CHAPTER XXIII.

Credit and Banks.
(Extracted from vol. HI. part 1. ch. 1«. 25, '11. vol. Ill, part 2. ch. 2l>. German ed.)
The capitalist has constantly to pay money to a large number of persons, and has also constantly to receive money in payment from a large number. The technical operations of paying and receiving money are in themselves labour which produces ho value and which must be reckoned among the costs of circulation. In addition, a definite part of the capital must always be available as treasure: a resei means of purchase and payment, unemployed capital await- ing employment in the form of money. This renders be- sides receiving and paying money, and bookkeeping - a storing of the treasure necessary; which, in turn, constitutes a special kind of labour.
These purely technical processes of development, through which money has to pass — and the labour and costs which arise therefrom — are shortened by the fact that they are carried out by a particular section of agents or capitalists, on behalf of the whole capitalist class. Through the pro- cess of division of labour they become the special function of a section of capitalists, and hence (just as in the case of commercial capital) are concentrated, and take place on a
7 lie City, or the 1'hysioi in London.
CREDIT AND BANKS. 253
large scale. Within this particular process, again, we find division of labour; which manifests itself alike in the consti- tution of heterogeneous branches, ^ independent of one an- other; and also in the development of the workshop within 'each of these branches: payment and reception of money, balancing of accounts. bookkeeping, deposits, &c.
We have already shown how money originally develops in the process of barter between communities. The money trade, /. e. the trade in the money commodity, develops at first, therefore, out of international intercourse. As soon as different coinages exist in different countries, the mer- chants who buy abroad must change their local coin for the coin of the country with which they are dealing, and vice versa; or else various coins must be exchanged for un- coined silver and gold, the world money. Hence we may consider exchange as one of the main foundations of the modern trade in money.1 Out of exchange discount banks develop, in which silver or gold in their capacity as world money — now as bank or trade money — function in con- tradistinction to current' coinage.
This exchange business, this trade in money, is one of of the causes that gave rise to the development of credit. The detailed study of credit and of the instruments employed by it (credit money etc.) does not lie within our purpose. Only a few points need here be dwelt on, because they are characteristic of the capitalist system of production. We have to deal only with commercial and banking credit. The connection between their development and that of public cre- dit will not be discussed. In chapter XVI (p. 1Q2) we have already shown hov/ the function of money as medium of payment develops out of the simple circulation of commodi- ties, and how relations as between creditor and debtor are formed between the producers of, and the dealers in, commo-
i «The necessity of employing- everywhere Ihe local coinage in com- mercial transactions, in which a settlement by means of coin was indis- pensable, arose from the great divergency of the coinages of the numerous princes and towns authorised to coin money, in respect of their standard of value. In order to effect cash payments, the merchants, when travelling to foreign markets, provided themselves with pure, uncoined silver and also with gold. In the same way, pn starting on their return journey, they changed the local money paid over to them into uncoined silver or gold. The exchange of uncoined precious metal for local coinage, and vice versa, was thus a widespread and lucrative form of business-. (Hullmann, Stadte- wesen des Mittelalters, Bonn 1826—29, vol I, p 437 )
254 \PTER \\lll.
dities. «One sort of commodity requires a longer, another a shorter time for its production. Again, the production of different commodities depends on different seasons of the year. One sort of commodity may be born on its own mar- ket-place, another has to make a long journey to market.' Commodity-owner No. 1 may therefore be ready to sell, be- fore No. 2 is ready to buy. When the same transactions are continually repeated between the same persons, the condi- tions of sale are regulated in accordance with the conditions of production. On the other hand, the use of a given commo- dity, of a house for instance, is sold for a definite period. Here, it is only at the end of the term that the buyer has actually received the use-value of the commodity. He there- fore buys it before he pays for it. The vendor becomes a creditor, the purchaser becomes a debtor.»
With the development of trade and of the capitalist sys- tem of production, which only produces in view of circula- tion, the basis of credit is enlarged, elaborated, and univer- salised. On the whole, money here functions only as means of payment, /. e. the commodity is not sold for cash but for a written promise to pay at a certain date. (For the sake of convenience we shall designate all such promises of pay- ment as bills of exchange). Until maturity, these bills them- selves circulate as means of payment and form trade money (or commercial money) properly so-called.
«In every country the majority of credit transactions take place in the sphere of industry itself . . . The producer of the raw material advances the latter to the manufa who works it up, and receives from him a promise t on a given day. The manufacturer, having completed his part of the work, advances in its turn the commodity on simi- lar conditions to another manufacturer, who elaborates it further, and thus credit extends over an ever wider area, from one person to another as far as the consumer. The wholesale dealer advances commodities to the retail h man, whereas the former receives advances from the manu- facturer or the commissioner. Everyone borrows with the one hand and lends with the other, sometimes money, but more often products. Thus, in the world of industry, an incessant exchange of advances takes place, which com- bine and clash with one another in all directions. It is pre- cisely in the diversity and growth of these mutual advances
CREDIT AND BANKS. 255
that the development of credit resides, and here is the real source of its power.*1
The other aspect of credit is connected with the develop- ment of the trade in money, which in capitalist production naturally keeps pace with the development of the trade in commodities. The storing of the reserve funds of the busi- ness world, the technical operations of receiving and paying out money, the international payments, and consequently the bullion trade, become concentrated in the hands of the money dealers.
«The cashier receives from the tradespeople who utilise his services, a certain sum of money, in return for which he opens them a in his books. They send him, further, their claims for the sums due to them, which sums he collects and places to their credit; on the other hand, he makes payments for them conformably with their instruc- tions, and debits their current account for the amount. For these services he demands a small remuneration, which, how- ever, can afford adequate compensation for his work only in the measure of the extent and magnitude of his opera- tions. If payments have to be balanced between two trades- men working with one and the same cashier, such payments can very easily be effected by reciprocal bookings, whereas the cashiers, from day to day, adjust their reciprocal claims for them». (Vissering, Handboelt van praktische Siaatshuis- houdkunde, Amsterdam, 1860, vol. I, p. 247).
«In view of 1he need resulting from local conditions in Venice, where the carrying of cash is more inconvenient than it is elsewhere, the wholesale merchants of that city founded associations of depositors^. The members of such associa- tions deposited certain sums under ihe requisite guarantees of security, control and administration; they gave their cre- ditors payment-orders; whereupon the sum paid was debited lo the debtor's account in the book kept for this purpose, and credited to the account of the creditor. The first be- ginnings 'A deposit and clearing banks». (HuHmann, Stadtewejen des Mittelalters, Bonn 1826—29, vol. I, p. 559.)
The administration of capital bearing interest, or money capital, develops in connection herewith into a special func- tion of the money dealers. Borrowing and lending money
i Coquelin, Le credit ^ les banques dans Vindustric, in Revue des Deux Mondes, 1842.
256
becomes their speciality. They serve as intermediaries be- tween the real lender and the borrower of money capital. Expressed in general terms, banking business, from this point of view, consists in concentrating the loanable capital in large quantities in the hands of the bankers, so that in- stead of the individual moneylender, the bankers appear as the representatives of the totality of moneylenders, on the one hand, facing the industrial and the commercial capita- lists, on the other. They become the universal administra- tors of money capital. Inversely they concentrate the borrow- ers, in regard to the totality of moneylenders, by borrow- ing for the entire commercial world. In general their pro- fit consists in borrowing at a lower rate of interest than they lend.
The banks obtain possession of the loanable capital at their disposal in various ways. At first the money capital which every producer and tradesman has in reserve, or which is paid him, is concentrated in their hands by reason of the fact that they are the cashiers of the industrial capi- talists. In this way, the reserve fund of the trading world, being concentrated in common, is limited to the necessary minimum; and part of the money capital, which would other- wise lie idly in reserve is paid out in loans. Secondly, the loanable capital at the disposal of the banks is formed by the cash deposits of the money capitalists, who entrust the task of lending to them. Thirdly, as soon as the banks be- gin paying interest on deposits, the savings of all classes and all the money momentarily unemployed are deposited with them. Small sums, each of which is in itself unable •to function as money capital, are gathered together in large quantities and thus constitute a financial power. Fourthly, incomes which are but gradually consumed, are deposited with the banks.
The loans are made by discounting the hills of exchange /. c. by paying in cash before they an- due tlie amount lhe\ represent and by means of advances in sundry shapes: direct loans on personal credit, loans on the security of pa b! all sorts bearing interest, especially of certificates of ownership of commodities, etc.
It is clear that the moue\ capital with which the bank.-.
none other than the capital in circulation of merchants
and industrial undertakers; ;md that the operations under-
CREDIT AND BANKS. 257
taken by the banks are simply the operations of such mer- chants and undertakers, for which the banks serve as inter- mediaries. -
It is equally clear that their profit is but a deduction from the surplus-value, since they only deal with values already realised -- even if merely in the shape of debt claims. - Part of the technical operations connected with the circulation of money must be carried out by the trades- people and producers themselves.
The general observations made so far by us in the course of our study of credit were the following: