in the relation of a definite quantity of gold and a definite quantity of commodity containing equal amounts of labour time’ (A Contribution to the Critique of Political Economy).

1 quintal of wheat = 40 metres of cloth = 100 grams of gold and then, due to a 25% drop in the value of gold,

1 quintal of wheat = 40 m. of cloth = 125 grams of gold, the price of each commodity will indeed have changed, but their reciprocal relations will have remained constant since

1 quintal of wheat = 40 metres of cloth
before and after the change in the value of gold. Variations in the value of money therefore in no way prevent it from fulfilling its role as a measure of value, i.e. of rendering the values of different commodities commensurable with each other ⁽⁷⁾.

Finally, the function of measure of values fulfilled by money presupposes that gold takes the form of a standard of prices. Custom, generalised and sanctioned by law, defines the quantity of gold that will serve as a unit, and this unit is itself divided into proportional parts, so that any price can easily be expressed in gold by simple addition. Originally, monetary names were often the names of units of weight: the Pound, for example, was the value of a pound (weight) of silver; but the interference of foreign currencies, monetary counterfeiting, the intervention of State power, etc., have subsequently removed this correspondence between the monetary name and the mass of precious metal it represents.

‘Since the standard of money is on the one hand purely conventional, and must on the other hand find general acceptance, it is in the end regulated by law. A given weight of one of the precious metals, an ounce of gold, for instance, becomes officially divided into aliquot parts, with legally bestowed names, such as pound, dollar, &c. These aliquot parts, which thenceforth serve as units of money, are then subdivided into other aliquot parts with legal names (...) Hence, instead of saying: A quarter of wheat is worth an ounce of gold; we say, it is worth 3 pounds, 17 shillings, 10.5 pence’ (Capital, Book I).

We know that money emerged when trade had expanded to such an extent that it could no longer accommodate the limitations imposed by barter. Money thus presents itself, from this perspective, as the instrument enabling commodities to change hands under conditions where barter would be ineffective or too complicated. However, money can only function effectively as a medium of circulation to the extent that it is also a measure of value. The producer will part with their commodity in order to entrust it to the merchant only insofar as the latter will be in a position to hand over to them a certain quantity of gold, the general equivalent of commodities. The second function of money thus presents itself as an immediate extension of the first. But there is more; this second function is also the material sanction of the first. Here, an ‘ideal’ gold no longer suffices, ringing and clinking coin is required, and it is only to the extent that ‘material’ gold actually enables exchanges to be carried out that ‘ideal’ gold could play its role as a measure of value. The various functions of money therefore appear to be interrelated; they are merely the different aspects of the economic relations between commodities, i.e. the social relations between their producers.

The movement carried out by commodities is circular. The seller alienates their commodity in exchange for money, but then procures other commodities with this money. Taking the commodity as the starting point, the movement ends with the reappearance of the commodity, which, of course, has a different use value than the first, but an equal exchange value. The movement of money is quite different: it appears in the hands of the seller only as an intermediary for the commodity they wish to procure; it is acquired only temporarily, and its function as a medium of circulation requires that it be put back into circulation. If the commodity producer sells them only to acquire others, they acquire money only to get hold of it. The function of money as a medium of circulation therefore implies that it constantly changes hands: it is this perpetual movement that is called the flow of money.

What is the quantity of money necessary for the circulation of commodities? It is clear that this quantity must be carefully distinguished from the total quantity of money that exists at a given moment. The most impressive gold reserves will never be able to circulate commodities that do not exist: only what has actually been produced can be exchanged. The quantity of money used as a medium of circulation therefore depends primarily on the amount of commodities in circulation or, more precisely, on the total value of the stock of commodities that are exchanged for one another through the monetary circuit.

‘It is obvious that if gold and silver have intrinsic value, regardless of all other laws of monetary circulation, only a certain quantity of gold and silver can circulate as the equivalent of a given sum of value of commodities’ (A Contribution to the Critique of Political Economy).

But money functioning as a medium of circulation has the characteristic, as we have seen, of constantly changing hands. This means that a given quantity of money functions in an almost unlimited manner if we disregard the wear and tear that affects it, on the one hand, and on the other hand, that it is used several times within a given period of time. Therefore, the faster the velocity of money circulation, the greater the number of transactions carried out using the same monetary unit (a coin, for example). In other words, the faster the velocity of money, the smaller the quantity of money needed for circulation for a given volume of exchanges. If one could know, at a given moment, the unit price and quantity of each commodity on the one hand, and the velocity of money on the other, it would be easy to calculate the quantity of money actually functioning as a medium of circulation at that moment. We would have the following equation:

It goes without saying that such a calculation would be very difficult to perform, as it requires a large number of data points, which are moreover variable over time. However, this presents no particular difficulty in reality, as commercial practice easily determines what a theoretical calculation could only evaluate with great difficulty.

It should also be noted that the average velocity of money is not a primary cause, but, on the contrary, a dependent variable: it is the velocity of commodity circulation which is reflected in the velocity of money circulation, the value of the latter being given; furthermore, as the price of commodities is variable (due to fortuitous causes, and these are then variations around an average, but which nonetheless affect the quantity of money in circulation, or as a result of variations in the value of commodities due to changes in the production process), as is the value of money itself, the result is a complex combination of all these factors. Nevertheless, money is only the reflection of the world of commodities ⁽⁸⁾ and not the cause of the movements that occur within it.

‘The law, that the quantity of the circulating medium is determined by the sum of the prices of the commodities circulating, and the average velocity of currency may also be stated as follows: given the sum of the values of commodities, and the average rapidity of their metamorphoses, the quantity of precious metal current as money depends on the value of that precious metal. The erroneous opinion that it is, on the contrary, prices that are determined by the quantity of the circulating medium, and that the latter depends on the quantity of the precious metals in a country; this opinion was based by those who first held it, on the absurd hypothesis that commodities are without a price, and money without a value, when they first enter into circulation, and that, once in the circulation, an aliquot part of the medley of commodities is exchanged for an aliquot part of the heap of precious metals’ (Capital, Book I).

When money fulfils its first function, i.e. measuring values, the fact that its own value is variable, since it is also a commodity, appears to be a determining characteristic: it indeed contributes to establishing the price level; on the other hand, when money fulfils its second function, i.e. acts as a means of circulation, its essential characteristic becomes the fact that the quantity demanded is itself variable. This has a particularly important consequence, which we will discuss later, namely the necessity of hoarding. Indeed, the volume of transactions can neither remain constant (historically, it continually increases) nor even grow steadily (even excluding crisis phenomena, it is a fact that the appearance of products on the market cannot be evenly distributed throughout the year: one need only think of agricultural products to be convinced of this): over the course of a calendar year, the commodity market is therefore periodically affected by sudden shocks; on the other hand, the velocity of money circulation is itself variable, for these same reasons and for others as well. It follows that the sum of money in circulation, a necessarily variable quantity even for a relatively short period of time, cannot be equal to the total sum of money in existence: not all money can function as a means of circulation at the same time.

In fulfilling its function as a medium of circulation, money wears out, so that a gap gradually develops between the real value of the gold coin in circulation, a value that is proportional to its weight, which decreases as the coin is used, and the value it embodies, which is inscribed on it: the monetary price of gold becomes detached from its market price. In addition to the costs incurred by the initial minting of coins, which are unproductive costs since they are determined by the requirements of the sphere of circulation rather than production, the State must bear the costs of continually replacing worn-out currency:

‘[C]ommodities performing the function of money enter into neither individual nor productive consumption. They represent social labour in a fixed form in which it serves as a mere circulation machine. Besides the fact that a part of social wealth has been condemned to assume this unproductive form, the wearing down of the money demands its constant replacement, or the conversion of more social labour, in the form of products, into more gold and silver. These replacement costs are considerable in capitalistically developed nations, because in general the portion of wealth tied up in the form of money is tremendous. Gold and silver as money-commodities mean circulation costs to society which arise solely out of the social form of production. They are faux frais of commodity production in general, and they increase with the development of this production, especially of capitalist production’ (Capital, Book II).

In any case, the mere material phenomenon of money wearing out spontaneously transforms money into a mere sign of value: the gold coin that has lost a tenth of its mass through successive handling nonetheless continues to serve as a means of circulation in the same way as the intact coin. As it circulates, the worn coin is transformed, mechanically so to speak, into a mere representation of the new coin. Thus begins a process of ‘dematerialisation’ of money, which will continue and reach its fullest form through the direct intervention of the State. In its role as a means of circulation, gold will be gradually replaced, first by coins made of less expensive metals (copper, nickel, etc.), then by ‘things that are relatively without value, such as paper notes’ (Capital, Book I). If, for the gold coin fresh from the mint, the market price equals its monetary price, this is no longer true for the coin that has circulated extensively on the market; the gap widens further with the introduction of coins made of inferior metals, while finally there is no longer any relationship between monetary price and market price when it comes to paper money.

Let us note clearly that at the stage we find ourselves, capitalist credit has not yet appeared, so that the paper money in question is exclusively State-issued fiat money: it is in no way credit money. This paper money is therefore only a symbol of gold, a token that replaces, in domestic circulation, the yellow metal held in the State’s coffers, which by this means saves money (we are leaving aside all the fraudulent operations that this allows it to carry out, as it is true that the State did not wait for the creation of paper money to falsify money...) the costs resulting from the direct use of gold as a means of circulation. Since paper money simply replaces gold as a means of circulation, it must obviously comply with the laws of monetary circulation already valid for gold; in particular, paper money, regardless of the quantity issued, can only represent, at any given time, the quantity of gold that would actually circulate.

‘The State puts in circulation bits of paper on which their various denominations, say £1, £5, &c., are printed. In so far as they actually take the place of gold to the same amount, their movement is subject to the laws that regulate the currency of money itself. A law peculiar to the circulation of paper money can spring up only from the proportion in which that paper money represents gold. Such a law exists; stated simply, it is as follows: the issue of paper money must not exceed in amount the gold (or silver as the case may be) which would actually circulate if not replaced by symbols. Now the quantity of gold which the circulation can absorb, constantly fluctuates about a given level. Still, the mass of the circulating medium in a given country never sinks below a certain minimum easily ascertained by actual experience (...) It can therefore be replaced by paper symbols. If, on the other hand, all the conduits of circulation were to-day filled with paper money to the full extent of their capacity for absorbing money [precious metals in the French edition] ⁽⁹⁾, they might to-morrow be overflowing in consequence of a fluctuation in the circulation of commodities. There would no longer be any standard’ (Capital, Book I).

To conclude on these first two functions of money, let us return for a moment to their contradictory nature, which has led many economists astray. When money functions as a measure of value, what matters is its material: prices will obviously be expressed by different numbers if silver money is used instead of gold money, since gold and silver do not have the same value for the same weight. On the other hand, when money functions as a medium of circulation, it is its quantity that matters: it must be sufficient to meet the needs of commercial transactions, given the velocity of money. Where money functions in a sense ‘ideally’, as a simple unit of account, its material nature is essential; where, on the contrary, it appears ‘physically’, it can be replaced by simple valueless ‘signs’, where only the quantity matters. These simple remarks suffice to show the importance of studying the various functions of money, which, while distinguishing them, reveals their unity.

In the French edition of Capital, this chapter bears the following title, strange at first glance: ‘Money or Currency’. It actually deals with the third function of money, which, crowning the first two, also potentially encompasses them. Furthermore, this chapter is of the utmost importance as it initiates the understanding of more complex monetary mechanisms, particularly those of credit money, and also considers the relationship between the circulation of commodities and money within a given country and their circulation on an international scale.

Hoarding appears to be a temporary interruption in the process of commodity circulation. We have seen that this process is circular in nature:

G ≡➛ M ≡➛ G
at least as far as commodities are concerned; for money, on the contrary, the process of circulation results in a tendency to flee from the hands of the buyer to those of the seller, who in turn becomes a buyer, and so on. The hoarder, for his part, will not buy after selling, but will keep the amount of money he has withdrawn from the sale, thus causing him to abandon the sphere of circulation:

G ≡➛ M...

‘Money deliberately held back from circulation becomes, so to speak, petrified, turning into a hoard, and the seller becomes a hoarder’ (Le Capital, Book I; translated from French).

But there are different kinds of hoards. What the modern hoarder accumulates is not gold or silver as precious metals, which the skill of artists could transform into jewellery, tableware, or various ornaments. Their hoard will be a monetary hoard; they will accumulate money as such, building up reserves of the general equivalent of commodities. Hoarding thus appears as the complement to the first two functions of money, because it presupposes both of them. The hoarder stores this particular commodity, which is the measure of the value of all others, but also the instrument of their circulation. In the form of abstract wealth, temporarily extracted from the active sphere of production and circulation, they accumulate the means to participate, tomorrow, in the activity that reigns in this sphere.

While hoarding may initially appear to be the result of an individual’s desire to pursue their own personal ends, it is also a general economic necessity, which is achieved through this detour: the third function of money acts as a regulator of the other two. In studying money as a means of circulation, we saw that periodic contractions and expansions in trade imply a simultaneous contraction and expansion of the circulating money supply. Since the existing money supply remains relatively fixed over a given period, part of this money supply must necessarily leave the sphere of circulation to re-enter it when the need arises: hoarding plays this role of a valve that regulates the flow of money in circulation.

‘In order that the mass of money, actually current, may constantly saturate the absorbing power of the circulation, it is necessary that the quantity of gold and silver in a country be greater than the quantity required to function as coin. This condition is fulfilled by money taking the form of hoards. These reserves serve as conduits for the supply or withdrawal of money to or from the circulation, which in this way never overflows its banks’ (Capital, Book I).

If, on the one hand, as we saw at the beginning, hoarding appears to be an interruption in the process of circulation, it represents just as much, on the other hand, the possibility of resuming this temporarily interrupted process in the future. We can note here, anticipating considerably what will follow, that there is also ‘the possibility, and no more than the possibility, of crises’, since crises manifest themselves, among other things, through a scarcity of money in circulation.

The three functions of money are therefore closely linked to one another. Money would not be an instrument of circulation if it were not also the measure of value; but circulation is such that it presupposes alternately hoarding and its opposite, the expenditure of previously accumulated money; finally, hoarding has as its object the general equivalent, that is to say, money in the strict sense, both measures of value and means of circulation for commodities. Moreover, this accumulation of money, temporarily withdrawn from the sphere of circulation from which it originated, will serve as a basis, once general economic conditions have matured, for savings and thus ultimately for capitalist credit, which in turn will profoundly alter the formal characteristics of money.

In its role as a medium of circulation, gold money can be replaced by simple signs. The practice of commercial credit will in turn drive these signs out of circulation and replace them with promissory notes, i.e. promises of payment. If a merchant agrees to deliver his commodities to another in exchange for a written promise to pay for them at a later date, the commodities will have indeed changed hands without gold or any of its representatives playing the slightest role, except in the valuation of the price of the commodities, an ‘ideal’ function which, as we have seen, does not require the ‘material’ presence of money. The promise of payment at term, duly recorded on a bill of exchange, may therefore be sufficient to put the commodities into circulation. The equation for the first act of commodity circulation is no longer
G ≡➛ M but rather G → bill of exchange (...M)

The money will only reappear in the sphere of circulation at the fixed term; the circulation of the commodity will have taken place without its intervention and will have no function other than to settle an already completed transaction: from a means of circulation, money becomes a means of payment.

‘Money, that is the independent development of exchange-value, is no longer an intermediary phase of commodity circulation, but its final result (...) [Money] enters circulation as the only adequate equivalent of the commodity, as the absolute embodiment of exchange value, as the last word of the exchange process, in short as money, and moreover as money functioning as the universal means of payment. Money functioning as means of payment appears to be the absolute commodity, but it remains within the sphere of circulation, not outside it as with the hoard’ (A Contribution to the Critique of Political Economy).

It should be noted that one of the manifestations of a crisis is precisely the collapse of credit, and that money, which until then had been largely dispensed with as a means of circulation in the strict sense, is once again in great demand to fulfil this function. In any case, if gold was driven out of the sphere of circulation by paper money, the same process begins for it as well; however, money cannot be completely eliminated from the circulation of commodities and it periodically reappears as a means of payment, that is, as money in the full, strict sense.

Gold, progressively driven out of the sphere of domestic circulation, reigns, however, supreme in international trade.

‘It is only in the markets of the world that money acquires to the full extent the character of the commodity whose bodily form is also the immediate social incarnation of human labour in the abstract. Its real mode of existence in this sphere adequately corresponds to its ideal concept’ (Capital, Book I).

However, here too, the function of money as a medium of circulation fades, while money as a means of payment, which serves to settle international trade balances on fixed terms, predominates. Furthermore, each State must build up a hoard to cope with either commercial vicissitudes or the necessities of war. It is worth noting already, with Marx, on this point, that:

‘Countries in which the bourgeois form of production is developed to a certain extent, limit the hoards concentrated in the strong rooms of the banks to the minimum required for the proper performance of their peculiar functions. (These various functions are liable to come into dangerous conflict with one another whenever gold and silver have also to serve as a fund for the conversion of bank-notes). Whenever these hoards are strikingly above their average level, it is, with some exceptions, an indication of stagnation in the circulation of commodities’ (Capital, Book I).

Having thus briefly summarised the main results of the Marxist analysis of the role of money in the simple circulation of commodities, we can now move on to the study of the transformations undergone by money in the fully developed capitalist economy, this will be the subject of the next chapter.

As we have seen, Marx conducts his fundamental analysis of the nature and functions of money in a commodity economy within which the capitalist and the wage labourer have not yet appeared. As soon as these two figures come on the scene, money undergoes a profound transformation that expresses the revolution accomplished in class relations. From an innocent means of circulating commodities, it transforms into money-capital, and although the latter borrows its external form from the hoard, it differs profoundly from it in substance. Until now, commodities played the leading role and money appeared as an auxiliary to their movement; as soon as the capitalist mode of production took hold of production, money on the contrary takes centre stage, commodities content themselves with playing utilities, serving in turn as instruments for the circulation of money. The roles are thus reversed, but it is true that in the meantime, money itself has changed in nature to become capital.

Even in the simple circulation of commodities, the monetary production relation imposes a detour and further obscures the relation between producers, which, even in direct exchange, formally appeared as a relation between their products (the commodities); yet, in the simple circulation of commodities, the very purpose of the movement of products remains clear. Selling in order to buy, selling products whose use value exceeds the needs of the producer in order to enable him to buy use values corresponding to needs that he cannot directly satisfy through the results of his productive activity, that is no mystery. The situation is different in capitalist production; the capitalist, Mr. ‘Moneybags’, as Marx puts it, buys in order to sell instead of selling in order to buy. (This already applies to the precursor of the modern capitalist, the simple merchant.) If the circulation of commodities can be schematised as G ≡➛ M ≡➛ G
the circulation of money transformed into capital, on the contrary, appears as

M ≡➛ G ≡➛ M

From a formal point of view, money appears in both the first and second scheme, but the mode of circulation is not the same in the two cases: ‘The first distinction we notice between money that is money only, and money that is capital, is nothing more than a difference in their form of circulation’ (Capital, Book I, Part II, Chap. IV). As a means of circulation of commodities, money constantly remains in the sphere of circulation, while commodities continually exit it to be consumed: money is a simple intermediary in the circulation of commodities and therefore constantly changes hands. As capital, money circulates in a different way. Originally, it appears as an accumulated ‘hoard’ that is thrown en masse into circulation to acquire commodities (we will see which ones later; for now, we can limit ourselves to the case of commercial capital); but here the aim of the operation is no longer to acquire use values for consumption: on the contrary, the commodities acquired will be thrown back into circulation and thus exchanged for money. Money appears as both the starting point and the end point of the cycle, as the very goal of circulation, and therefore constantly flows back to the person who initiated the cycle by advancing a certain amount of money-capital. Instead of remaining exclusively in the sphere of circulation like money, functioning as a means of circulating commodities, and thus always escaping its temporary holder, money-capital is destined to flow back to its holder, who precisely expected this return when temporarily parting with it:

‘The reflux itself takes place, so soon as the purchased commodity is resold, in other words, so soon as the circuit M – G – M is completed. We have here, therefore, a palpable difference between the circulation of money as capital, and its circulation as mere money’ (Capital, Book I, Chap. IV).

Apparently, the circulation of money-capital presents a character of absurdity. If the cycle G ≡➛ M ≡➛ G has equivalent exchange values at its extremes, the operation makes sense insofar as these equivalent exchange values are embodied in commodities with different use values. Commodities with equivalent exchange values can only circulate (exchange) insofar as they have different use values. If money is found at both ends of the money-capital cycle, there can be no question of invoking different use values to justify this movement, money withdrawn at the end obviously being identical, from the point of view of use, to that which was advanced at the start. The cycle therefore only makes sense if the exchange value obtained at the end of the cycle is greater than the value advanced: the circulation of money capital therefore appears from the outset to be a ‘violation’ of the law of value, of exchange between equivalents, since the exchange value obtained at the end must exceed the exchange value put into play at the outset.

‘The circuit G – M – G starts with one commodity, and finishes with another, which falls out of circulation and into consumption. Consumption, the satisfaction of wants, in one word, use value, is its end and aim. The circuit M – G – M, on the contrary, commences with money and ends with money. Its leading motive, and the goal that attracts it, is therefore mere exchange value’ (Capital, Book I, Part II, Chap. IV).

The circuit of money-capital is therefore not M ≡➛ G ≡➛ M, but rather M ≡➛ G ≡➛ M’ where M’ = M + ΔM, i.e. a sum greater than the money initially advanced M. The fundamental difference between the circulation of commodities and the circulation of money-capital thus comes down to the fact that the former is driven by the appropriation of use values, which gives it, at a given time, a relatively ‘rigid’ character, as Marx says, since needs can not be extended at will for a given stage of social production, whereas the latter is in essence unlimited. Since the goal of the circulation of money-capital is its own increase, it knows no limits or end: what characterises money-capital (and capital in general), therefore, is not its volume or even the increase resulting from the completion of its cycle, but the necessary repetition ⁽¹⁰⁾ and therefore the unlimited extension of this increase: capital is defined by its own movement, and it is a ‘perpetual’ movement: it can accelerate or slow down, but must always continue, on pain of death for capital itself:

‘The value originally advanced, therefore, not only remains intact while in circulation, but adds to itself a surplus-value or expands itself. It is this movement that converts it into capital’ (Capital, Book I, Part II, Chap. IV).

‘The simple circulation of commodities – selling in order to buy – is a means of carrying out a purpose unconnected with circulation, namely, the appropriation of use-values, the satisfaction of wants. The circulation of money as capital is, on the contrary, an end in itself, for the expansion of value takes place only within this constantly renewed movement. The circulation of capital has therefore no limits’ ⁽¹¹⁾.

There is no need to elaborate on the theory of surplus value here; we will simply recall what the special commodity is whose purchase allows the capitalist to extract ‘something extra’ from the circulation of his capital, a surplus value. Let us now consider the industrial capitalist and not longer just the commercial capitalist. Both buy in order to sell, but the former does not simply resell the commodities purchased; he subjects them to a transformation in the course of a production process. He first transforms the money-capital advanced into means of production (buildings, production facilities, machinery, tools, etc...) and objects of production (raw materials), which he acquires at their value on the market; this fraction of his capital is called constant capital. But in order to animate this ‘dead capital’, ‘Mr. Moneybags’ must also purchase human labour on the market, which, when applied to the means of production, will transform the objects of production into products. The capitalist buys the labour power of a certain number of workers for a given period in exchange for wages, and the portion of the capital advanced that plays this role is called variable capital. Here again, the commodity will be paid for, on average at least, at its value, which can only be the value equivalent of the products necessary for the maintenance of the worker’s labour power, that is, for keeping him in a state to produce normally and to ensure his offspring.

Once the production process is complete, the capitalist will have transformed his advanced capital into commodities, but their value will exceed that of this initial advance. Indeed, labour power is a special commodity whose use provides precisely human labour. Now, while during the production process it indeed transfers to the new commodities produced the value previously contained in the constant capital advanced, it also adds an additional value that exceeds the variable capital advanced by the capitalist: if the labour power of a worker can be used for 10 hours a day, the total products whose value will be equivalent to the daily wage will only represent 5 hours of average labour, for example. The difference, or surplus value, will be pocketed by the capitalist who, contrary to what it may seem at first glance, will nevertheless have respected the law of exchange between equivalents, both with regard to the wage-earner and toward the buyer of his commodities. Here we find defined, in the most concise possible way, the fundamental relation of production specific to the capitalist mode of production, which allows us to distinguish it from previous modes of production, with which it nevertheless shares certain economic categories, and even more so from the socialist mode of production ⁽¹²⁾.

Commodities, money, money-as-such existed before capitalism, although capitalism greatly expanded their sphere of action; but, money does not, in itself, have the virtue of functioning as capital. For it to undergo this metamorphosis, a double condition must be met: an accumulation of money must have taken place at one pole of society, while at the other pole a massive expropriation of independent producers must have been carried out, which alone makes it possible to transform labour power into a commodity and, consequently, money into capital, since without this it could not purchase labour power.

The capitalist mode of production is therefore defined by the generalised existence of wage labour, whose emergence in turn presupposes a developed commodity economy. Money and money-capital are therefore not one and the same thing: the transformation of money into money-capital expresses, within a particular sphere, the introduction of a determinate relation of production. Money can henceforth purchase labour power like any other commodity; wage labour is born, and with it, capital.

‘[I]f we consider money, its existence implies a definite stage in the exchange of commodities. The particular functions of money (...) point, according to the extent and relative preponderance of the one function or the other, to very different stages in the process of social production. Yet we know by experience that a circulation of commodities relatively primitive, suffices for the production of all these forms. Otherwise with capital. The historical conditions of its existence are by no means given with the mere circulation of money and commodities. It can spring into life, only when the owner of the means of production and subsistence meets in the market with the free labourer selling his labour-power. And this one historical condition comprises a world’s history. Capital, therefore, announces from its first appearance a new epoch in the process of social production. The capitalist epoch is therefore characterised by this, that labour-power takes in the eyes of the labourer himself the form of a commodity which is his property; his labour consequently becomes wage-labour. On the other hand, it is only from this moment that the produce of labour universally becomes a commodity’ (Capital, Book I, Part II, Chap. VI).

By completing its indefinitely repeated cycle, which we already know is driven by the pursuit of surplus value rather than the production of commodities, which is only a necessary means for attaining the desired end, capital undergoes a series of cyclical metamorphoses, that is, it alternately takes on various forms ⁽¹³⁾. If the economic and social conditions of capitalist production are assumed as given, the starting point will always be a certain amount of money-capital ready to be thrown into circulation. This money-capital must in turn be converted into commodity-capital, i.e. exchanged for the material elements of production (facilities, machinery, raw materials, etc.) that constitute constant capital, and for the means of subsistence for the workers, which constitute variable capital (or wages). The characteristic act of this first phase of the circulation of money-capital is obviously its transformation into variable capital, i.e. the purchase of labour power, which will indeed ultimately result in the purchase of means of subsistence (expenditure of workers’ wages) and will thereby contribute to the circulation of commodities, but which will above all offer the capitalist the possibility of productively employing labour power ⁽¹⁴⁾. Once money-capital has thus metamorphosed into commodities (means of production, raw materials, labour power), the process of circulation is interrupted to make way for the process of production. Capital then takes the form of productive capital, the activity of which will have as its result the appearance of a new commodity distinguishing itself from those that made up the initial commodity-capital both in terms of its use value and its exchange value: this is obvious with regard to use value, and it is already known, with regard to exchange value, that labour power employed productively generates a new value, surplus value, while transferring to the product the sum of the advanced constant capital and variable capital. From productive capital, capital has thus been transformed once again into commodity-capital, which must enter into a new phase of circulation in order to regain its original form of money-capital. The cycle of capital, originally represented by M ≡➛ G <➛ M’      (M’ > M)
can be represented more completely by highlighting the different forms of capital and, above all, the fact that surplus value comes solely from the employment of variable capital and not from the totality of advanced capital, as imagined by the capitalist and ‘theorised’ by vulgar political economy ⁽¹⁵⁾:

M ≡➛ G =

{

V <➛   + C ≡➛

V + S + C

}

= G’ ≡➛ M’

The first and last parts of the circuit (M ≡➛ G and M’ ≡➛ M’) belong to the sphere of circulation, so that we can distinguish between a period of production and a period of circulation of capital in this circuit. It is clear, on the other hand, that the distribution of money-capital into v and c, known as the organic composition of capital, is determined in each period on the one hand by the technical characteristics of constant capital, which determine the productivity of labour, and on the other hand by the length of the working day and the intensity of that labour.

What interests us particularly here is the circuit of money-capital. However, studying the circuit and metamorphoses of capital shows that it must necessarily take the form of money-capital periodically, the starting point and end point of the circuit:

‘[M]oney in general is the form in which every individual capital (apart from credit) must make its appearance in order to transform itself into productive capital; this follows from the nature of capitalist production and commodity-production in general’ (Capital, Book II, Part III, Chap. 18).

While capital is indeed much more than money, it must nevertheless take the form of money and therefore also submit itself, in this form, to the laws of monetary circulation defined above. The functions of money, and it matters little for the moment which money it is ⁽¹⁶⁾, are therefore preserved in the circulation of capital, although they are placed at the service of the more general laws governing the circulation of capital as such. But the money-form that capital must necessarily take reacts upon its circuit, as it imposes a relative limit on it. There is undoubtedly no law of absolute proportionality between the mass of money-capital advanced and the mass of use values obtained at the end of the production process. The relationship between these two magnitudes is in fact determined by the productivity of capital, which in turn depends on the technical conditions of production, so that the same mass of money-capital will be resolved into c and v in varying proportions depending on the period, and will therefore result in the production of varying quantities of a given use value. The productive power of capital is therefore not determined solely by its magnitude, any more than the mass of surplus value produced, which obviously depends on the proportion between constant capital and variable capital and the degree of exploitation of labour power (the two being historically linked). All these reservations aside, the fact remains that at a given stage of social production, the mass of available money-capital constitutes a limit on the productive capital that can be put to work. This is why the study of capitalist money actually leads to the study of the means used by capital to free itself from this relative limit, which, as we shall see, are themselves necessarily monetary in nature, so that the contradiction remains, but is raised to a higher degree.

In accordance with its nature, capital must circulate indefinitely. The result of a completed circuit therefore presents itself as the beginning of a new circuit, the goal of capitalist production not being simply the production of surplus value, but the uninterrupted production of capital. Capital exists to the extent that it grows, that it accumulates. Although, for the isolated capitalist, the consumption of a fraction of surplus value may appear to be the goal of the movement imparted to capital, on the social scale this can only be a contingent, relatively secondary phenomenon – and the growing depersonalisation of capital (joint-stock companies, nationalised trusts, etc.) expresses this phenomenon in the clearest way. It is therefore necessary not only that, once realised in the form of money-capital through the sale of products, the initial capital begins a new circuit, but also that the surplus value itself transforms into new capital, is invested: this is how the expanded reproduction of capital occurs. Surplus value itself metamorphoses into constant capital and variable capital and enters into a valorisation process parallel to that of the initial capital. Such a movement can be symbolised as follows, assuming, for the sake of simplicity, that all surplus value is capitalised, i.e. that capitalists do not withdraw any part of it for their personal consumption ⁽¹⁷⁾:

The achievement of expanded reproduction, i.e. the transformation of surplus value into capital, its investment, presupposes the meeting of a certain number of conditions. Surplus value must pass from money-capital form to the productive capital form; this first requires a certain proportion between constant capital and variable capital into which it is divided ⁽¹⁸⁾; it also requires a specific magnitude of the total mass (c + v) of surplus value to be invested. The expansion of production requires, for example, the purchase of new machines; their technical characteristics being given, the quantity of raw materials they will consume and the amount of labour power that will set them in motion are also given. However, it is only possible to add to the old means of production at least one whole machine, and not half or a quarter, for example. At a given stage of productivity in the productive branch in question, the minimum additional capital that can be invested is therefore perfectly determined. If the amount of surplus value obtained at the end of a circuit is less than this minimum capital, one must therefore wait until the completion of new circuits has sufficiently increased the surplus value so that it can effectively function in turn as productive capital; in the meantime, it is only potential productive capital. The same problem would arise, moreover, if the surplus value exceeded the minimum additional capital to be invested: it is only when the surplus value is strictly equal to this minimum additional capital or to one of its integer multiples that it can be immediately reinvested in its entirety; in all other cases, there is a formation of potential capital.

An analogous phenomenon occurs within the circuit of a given capital. The capitalist must fully anticipate all the elements of productive capital. But a certain circulation time separates the production of commodities from the conversion of their value into money-capital liable to transform again into productive capital. A new advance must therefore be made if production is not to remain interrupted until the reflux of the advanced capital to its starting point in the form of money-capital. Considerations analogous to those made for surplus value show that, unless circulation time is an integer multiple of production time (an assumption that never materialises because, among other things, circulation time differs from relatively fixed production time in terms of inevitable variations), there is an overlapping of advanced capitals and capitals realised through the sale of products, an overlapping which ‘frees’, for a time, certain fractions of capital, i.e. prevents them from immediately converting into productive capital.

Both of these phenomena therefore require the capitalist, considered in isolation, to always keep a fraction of their capital in the form of money-capital, in addition to the necessary money-capital, in the form of reserve funds. We thus see the emergence of the necessity of capitalist hoarding.

‘Since the proportions which the expansion of the productive process may assume are not arbitrary but prescribed by technology, the realised surplus-value, though intended for capitalisation, frequently can only by dint of several successive circuits attain such a size (...) Surplus-value thus congeals into a hoard and in this form constitutes latent money-capital (...) The formation of a hoard thus appears here as a factor included in the process of capitalist accumulation, accompanying it but nevertheless essentially differing from it; for the process of reproduction itself is not expanded by the formation of latent money-capital. On the contrary, latent money-capital is formed here because the capitalist producer cannot directly expand the scale of his production’ (Capital, Book II, Part I, Chap. 2).

Born of the very conditions of the capitalist circuit, this hoarding appears to be a contradictory phenomenon insofar as it temporarily prevents a fraction of capital from functioning effectively as capital. It therefore runs counter to the fundamental movement of capital, contradicts its nature and, in a certain sense, plays a parasitic role. However, the capitalist mode of production finds the solution to this contradiction on a social scale; it irresistibly tends to unify isolated capitals, and capitalist hoarding thus provides the basis for the banking and credit system, which can be considered as capitalist solutions to the contradictions not of capital in general, but of capital in the form of money.

The importance of credit in the capitalist economy cannot escape anyone today, just as it could not escape Marx, contrary to what a number of scatterbrained commentators have claimed, to whom the method of exposition followed by Marx... escaped almost completely ⁽¹⁹⁾. Engels, for whom each preface to Capital was an excellent occasion to nail down the vulgar economists refractory to dialectics, notes that their criticisms are based on this misunderstanding.

‘Marx wishes to define where he only investigates, and that in general one might expect fixed, cut-to-measure, once and for all applicable definitions in Marx’s works. It is self-evident that where things and their interrelations are conceived, not as fixed, but as changing, their mental images, the ideas, are likewise subject to change and transformation; and they are not encapsulated in rigid definitions, but are developed in their historical or logical process (emphasis added, ed.) of formation. This makes clear, of course, why in the beginning of his first book Marx proceeds from the simple production of commodities as the historical premise, ultimately to arrive from this basis to capital – why he proceeds from the simple commodity instead of a logically and historically secondary form – from an already capitalistically modified commodity’ ⁽²⁰⁾.

It is obviously for identical reasons that Marx analyses the functions of money starting with the simplest money, as we have seen, and only arrives at it later in its ‘secondary form’, i.e. credit money: what has been said about simple money will form the basis for the analysis of its developed form, capitalist money, and only an understanding of the simplest forms will enable us to grasp the functions of the elaborated forms. Marx has moreover sufficiently made it clear himself that this was indeed his method:

‘Natural economy, money-economy, and credit-economy have therefore been placed in opposition to one another as being the three characteristic economic forms of movement in social production. In the first place these three forms do not represent equivalent phases of development. The so-called credit-economy is merely a form of the money-economy, since both terms express functions or modes of exchange among the producers themselves. In developed capitalist production, the money-economy appears only as the basis of the credit-economy. The money-economy and credit-economy thus correspond only to different stages in the development of capitalist production’ (Capital, Book II, Part I, Chapter IV; emphasis added).

The credit economy is therefore nothing more than the developed money economy, and it belonged to capitalism, which generalises the production of commodities, albeit on bases other than the commodity economy, to bring money to its latest developments while remaining entangled in the frameworks of the money economy, which it can perfect as much as it likes but cannot break.

The study of the circuit of capital has revealed that the latter takes various forms. However, the forms it alternately takes ultimately manifest themselves in distinct economic branches, a division of labour establishing itself within the capitalist class, which is divided into industrialists, merchants, and bankers. If the merchant occupies himself with the purchase and sale of commodities, replacing the industrialist throughout the entire circulation time of the commodities produced by industrial capital, the banker devotes himself on his side to the operations concerning money-capital in the strict sense. Here, we must disregard commercial capital and productive capital to a certain extent in order to focus primarily on money-capital. As Marx notes,

‘if any money-capitalist at all stands behind the producer of commodities and advances to the industrial capitalist money-capital (in the strictest meaning of the word, i.e., capital-value in the form of money), the real point of reflux for this money is the pocket of this money-capitalist. Thus the mass of the circulating money belongs to that department of money-capital which is organised and concentrated in the form of banks, etc., although the money circulates more or less through all hands. The way in which this department advances its capital necessitates the continual final reflux to it in the form of money, although this is once again brought about by the reconversion of the industrial capital into money-capital’ (Capital, Book II, Part III, Chap. 20).

The money-capital (or bank capital tr. ed.), thus advanced to the industrial capitalist obviously demands a share in the surplus value extracted from the exploitation of labour power in the course of the production process that it has contributed to setting in motion: this share is interest. The total surplus value is therefore ultimately distributed between industrial, commercial, and bank capital ⁽²¹⁾. The function of bank capital is therefore to ensure the financing of capitalist production; it consists of money-capital, which, as we have seen, capital itself cannot do without, but money-capital that has become concentrated and organised in a relatively autonomous manner with respect to productive capital or commodity-capital. The Bank stands opposite Industry, and while one cannot exist without the other, and while the production of surplus value, which conditions the very existence of capitalist interest, takes place in the sphere of production, the bank is by no means content managing the money-capital of capitalist society; as its technical functions develop, it acquires a quasi-monopoly over the money-capital of society and ends up dominating the industrial and commercial sectors of the economy – a phenomenon characteristic of the decadent phase of the capitalist mode of production, which Marx highlighted long before it reached the scale we know today.

The emergence of the usurer predates the capitalist mode of production by a considerable margin. Decadent capitalism, for its part, practises usury on a scale unknown until now, since all consumer credit, so widespread today, falls into this category. However, although it is the bank that lends to wage-earners as well as capitalists, we will only concern ourselves with true capitalist credit, which concerns solely the advance of money-capital.

Credit money, or, in other words, money issued by banks, derives from the practice of commercial credit, although it has since expanded far beyond this initial basis. We have seen previously, when studying the functions of money, that it could act as a means of payment as soon as a commodity was sold in exchange for a written promise by the buyer to pay for them at a fixed term. The bill of exchange (to limit ourselves to this example of a commercial paper) can therefore replace money in its function as a means of circulation, with money simply settling a transaction that has already been carried out without its direct involvement. But the bill of exchange can in turn circulate during the period that passes until its maturity, and thus itself play the role of money by replacing the sum of money for which it can actually be exchanged at the specified time. The bill of exchange will therefore not replace a given sum of money only once, at the time of the exchange that prompted its issue; on the contrary, it may continue to be exchanged for commodities for the amount of money it symbolises for as many times as its speed of circulation will allow.

‘Credit-money springs directly out of the function of money as a means of payment. Certificates of the debts owing for the purchased commodities circulate for the purpose of transferring those debts to others. On the other hand, to the same extent as the system of credit is extended, so is the function of money as a means of payment. In that character it takes various forms peculiar to itself under which it makes itself at home in the sphere of great commercial transactions. Gold and silver coin, on the other hand, are mostly relegated to the sphere of retail trade’ ⁽²²⁾.

As we have seen above, an essential characteristic of the evolution of the monetary system is what can be called the ‘dematerialisation’ of money; commercial credit, by fulfilling the function of a means of circulation in place of money, plays a decisive role in this process.

‘Everyone gives credit with one hand and receives credit with the other. Let us completely disregard, for the present, banker’s credit, which constitutes an entirely different sphere. To the extent that these bills of exchange (or drafts, ed.) circulate among the merchants themselves as means of payment again, by endorsement ⁽²³⁾ from one to another – without, however, the mediation of discounting – it is merely a transfer of the claim from A to B and does not change the picture in the least. It merely replaces one person by another. And even in this case, the liquidation can take place without the intervention of money. Spinner A, for example, has to pay a bill to cotton broker B, and the latter to importer C. Now, if C also exports yarn, which happens often enough, he may buy yarn from A on a bill of exchange and the spinner A may pay the broker B with the broker’s own bill which was received in payment from C. At most, a balance will have to be paid in money’ (Capital, Book III, Part V, Chap. 30).

The fact remains that every capitalist must continually deal with cash expenditures, particularly for wages. Furthermore, it is impossible to imagine that all commercial paper circulates in such a way that the bill of exchange, when it matures, returns to the debtor, as in the obviously exceptional example given by Marx. Whether cash has to be paid or the maturity of bills requires the appearance of money as a means of payment, money that has been temporarily removed from circulation, or, if you will, ‘dematerialised’, must always reappear. It is certain, however, that the money that must now appear is less than the amount that would have been necessary to circulate the commodities in the absence of commercial credit, since a certain number of bills have been cancelled or offset ⁽²⁴⁾; nevertheless, it must reappear. In what form?

Money can, of course, reappear in the form of gold or gold tokens: we are still, then, dealing with money as studied in the first part; the process of ‘dematerialisation’ has not yet reached its conclusion and the means of payment remains gold or its representatives. But if we place ourselves within the framework of the developed credit system, gold will be replaced by the banknote.

What is a banknote? It is the simplest form that bank credit takes, but since this rests on developed commercial credit, it can be said that the banknote already represents, in a sense, credit to the second power.

‘[Banknotes] do not rest upon the circulation of money, be it metallic or government-issued paper money, but rather upon the circulation of bills of exchange’ (Capital, Book III, Part V, Chap. 25). ‘A bank-note is nothing but a draft upon a banker, payable at any time to the bearer, and given by the banker in place of private drafts. This last form of credit appears particularly important and striking to the layman, first, because this form of credit-money breaks out of the confines of mere commercial circulation into general circulation, and serves there as money; and because in most countries the principal banks issuing notes (...) actually have the national credit to back them, and their notes are more or less legal tender’ (Capital, Book III, Part V, Chap. 25).

The banker therefore agrees to receive commercial debts that are not yet due and to immediately hand over to their holder an equivalent sum in banknotes, not without charging interest on the money lent in this way: he practises bill discounting ⁽²⁵⁾.

Banking activity thus considered appears as a generalised and organised expression of commercial credit, which it centralises and controls: the commercial bill, a private contract, is transformed into a banknote, which commits the banking system as a whole toward society as a whole, since the banknote, unlike the bill of exchange, penetrates all channels of monetary circulation. The bank receives claims from individuals and records their amount as assets, while issuing a corresponding sum of banknotes, which it records as liabilities (charging fees corresponding to the discount rate in the process).

Are banknotes really money? David Ricardo, master of classical political economy and representative, in monetary matters, of the Currency School (School of Circulation), answered this question in the negative. Under the influence of his theories, the Bank of England adopted a very rigid structure: the Peel Act of 1844 established its monopoly on issuance and, above all, required it to respect a 100% gold coverage for the banknotes issued, which amounted to treating the notes as mere gold tokens rather than as a separate currency. There is no need to revisit here the terms of the controversy that opposed this school to the Banking School (represented by Tooke and Fullarton) and Marx’s critical account of it ⁽²⁶⁾: a summary of the facts will suffice to settle the question that concerns us. Let us leave scriptural money completely aside for the moment; the Bank of England, despite its fine Ricardian principles, frequently had to resort to exceeding the issuance authorised by the Peel Act: in 1847, 1857, 1866, 1890, 1908, and especially 1914. After the First World War, although the Act formally remained in force, a long-term solution was found: the Act required a 100% gold backing for all issues, with the exception of an initial, insignificant issue of £18.5 million; well, they simply increased this exceptional issue enormously, so that today it has become the rule, with gold-backed currency being the exception.

Banknotes are therefore, as Marx shows, money in the true sense of the word and not simply a substitute for monetary gold. To be convinced of this, one need only revisit his initial analysis of the simplest form of money, which provides a historical and, above all, dynamic definition, money being defined by its functions: means of circulation and payment, instrument of hoarding. The bill of exchange already fulfilled the first two functions, while the banknote could also fulfil the third ⁽²⁷⁾. It is therefore indeed a currency, but one that arises on completely different bases from that of the gold-backed banknote. The latter simply replaced gold in active circulation, whereas the banknote appears where this type of currency had already been driven out of circulation by commercial credit. The bill of exchange, replacing money, eliminating it from the sphere of circulation, forms the basis of a new currency that in a sense sanctions this elimination. From then on, the amount of banknotes in circulation no longer has a specific quantitative relationship with the stock of gold stored in the vaults of the issuing bank. This stock of gold can in no way guarantee the notes in circulation, since these are representatives of commercial credit, which has precisely eliminated the circulation of monetary gold. It would never occur to anyone that, once artificial textiles can replace natural textiles, one should continue to produce the latter without using them and produce only as much artificial textiles as are to be used. On the contrary, both types of textiles are used concurrently, and the proportion established between them depends not on some abstract principle laid down in advance, but on the respective market conditions of these two products. The same applies, proportionally speaking, to money: evaluating gold reserves on the one hand and the amount of banknotes in circulation on the other, with the aim of deciding whether the ratio between them corresponds properly to the rule, amounts to a contradiction in terms, a misunderstanding of the very nature of credit money. Gold (and its tokens) and the banknote are both money: studying their respective shares in total circulation can only provide useful indications of the development of credit money within money as a whole. On the other hand, if we want to study only the latter, it is only the sum of monetary gold and banknotes that must be considered. Finally, it should be noted that banknotes, being monetary in nature, are subject to all the laws governing money in general and which Marx undertook to study even before considering capitalist production itself; in particular, the relationships between issuance, circulation, and hoarding remain the same whether we are dealing with gold or credit money (see the first part of this presentation, ‘Money in the Strict Sense’).

Money, however, is not as simple as wool fabrics... or nylon. Credit money is not based on gold, but on credit. Robust as long as the latter is strong, it withers as soon as it weakens. Then, and only then, does the capitalist, who yesterday was so proud of having effortlessly scaled the ‘mur d’argent’ by betting on the unlimited expansion of his production, suddenly wants to turn back and starts playing the Miser. With credit faltering, the capitalist clings to what remains firm: precious metal. The struggle is fierce, because this claim to seek salvation in ‘immutable’ gold is futile on a social scale, since credit money, far from being based on gold, has developed without it and has even taken its place. It is in this dilemma that economists and bankers periodically find themselves trapped, it is between these two poles of gold and credit that the famous controversy over the amount of reserves to be kept in the bank’s vaults develops, and this also explains why solutions differ according to the times ⁽²⁸⁾.

An answer to the problem posed that would be rational, universal, and valid for all periods does not exist and cannot exist. The ‘solutions’ can only be provisional and, whatever they may be, irrational, since they are nothing but a reflection of the profound irrationality of capitalist relations of production. Monetary rules have changed over the course of history because no science could dictate them: they are mere wives’ remedies, and it cannot be otherwise, since the illusory representation that men inevitably make of their own activity in an economy where the product dominates the producer is most clearly manifested in the monetary sector, which thus becomes the distorting mirror of the bourgeois economy. Monetary history merely shows that credit money progressively supplants monetary gold without eliminating it completely.

Although we have defined banking as the branch specialising in operations involving money-capital, we have so far illustrated hardly anything except its relationship with commercial credit, which leads to the issuance of banknotes. Let us now look at its other functions. Above all, it is the centralising body of all the money-capital in society. This capital initially takes the form of loanable capital: the bank draws in the savings from all classes of society, which it safeguards and remunerates by paying interest on the money deposited with it. The bank is therefore not only an intermediary between mutually indebted merchants: it becomes an intermediary between lenders and borrowers ⁽²⁹⁾.

‘Generally speaking, this aspect of the banking business consists of concentrating large amounts of the loanable money-capital in the bankers’ hands, so that, in place of the individual money-lender, the bankers confront the industrial capitalists and commercial capitalists as representatives of all moneylenders. They become the general managers of money-capital. On the other hand by borrowing for the entire world of commerce, they concentrate all the borrowers vis-à-vis all the lenders. A bank represents a centralisation of money-capital, of the lenders, on the one hand, and on the other a centralisation of the borrowers’ (Capital, Book III, Chap. XXV).

The very nature of his activity requires the capitalist to set up a reserve fund enabling him to cope with the vagaries of commerce, such as, for example, an increase in the circulation time of commodities due to a contraction in the market, forcing him to advance further money-capital while awaiting the return of that which he had previously advanced, or even the vicissitudes of the class struggle.

We have also seen that if capital has a tendency towards expanded reproduction (investment of the surplus value withdrawn from a given circuit), real expansion of production was only possible if the additional capital was sufficient to become productive capital, meaning that the need for expanded reproduction is constrained by technical conditions. Finally, the way in which circuits succeed one another, or more precisely, the respective durations of production and circulation time, can lead to an overlapping of capitals, i.e. leaving money-capital temporarily unused ⁽³⁰⁾. Reserve funds, the surplus value that cannot be used in the enterprise where it was produced, the capital freed up due to the particularities of capital turnover, all this money-capital that is prevented from being individually transformed into productive capital and which would remain ‘inactive’ if it remained isolated, will flow into the banks, adding to the savings from all social classes ⁽³¹⁾ and thus ultimately constitute an enormous mass of loanable capital.

‘The loanable capital which the banks have at their disposal streams to them in various ways. In the first place, being the cashiers of the industrial capitalists, all the money-capital which every producer and merchant must have as a reserve fund, or receives in payment, is concentrated in their hands. These funds are thus converted into loanable money-capital. In this way, the reserve fund of the commercial world, because it is concentrated in a common treasury, is reduced to its necessary minimum, and a portion of the money-capital which would otherwise have to lie slumbering as a reserve fund, is loaned out and serves as interest-bearing capital. In the second place, the loanable capital of the banks is formed by the deposits of money-capitalists who entrust them with the business of loaning them out. Furthermore, with the development of the banking system, and particularly as soon as banks came to pay interest on deposits, money savings and the temporarily idle money of all classes were deposited with them. Small amounts, each in itself incapable of acting in the capacity of money-capital, merge together into large masses and thus form a money power. This aggregation of small amounts must be distinguished as a specific function of the banking system from its go-between activities between the money-capitalists proper and the borrowers. In the final analysis, the revenues, which are usually but gradually consumed, are also deposited with the banks’ (Capital, Book III, Part V, Chap. XXV).

‘In countries with a developed credit, we can assume that all money-capital available for lending exists in the form of deposits with banks and money-lenders’ (Idem., chap. XXXI).

This centralisation of money-capital in banks enables capitalism to overcome the contradiction between money-capital and productive capital: while isolated capitals cannot sometimes be invested because they are not large enough, those same capitals, pooled by the bank, can be offered to industrial capitalists in the form of loans and in the proportions required by the technical requirements of production and by the state of the market. This ensures extreme mobility of capital, which can easily move from one productive branch to another, and thus a prodigious acceleration in the speed of capital circulation. Capital is thus stripped of its individual characteristics, as its original provenance becomes secondary. Capital thus appears, in a sense, in a pure state; on a social scale, it imposes itself as the supreme, anonymous, and unique power, feeding indiscriminately on the exploitation of the entire wage-earning class and ensuring the privileges of other classes, and first and foremost the ruling class, only to the extent that they are the effective agents of its accumulation.

‘In the money-market (market for money-capital, ed.) only lenders and borrowers face one another. The commodity has the same form – money. All specific forms of capital in accordance with its investment in particular spheres of production or circulation are here obliterated. It exists in the undifferentiated homogeneous form of independent value – money. The competition of individual spheres does not affect it. They are all thrown together as borrowers of money, and capital confronts them all in a form, in which it is as yet indifferent to the prospective manner of its investment. It obtains most emphatically in the supply and demand of capital as essentially the common capital of a class – something industrial capital does only in the movement and competition of capital between the various individual spheres. On the other hand, money-capital in the money-market actually possesses the form, in which, indifferent to its specific employment, it is divided as a common element among the various spheres, among the capitalist class, as the requirements of production in each individual sphere may dictate. Moreover, with the development of large-scale industry, money-capital, so far as it appears on the market, is not represented by some individual capitalist, not the owner of one or another fraction of the capital in the market, but assumes the nature of a concentrated, organised mass, which, quite different from actual production, is subject to the control of bankers, i.e., the representatives of social capital. So that, as concerns the form of demand, loanable capital is confronted by the class as a whole, whereas in the province of supply it is loanable capital which obtains en masse’ ⁽³²⁾.

The credit system, embodied by the bank, is therefore one of the most powerful levers of capitalist accumulation. As Marx says,

‘[Would] capitalist production in its present volume would be possible without the credit system (...) that is, with the circulation of metallic coin alone[?] Evidently this is not the case. It would rather have encountered barriers in the volume of production of precious metals’ ⁽³³⁾.

Capitalist credit finds its foundation in commercial credit and deposit-based lending, organised by the banking system, the latter multiplying their power by the mere fact of the centralisation it brings about. But the role of the bank is not limited to this somewhat technical function. It also acts as a direct economic agent and no longer merely as an intermediary. Its activity as the ‘cashier’ of the bourgeois class naturally requires it to possess capital of its own, just like any other capitalist enterprise, capital which grows through profits deriving from the exercise of the specific functions of banking, but which is ultimately nothing more than a fraction of the surplus value relinquished to its ‘cashier’ in the form of various interest payments by the entrepreneurial class. With this profit, the bank will proceed to expanded accumulation, i.e. it will reinvest it in its own sphere, using it in turn as loanable capital. But there is more. Already technically specialised in the management of credit whose substance originates outside its own sphere of activity and which it merely manages, the bank will also grant credit directly, this time on the basis of its own specific activity. This is indeed, as Marx says, credit raised to the highest power, insofar as what now comes directly into play is the financial power of the bank itself. However, this power is based on the centralised management of social credit: while deposit-based lending was based on an economic circuit already completed and commercial credit on a circuit in the process of completion, bank credit comes to crown the edifice of credit itself: it is in fact credit based on economic activity that has already developed on the basis of credit.

Bank credit therefore differs from commercial credit. In the latter case, the bank’s involvement was limited to officially transforming an instrument of commodity circulation, the bill of exchange, into money, which had already practically demonstrated its monetary characteristics within the sphere of circulation: the banknote could replace the bill of exchange since both were, in essence, money. In bank credit proper, on the other hand, it is the bank itself that directly creates money, without relying on any guarantee other than the credit that its activity has enabled it to enjoy; no deposit of any kind can be invoked as the basis for bank credit, since the bank lends without cover:

‘Instead of a paper note, the bank may open a credit account for A, in which case this A, the bank’s debtor, becomes its imaginary depositor. He pays his creditors with cheques on the bank, and the recipient of these cheques passes them on to his own banker, who exchanges them for the cheques outstanding against him in the clearing house ⁽³⁴⁾. In this case no mediation of notes takes place at all, and the entire transaction is confined to the fact that the bank settles its own debt with a cheque drawn on itself, and its actual recompense consists in its claim on A. In this case the bank has loaned a portion of its own bank capital, because its own debt claims, to A’ (Capital, Book III, Section 5, Chap. XXVIII).

For the sake of simplicity, we can consider that scriptural money (credit balances in current accounts or similar) is representative of this money issued directly by banks. We have already mentioned above that its volume tends to grow continuously and that it progressively supplants other forms of money (banknotes and fractional currency): in France in 1965, scriptural money accounted for 63 per cent of total monetary circulation; in Great Britain and Italy it accounted for 80%, and in the United States 87%. Credit cards, whose use tends to spread even into retail trade itself, are in a sense part of this type of money.

One might ask, as was done for the banknote, whether scriptural money truly is money in the proper sense. To answer this question, we will use the same method as before, i.e. we will briefly analyse banking practice in this area ⁽³⁵⁾.

Scriptural money would not be money in the strict sense if it represented an equal amount of other types of money held in deposits and therefore not used directly: it would then be simply monetary tokens, like the tokens or representatives of gold studied above. But how is the issuance of scriptural money regulated? Banks constantly receive deposits of all kinds, which we will simplify by treating as deposits in banknotes. Far from keeping these banknotes in their vaults and opening current accounts limited to the total amount of their actual cash holdings, banks instead allocate a large proportion of these cash holdings (75 to 80% in normal times) to granting various types of credit, the remainder (20 to 25% of cash holdings) being kept to meet cash obligations. Let us therefore suppose that a bank has received 1,000 francs in banknotes on deposit and observes the rule of a 20% coverage of the credit it grants. Its balance sheet will then be as follows:

It is clear that an additional money supply of 800 francs has indeed been created, given that depositors can continue to use, for example by means of cheques, the 1,000 francs they deposited, while borrowers now have 800 francs at their disposal, representing a bank credit that cannot be said to be guaranteed by the 1,000 francs in deposits. At the level of the banking system as a whole, the process will amplify. Indeed, the debtors of the considered bank will use the credit obtained to pay off previous debts or settle new purchases; in all cases, the amount of their loan will eventually flow back into a bank (or even to the bank that originally granted the loan), which, in turn, will use 80% of this deposit to grant new loans. A table can be drawn up to summarise these different monetary movements that follow on from one another:

The excess money created in this way can be mathematically calculated when the phenomenon has run its course, i.e. when the initial deposit of 1,000 francs in a given bank is fully distributed throughout the banking system through new deposits and new loans. This gives a total of 4,000 francs, to which the initial 1,000 francs must be added; therefore, in theory, a deposit of 1,000 francs in banknotes in a given bank results in a total of 5,000 francs within the banking system as a whole. In practice, this estimate must be adjusted to take into account the fact that part of this money supply will not flow back into the banking system but will continue circulating as banknotes. This leads to the calculation of what is called the credit multiplier coefficient: if the loan coverage ratio is, as we have assumed, 20% (1/5), this coefficient is 4, which means that any deposit in a bank sees its amount multiplied by the number 4 ⁽³⁶⁾, in the form of available scriptural money and across the banking system as a whole.

‘The deposits themselves play a double role. On the one hand (...) they are loaned out as interest-bearing capital and are, therefore, not in the safes of the banks, but figure merely on their books as credits of the depositors. On the other hand, they function merely as such book entries, in so far as the mutual claims of the depositors are balanced by cheques on their deposits and can be written off against each other. In this connection, it is immaterial whether these deposits are entrusted to the same banker, who can thus balance the various accounts against each other, or whether this is done in different banks, which mutually exchange cheques and pay only the balances to one another.

‘With the development of interest-bearing capital and the credit system, all capital seems to double itself, and sometimes treble itself, by the various modes in which the same capital, or perhaps even the same claim on a debt, appears in different forms in different hands. The greater portion of this “money-capital” is purely fictitious. All the deposits, with the exception of the reserve fund, are merely claims on the banker, which, however, never exist as deposits. To the extent that they serve in clearing-house transactions, they perform the function of capital for the bankers – after the latter have loaned them out. They pay one another their mutual drafts upon the non-existing deposits by balancing their mutual accounts (...) everything in this credit system is doubled and trebled and transformed into a mere phantom of the imagination (...)’ (Capital, Book III, Part 5, Chap. XXIX).

Scriptural money, this credit money in the strict sense of the term, is therefore indeed money in its own right, since it fulfils the functions of money, just like the banknote based on the monetisation of commercial claims. The phenomenon of ‘dematerialisation’, which we have followed step by step from paper money, a simple gold token, reaches its ultimate stage here: money is reduced to a set of entries in a ledger and thus tends to become a pure instrument of circulation. It is essential to understand that this phenomenon in no way constitutes an additional difficulty with regard to the Marxist theory of money, but on the contrary confirms the validity of a law that it took great care to identify from the outset, i.e. from the study of money in the simple circulation of commodities. Similarly, it is quite obvious that the proper functioning of the generalised credit system presupposes that not all the monetary liquidity created is used simultaneously (in other words, that not all depositors demand repayment of their deposits at the same time), under penalty of forcing the bank into bankruptcy. Here we find, albeit in a new form, the necessary phenomenon of hoarding that also appeared in the study of the simple circulation of commodities. Credit money must therefore comply, like all money, with the laws of monetary circulation as such, but the specialisation of banks and the relatively autonomous nature of their activity, which proceeds somewhat in a closed circuit, greatly facilitate the normal operation of these laws. The banking system and generalised credit represent, in sum, the optimal adaptation of money to the functions it must fulfil in the capitalist economy – which, as we shall see, far from allowing the contradictions of the capitalist mode of production to be overcome, allows them instead to play out more freely, on a larger scale and in the most radical manner ⁽³⁷⁾.

The analysis of the different forms of credit has shown us how they successively generate each other, interpenetrate and mutually support one another, to such an extent that it is impossible to distinguish the distinct sources of generalised credit where the system has reached its maximum development. This constitutes a unity, managed by a hierarchical and apparently autonomous body, the Bank. The progression of credit leads it to increasingly hermetic forms: while commercial credit remains perfectly understandable, since it is based directly on the circulation of tangible commodities, the bank’s role as an intermediary between lenders and borrowers is already more complex in that the simple addition of small sums of money gives them the capacity, which they do not possess on their own, to play the role of money-capital capable of transforming into productive capital; as for bank credit in the strict sense, it appears to be completely devoid of any material basis, since it embodies a mode of credit that is itself based on the existence of simpler forms... of credit. The awareness that the agents of capital have of their own mode of production reaches the height of illusion here, the banking system and the credit it dispenses appearing to them as the primary cause of all economic movement, a kind of magic lever capable of lifting at will the profane world of the production and circulation of commodities. Hence the temptation to seek in the monetary and banking sphere the key to the mysteries of the capitalist economy and the pretension to overcome its disorders by an appropriate organisation of the latter ⁽³⁸⁾.

It is therefore important to consider the economic structure as a whole, without forgetting its foundations. The autonomy of the banking system is, of course, quite relative, and its functioning remains determined by phenomena occurring in the sphere of production and circulation, to which, however, the bank in turn reacts. What is the basis of the credit system, indeed, if not the production and exchange of commodities? What is its fundamental function, if not to maximise productive and commercial activity by removing all obstacles that stem not from the capitalist nature of production and exchange – something obviously beyond the reach of the bank, as it is a capitalist institution – but from the need for capital to undergo a series of metamorphoses in order to fully traverse the phases of its valorisation process? All the limitations arising from the fact that capital must necessarily take the form of money-capital at a given moment ⁽³⁹⁾ are overcome by the organisation of credit. Thus, in periods of ‘normal’ capital accumulation, credit makes it possible to bend the laws of the money economy to the requirements of the capitalist economy. But its action stops there. All the credit in the world cannot set into motion machines that have not been built, the labour power of workers who are not of working age or fit to work, or sell commodities that have not yet been produced ⁽⁴⁰⁾. All credit can do is maximise the use of existing means of production and, to a certain extent, the means of purchase, the solvent demand available at a given moment – and it does so by mortgaging future production and circulation.

‘The maximum of credit is here identical with the fullest employment of industrial capital, that is, the utmost exertion of its reproductive power without regard to the limits of consumption. These limits of consumption are extended by the exertions of the reproduction process itself. On the one hand, this increases the consumption of revenue on the part of labourers and capitalists, on the other hand, it is identical with an exertion of productive consumption’ (Capital, Book III, Section V, Chap. 30).

But if the credit economy thus seems to free itself from the laws of the money economy that nevertheless served as its basis, this is in fact only an appearance, since credit money is itself simply money. This character of money manifests itself most brutally in times of crisis, during which the credit system seems to stall, giving way to the basic operation of monetary laws that it had supplanted during the boom. Indeed, while it allows for extensive use of productive forces and, to a lesser extent, an immediate expansion of demand based on the anticipated use of means of payment whose future appearance can reasonably be expected, credit in no way eliminates the fundamental contradiction of capitalist production, namely the fact that production and circulation, or, if you will, the consumption, of commodities obey laws of a completely different and even opposite nature. The expansion of production is imposed by the necessities of capital accumulation, which derive from the very nature of capital as a productive force; it therefore knows no intrinsic limit. By contrast, the expansion of the market comes up against limits, not of human needs, which capital does not care about, but of solvent demand, which cannot expand at the same pace. By eliminating the secondary causes of crisis that arise from the contradictions manifesting themselves between the different forms of capital itself (money-capital and productive capital), credit prodigiously increases the force of the fundamental antagonism of the capitalist mode of production by allowing it to play out, as it were, in all its purity. Credit could only align the growth of solvent demand with that of production by negating itself, that is, by eliminating the private character of the appropriation of products. Therefore, if the generalisation of credit delays the onset of crisis, it does so only in order to increase its intensity ⁽⁴¹⁾.

In times of crisis, the antagonism between capitalism’s social mode of production and its private mode of appropriation manifests itself first and foremost as a separation between production and circulation of commodities. ‘Business’ slows down, but at the same time commercial credit dries up and, as a result, credit as a whole.

‘As long as the reproduction process is continuous and, therefore, the return flow assured, this credit exists and expands, and its expansion is based upon the expansion of the reproduction process itself. As soon as a stoppage takes place, as a result of delayed returns, glutted markets, or fallen prices, a superabundance of industrial capital becomes available, but in a form in which it cannot perform its functions. Huge quantities of commodity-capital, but unsaleable. Huge quantities of fixed capital, but largely idle due to stagnant reproduction. Credit is contracted 1) because this capital is idle, i.e., blocked in one of its phases of reproduction because it cannot complete its metamorphosis; 2) because confidence in the continuity of the reproduction process has been shaken; 3) because the demand for this commercial credit diminishes. The spinner, who curtails his production and has a large quantity of unsold yarn in stock, does not need to buy any cotton on credit; the merchant does not need to buy any commodities on credit because he has more than enough of them’. (Capital, Book III, Part V, Chap. 30).

In this crisis situation, we are witnessing a paradoxical return to the old monetary system, whose disadvantages from the capitalist point of view are all suddenly forgotten. Credit money fulfilled to the highest degree the function of means of circulation and was practically identified with it. Now, however, circulation finds itself blocked. What is demanded on all sides is therefore a means of hoarding, money in the strong sense, the embodiment of abstract wealth, the general equivalent. Individuals rush towards gold, which will obviously never be available in sufficient quantities, precisely because the development of credit money made it possible to do without it altogether, while the banks, which, only yesterday, reduced their safety reserves to a minimum, hoard in their own way by refusing the granting of new credit.

‘Credit, likewise a social form of wealth, crowds out money and usurps its place. It is faith in the social character of production which allows the money-form of products to assume the aspect of something that is only evanescent and ideal, something merely imaginative. But as soon as credit is shaken – and this phase of necessity always appears in the modern industrial cycle – all the real wealth is to be actually and suddenly transformed into money, into gold and silver – a mad demand, which, however, grows necessarily out of the system itself. And all the gold and silver which is supposed to satisfy these enormous demands amounts to but a few millions in the vaults of the Bank. Among the effects of the gold drain, then, the fact that production as social production is not really subject to social control, is strikingly emphasised by the existence of the social form of wealth as a thing external to it. The capitalist system of production, in fact, has this feature in common with former systems of production, in so far as they are based on trade in commodities and private exchange. But only in the capitalist system of production does this become apparent in the most striking and grotesque form of absurd contradiction and paradox, because, in the first place, production for direct use-value, for consumption by the producers themselves, is most completely eliminated under the capitalist system, so that wealth exists only as a social process expressed as the intertwining of production and circulation; and secondly, with the development of the credit system, capitalist production continually strives to overcome the metal barrier, which is simultaneously a material and imaginative barrier of wealth and its movement, but again and again it breaks its back on this barrier. In the crisis, the demand is made that all bills of exchange, securities and commodities shall be simultaneously convertible into bank money, and all this bank money, in turn, into gold’ ⁽⁴²⁾.

Of course, the above is by no means an explanation of crises, which is beyond the scope of our subject, but simply a description of their effects at the level of the monetary and banking system. This ‘sudden change of the credit system into a monetary system’ obviously blocks credit, but, precisely insofar as it gives rise to a phenomenon of hoarding of the general equivalent, it marks the beginning of a new phase of credit economy that can develop again once the general crisis has been absorbed. From this point of view, the financial aspects of crises appear as measures to safeguard future money and credit, as a barbaric sacrifice to the god of abstract wealth at the expense of real wealth. The capitalist mode of production itself acknowledges its failure by proclaiming: ‘Let commodities and even productive capital perish, provided that the money-fetish is saved!’.

‘It is a basic principle of capitalist production that money, as an independent form of value, stands in opposition to commodities, or that exchange-value must assume an independent form in money; and this is only possible when a definite commodity becomes the material whose value becomes a measure of all other commodities, so that it thus becomes the general commodity, the commodity par excellence – as distinguished from all other commodities. This must manifest itself in two respects, particularly among capitalistically developed nations, which to a large extent replace money, on the one hand, by credit operations, and on the other by credit-money. In times of a squeeze, when credit contracts or ceases entirely, money suddenly stands as the only means of payment and true existence of value in absolute opposition to all other commodities. Hence the universal depreciation of commodities, the difficulty or even impossibility of transforming them into money, i.e., into their own purely fantastic form. Secondly, however, credit-money itself is only money to the extent that it absolutely takes the place of actual money to the amount of its nominal value. With a drain on gold its convertibility, i.e., its identity with actual gold becomes problematic. Hence coercive measures, raising the rate of interest, etc., for the purpose of safeguarding the conditions of this convertibility. This can be carried more or less to extremes by mistaken legislation, based on false theories of money and enforced upon the nation by the interests of the money-dealers, the Overstones and their ilk. The basis, however, is given with the basis of the mode of production itself. A depreciation of credit-money (not to mention, incidentally, a purely imaginary loss of its character as money) would unsettle all existing relations. Therefore, the value of commodities is sacrificed for the purpose of safeguarding the fantastic and independent existence of this value in money. As money-value, it is secure only as long as money is secure. For a few millions in money, many millions in commodities must therefore be sacrificed. This is inevitable under capitalist production and constitutes one of its beauties. In former modes of production, this does not occur because, on the narrow basis upon which they stand, neither credit nor credit-money can develop greatly. As long as the social character of labour appears as the money-existence of commodities, and thus as a thing external to actual production, money crises – independent of or as an intensification of actual crises – are inevitable’. (Capital, Book III, Part V, Chap. 32).

Marx addresses this question in several passages of unparalleled dialectical force; we will quote some of them at length by way of conclusion. Our aim is quite clear: to illustrate, through this particular example, the overwhelming superiority of historical materialism, not only over the mediocre systems of the ‘neo-capitalist’ reformers and the bourgeois socialism of the official ‘communists’, whose limited reformist imagination can produce nothing but a pale, idealised copy of real capitalism, but also and perhaps above all, over the constructions as ‘generous’ as they are sterile of that host of ‘immediatists’, workerists, democrats and self-management advocates, whose verbal radicalism does not enable them to rise even slightly above a miserably corporatist, provincial, and therefore sub-bourgeois conception of what will be the most formidable revolution in human history. All these narrow conceptions are merely ideological reflections of the decadence of a class condemned by history, but forced to move forward by the nature of its own mode of production, or even of the immaturity of the proletariat, which has not yet freed itself from the consequences of its class defeat in the first post-war period (and only an upheaval in material relations will allow it to escape them, to return to a real struggle and make revolutionary theory its weapon). Faced with these conceptions, dialectical materialism asserts itself as the sole class doctrine. Breaking radically with all utopian dreams or the ratiocinations of ideology, it allows for a real and thereby fruitful understanding of the entire historical movement; it reveals the necessity of a revolution in the prevailing mode of production and discovers, rather than invents, the meaning, scope, and paths of this revolution.

The capitalist mode of production sinks its roots in the commodity economy that historically preceded it. However, while it uses production relations that appeared before it and whose existence made its own development possible, this does not occur without a profound modification of this historical heritage, as we have seen in the case of money. Capitalism incorporates these earlier relations of production, perfects them, modifies their form sufficiently so that they become auxiliaries subject to its own, albeit contradictory, requirements. This is how we move from metallic money (means of commodity circulation in an economy where the products of human labour only exceptionally take the form of commodities) to the most complex forms of credit money in an economy where not only does every product take the form of a commodity, but where the circulation of commodities itself is no more than the support of the circulation of capital, the supreme aim of all economic activity.

The development of the capitalist mode of production necessarily entails the expansion of the credit system. It is in fact thanks to the banking system that capital can massively reduce the costs entailed by its own circulation, thanks to it that it becomes a unique social power, beyond the particularities of individual capitals, without, however, this ending the competition of these capitals among themselves – quite the contrary. Organised and centralised credit prodigiously accelerates the different phases of the circulation of capital and is therefore a decisive means of endlessly increasing the power of the productive forces, of expanding the accumulation of capital under the best conditions. Furthermore, the existence of the credit system amounts to a kind of recognition by bourgeois society of the social character of the productive forces it sets in motion. But this recognition is only partial: it eliminates private capital only in favour of socialised capital; it therefore cannot eliminate the major contradiction that derives precisely from the capitalist character of the productive forces; as before, just as after, bourgeois society remains incapable of adapting to the social nature of its mode of production. Seen from this perspective, the generalised credit system appears as the antechamber of socialism or at least as the tangible sign, within capitalist society itself, of the historical necessity for a new mode of production fully recognising the social character of the productive forces and bringing into harmony with it the mode of appropriation of products.

‘The capital, which in itself rests on a social mode of production and presupposes a social concentration of means of production and labour-power, is here directly endowed with the form of social capital (capital of directly associated individuals) as distinct from private capital, and its undertakings assume the form of social undertakings as distinct from private undertakings. It is the abolition of capital as private property within the framework of capitalist production itself (...) Transformation of the actually functioning capitalist into a mere manager, administrator of other people’s capital, and of the owner of capital into a mere owner, a mere money-capitalist (...) This result of the ultimate development of capitalist production is a necessary transitional phase towards the reconversion of capital into the property of producers, although no longer as the private property of the individual producers, but rather as the property of associated producers, as outright social property. On the other hand, the stock company is a transition toward the conversion of all functions in the reproduction process which still remain linked with capitalist property, into mere functions of associated producers, into social functions’ (Capital, Book III, Part V, Chap. 27).

‘[T]he average profit of the individual capitalist, or of every individual capital, is determined not by the surplus-labour appropriated at first hand by each capital, but by the quantity of total surplus-labour appropriated by the total capital, from which each individual capital receives its dividend only proportional to its aliquot part of the total capital. 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 (...) [T]here is no doubt that the credit system will serve as a powerful lever during the transition from the capitalist mode of production to the mode of production of associated labour; but only as one element in connection with other great organic revolutions of the mode of production itself’ (Capital, Book III, Part V, Chap. 36).

This, it seems to us, is sufficient to drive back into their holes all the petty ideologues who present socialism either as ‘the abolition of private ownership of the means of production’ through nationalisation (thus claiming, in the name of the proletariat, what capitalism achieves on its own, with or without legal intervention by the State!); or as a kind of federation of autonomous workers’ cooperatives based on existing capitalist enterprises, but rid of the more-than-secondary figure of the ‘boss’. However, such an economy is not only unrealistic, but would be inferior to capitalism itself from the point of view of the socialisation of the productive forces. In contrast to these shoddy ‘socialisms’, scientific socialism, far from dreaming up a beautiful utopia, consciously expresses the real movement that the development of the contradictions of the capitalist mode of production imposes on society, and thus also the solution that arises from the dynamics of these contradictions.

This solution can only lie in the full recognition of the social character of production, and one would have to be strangely myopic not to see, in the midst of the 20th century, that, on pain of regression relative to capitalism itself, it can only consist of the human species taking direct control of the productive forces, an act that presupposes the radical destruction of the capital character that history imposed upon them for a time, and which will lead to the gradual disappearance of any economy founded on the exchange of products ⁽⁴³⁾. It will take time and will necessarily take place on a global scale; but if the gravedigger of the old society, the State of the dictatorship of the proletariat, will have to come to terms with a more or less lasting persistence of economic exchange, the first radical measure it will take in the economic sphere, as soon as the imperative necessities of the international class struggle allow it do so, will be, as Marx forcefully stated in his Critique of the Gotha Programme, to abolish the money-fetish once and for all.