The amount of money that gets turned back into capital in this way comes out of a reproduction process running on a mass scale. But take that money by itself, as money capital available for loan, and it is not itself a mass of reproductive capital.
The most important thing in what we have set out so far is this: when the part of revenue meant for consumption grows, that first presents itself as an accumulation of money capital. (We leave the worker out of the picture here, because his revenue equals the variable capital.) So something enters the accumulation of money capital that is essentially different from the real accumulation of industrial capital — because the part of the year's product meant for consumption never becomes capital in any way at all.
A part of it does replace capital, namely the constant capital of the people who produce means of consumption. But to the extent that it really does turn into capital, it exists as goods — in the natural form of the revenue of the producers of that constant capital. The same money that stands for revenue, that does nothing but carry consumption along, regularly turns into loanable money capital for a while. Where this money stands for wages, it is at the same time the money form of variable capital; and where it replaces the constant capital of the producers of means of consumption, it is the money form that their constant capital temporarily takes on, and it serves to buy the natural elements of that constant capital as they are replaced. In neither form does it in itself express accumulation, even though its mass grows with the scale of the reproduction process. But for a time it does the job of loanable money, that is, of money capital.
On this side, then, the accumulation of money capital must always mirror a bigger accumulation of capital than is really there — because the growth of individual consumption, being mediated by money, shows up as an accumulation of money capital, since it supplies the money form for real accumulation, for money that opens up new capital investments.
So the piling up of loanable money capital partly says nothing more than this: all the money that industrial capital turns into as it goes round its circuit takes the form of money the reproductive agents borrow, not money they put up themselves. So the advance of money that has to happen in the reproduction process really shows up as an advance of borrowed money. In fact, on the basis of commercial credit, one of them lends the other the money he needs in the reproduction process. But this takes the form that the banker, to whom one group of the reproductive agents lends it, lends it on to the other group — and so the banker appears as the benefactor. At the same time, control over this capital ends up entirely in the hands of the bankers as middlemen.
There are still a few special forms of this accumulation of money capital to set out. Capital is set free, say by a fall in the price of the elements of production, raw materials and so on. If the industrialist cannot expand his reproduction process straight away, part of his money capital is thrown out of the circuit as superfluous and turns into loanable money capital. Second, capital is released in money form — with the merchant especially — as soon as business is interrupted. If a merchant has worked through a run of deals and cannot start a new run until later because of such interruptions, the money he has realized is for him nothing but a hoard, surplus capital. But at the same time it directly amounts to an accumulation of loanable money capital.
In the first case, the accumulation of money capital means that the reproduction process is being repeated under more favourable conditions, that a part of capital previously tied up has genuinely been freed — so the same money can expand the reproduction process. In the other case, on the other hand, it means nothing but an interruption in the flow of transactions. But in both cases the money turns into loanable money capital, amounts to an accumulation of it, and works in the same way on the money market and the rate of interest — even though in the one case it means real accumulation is being promoted, and in the other that it is being held back.
Finally, an accumulation of money capital is brought about by the number of people who have feathered their nests and drawn back from reproduction. The more profit has been made over the course of the industrial cycle, the more of them there are. Here the accumulation of loanable money capital expresses, on the one hand, real accumulation (as far as its relative size goes); and on the other hand, nothing more than this: the extent to which industrial capitalists turn into nothing but money capitalists.
Take the other portion of the profit — the portion not intended to be consumed as revenue. It turns into money capital only when it cannot be put to use straight away in widening the business within the sphere of production that yielded it. Two reasons can lie behind this. Either that sphere already holds all the capital it can take. Or the accumulation must first reach a certain size before it can serve as capital, in line with the proportions that new investment requires in this particular business. So it changes first into loanable money capital and helps production expand in other branches. With all other circumstances assumed unchanged, the amount of profit meant for conversion back into capital will depend on the amount of profit made, and therefore on how far the reproduction process itself has expanded. But if this new accumulation runs into trouble when it is put to use — no openings for investment, branches of production overfull, loan capital supplied beyond demand — then this glut of loanable money capital proves nothing but the limits of capitalist production. The credit swindling that follows shows that no positive obstacle blocks the employment of this excess capital. There is an obstacle nonetheless, thanks to its own laws of valorization, thanks to the limits within which capital can valorize itself as capital. A glut of money capital as such does not necessarily mean overproduction, nor even a lack of fields of employment for capital.
The accumulation of loan capital simply means that money settles out as money available for lending. This process is very different from money really being turned into capital; it is only money piling up in a form in which it can be turned into capital. But as has been shown, this accumulation can stand for things that are very different from real accumulation. While real accumulation is constantly expanding, this expanded accumulation of money capital can be partly its result, partly the result of things that accompany it but are quite different from it, and partly even the result of real accumulation being blocked.
Simply because the accumulation of loan capital is swollen by such things — independent of real accumulation, yet still accompanying it — a plethora of money capital must regularly occur at certain phases of the cycle, and this plethora develops along with the credit system. And with it there must develop at the same time the necessity of driving the production process beyond its capitalist barriers: too much trade, too much production, too much credit. At the same time this must always happen in forms that provoke a reaction.
As for money capital accumulating out of ground-rent, wages and so on, there is no need to go into that here. One thing is worth stressing: the business of really saving and doing without (carried on by hoarders), in so far as it supplies elements of accumulation, is left — through the division of labour as capitalist production advances — to those who receive the minimum of such elements, and often enough lose what they have saved, as the workers do when banks fail.
For one thing, the industrial capitalist does not "save" his capital himself; it is in proportion to the size of his capital that he has other people's savings at his disposal. For another, the money capitalist makes other people's savings into his capital, and makes the credit that the reproductive capitalists give one another and that the public gives them into his own private source of enrichment. With this, the last illusion of the capitalist system — as if capital were the offspring of a person's own work and saving — goes to pieces. Not only does profit consist in the appropriation of other people's labour; the capital with which that other people's labour is set in motion and exploited consists of other people's property, which the money capitalist places at the industrial capitalist's disposal, and for which he in turn exploits him.
There are still a few things to note about credit capital.
How often one and the same piece of money can figure as loan capital depends entirely — as we have already worked out above — on the following.
(1) On how often it realizes commodity values, in a sale or in a payment — that is, transfers capital — and further on how often it realizes revenue. How often it comes into someone else's hands as realized value, whether the value of capital or of revenue, therefore plainly depends on the scale and volume of real transactions.
(2) On the economy of payments, and on the development and organization of the credit system.
(3) Finally, on the linkage of credits and the speed at which they act, so that when the money drops at one point as a deposit, it goes straight out again at another point as a loan.
Suppose the form in which the loan capital exists were nothing but that of actual money — gold or silver, the commodity whose material serves as the measure of value. Even then, a large part of this money capital is necessarily always merely fictitious: that is, titles to value, exactly like value tokens.
So far as money functions in the circuit of capital, it does form money capital for a moment. But it is not turned into loanable money capital. It is either exchanged for the elements of productive capital, or, when revenue is realized, paid out as a means of circulation — and so it cannot turn into loan capital for its owner. In so far, however, as it is turned into loan capital and the same money repeatedly represents loan capital, it is clear that it exists as metal money at one point only; at every other point it exists only in the form of a claim on capital.
On our assumption, the accumulation of these claims springs from real accumulation, that is, from the transformation of the value of commodity capital and so on into money. And yet the accumulation of these claims or titles, as such, is different both from the real accumulation it springs from and from the future accumulation — the new production process — that the lending of the money mediates.
At first sight loan capital is always present in the shape of money; later on it is a claim on money, since the money it began as now lies with the borrower in real money form. As far as the lender goes, it has changed into a claim on money, into a title of ownership. So one and the same quantity of real money can stand for widely different quantities of money capital. Plain money — no matter whether it stands for capital that has been realized or for revenue that has been realized — turns into loan capital simply by being lent out, by turning into a deposit, if we take the general form under a developed credit system. To the depositor it is money capital. In the banker's hands, though, it may be no more than potential money capital, sitting idle in his till rather than in its owner's.
As material wealth grows, so does the class of money capitalists. On the one hand, the number and the wealth of the capitalists who withdraw from business, the rentiers, grows; and on the other, the credit system is pushed further forward, and with it the number of bankers, money-lenders, financiers and so on. — As available money capital grows, so does the mass of interest-bearing paper — government paper, shares and so on, as set out earlier. But at the same time the demand for available money capital grows as well, because the jobbers who speculate in these papers play a leading role in the money market. If all the buying and selling of this paper were only the expression of real investment of capital, it would be right to say that it cannot affect the demand for loan capital: when A sells his paper, he draws out exactly as much money as B puts into the paper. But even then — the paper does exist, while the capital it originally represented does not, or at least not as money capital — it always creates new demand for that kind of money capital, to that extent. In any case, though, it is money capital that B had at his disposal before and A has at his disposal now.
B. A. 1857, no. 4886. Chapman was asked whether it is a correct account of the causes that determine the rate of discount to say that it is fixed by the quantity of capital on the market that can be applied to the discounting of commercial bills, as distinguished from other kinds of securities. Chapman: no; he held that the rate of interest is affected by all easily convertible securities (all convertible securities of a current character). It would be wrong to limit the question simply to the discount of bills; for when there is a great demand for money on (the deposit of) Consols, or even on Exchequer bills, as has been very much the case lately, and at a rate much higher than the commercial rate, it would be absurd to say that the commercial world is not touched by it. It is very materially touched by it.
4890. When sound and current securities, of the kind bankers recognize as such, are on the market and their owners want to borrow money on them, that certainly has its effect on commercial bills. A man can hardly expect to be let money at 5 per cent on commercial bills if the lender can lend his money at the same moment at 6 per cent on Consols or whatever else it may be; Chapman says it affects his own commercial world in the same way. No one can expect him to discount bills at 5 1/2 per cent if he can lend his money at 6 per cent.
4892. They do not speak of people who buy £2,000 or £5,000 or £10,000 of securities as fixed capital investments, as though such people materially affected the money market. If he is asked about the rate of interest on (a deposit of) Consols, he means people who deal in hundreds of thousands of pounds, the so-called jobbers, who take large portions of loans or buy on the market and then have to hold that stock until they can get rid of it at a profit; these men must borrow money for that purpose.
With the development of the credit system, large concentrated money markets come into being, such as London, which are at the same time the main seats of the trade in these securities. The bankers put the public's money capital at the disposal of this gang of dealers on a massive scale, and so this brood of gamblers grows.
"Money on the Stock Exchange is usually cheaper than anywhere else," said the man who was then Governor of the Bank of England in 1848, before the Lords' secret committee. (C. D. 1848, printed 1857, no. 219.)
We have already seen, in looking at interest-bearing capital, that the average rate of interest over a long stretch of years is fixed — other things staying the same — by the average rate of profit, not by the profit of enterprise. The profit of enterprise is itself nothing but profit minus interest.
It has also been said already, and will be looked at further below, that the commercial rate of interest — the rate money-lenders charge for discounting and for loans inside the world of trade — goes through a phase in the course of the industrial cycle in which it climbs above its minimum and reaches its average middle level, and then later goes above that. This movement follows from a rise in profit.
Two things, though, are to be noted here.
First: if the rate of interest stays high over a long period (and we are talking here about the rate of interest in a given country, England say, where the average rate of interest is a given over long stretches and also shows itself in the interest paid on loans for longer periods — what one might call private interest), then that is evidence, at first sight, that the rate of profit is high during that time. But it does not necessarily prove that the rate of profit of enterprise is high. That latter distinction more or less drops away for capitalists who work predominantly with their own capital: they realize the high rate of profit, since they pay the interest to themselves. A high rate of interest lasting a long time — and we are not talking here about the phase of an actual squeeze — is possible when the rate of profit is high. But it is possible that this high rate of profit, once the high rate of interest is deducted, leaves only a low rate of profit of enterprise. The latter may shrink while the high rate of profit carries on. That is possible because undertakings that have once been started have to be carried on. In this phase, business is carried on to a great extent with nothing but credit capital, other people's capital; and the high rate of profit can, in places, be speculative and prospective — counting on what is still to come. A high rate of interest can be paid while the rate of profit is high but the profit of enterprise is shrinking. And it can be paid — this is partly what happens in periods of speculation — not out of profit at all, but out of other people's borrowed capital itself, and that can go on for a while.
Second: to say that the demand for money capital is growing, and therefore the rate of interest with it, because the rate of profit is high, is not the same thing as saying that the demand for industrial capital is growing, and that this is why the rate of interest is high.
In times of crisis the demand for loan capital, and with it the rate of interest, reaches its maximum, while the rate of profit, and with it the demand for industrial capital, has as good as disappeared. At such times everyone borrows only in order to pay, to settle commitments already entered into. In times of revival after the crisis, by contrast, loan capital is demanded in order to buy, and to turn money capital into productive or commercial capital. And then it is demanded either by the industrial capitalist or by the merchant. The industrial capitalist lays it out in means of production and in labour-power.
A rising demand for labour-power can never in itself be a ground for a rising rate of interest, in so far as that rate is determined by the rate of profit. Higher wages are never a ground of higher profit, although — looking at particular phases of the industrial cycle — they can be one of its results.
The demand for labour-power can increase because the exploitation of labour is going on under especially favourable circumstances. But a rising demand for labour-power, and therefore for variable capital, does not in and of itself increase profit — it cuts it back proportionately. All the same, the demand for variable capital can grow along with it, and so can the demand for money capital, and that can raise the rate of interest. The market price of labour-power then rises above its average, more than the average number of workers is employed, and at the same time the rate of interest rises, because in those circumstances the demand for money capital rises. A rising demand for labour-power makes this commodity dear like any other; it raises its price, but not profit, which rests principally on this very commodity being relatively cheap. At the same time, however — under the circumstances we have assumed — it raises the rate of interest, because it increases the demand for money capital.
If the money capitalist, instead of lending the money out, turned himself into an industrialist, the fact that he has to pay more for labour would not in and of itself raise his profit; it would reduce it proportionately. Circumstances may be such that his profit rises all the same, but never because he pays more for labour. That last circumstance, in so far as it increases the demand for money capital, is enough to raise the rate of interest. If wages rise from whatever cause, in otherwise unfavourable conditions, the rise in wages would lower the rate of profit but raise the rate of interest, to the extent that it increased the demand for money capital.
Apart from labour, what Overstone calls the 'demand for capital' is nothing but a demand for commodities. A demand for commodities pushes their price up, whether that demand has risen above the average or the supply has fallen below it. If the industrial capitalist or the merchant now has to pay £150, say, for the same mass of commodities that he used to pay £100 for, he would have to borrow £150 where otherwise £100, and so at 5 per cent interest he would have to pay £7 1/2 where he otherwise paid £5. The mass of interest he has to pay would rise, because the mass of capital borrowed has risen.
Mr Overstone's whole attempt comes down to presenting the interests of loan capital and of industrial capital as identical, while his Bank Act is precisely calculated to exploit the difference between those interests to the advantage of money capital.
It is possible that the demand for commodities, when their supply has fallen below the average, absorbs no more money capital than before. The same sum, perhaps a smaller one, has to be paid for their total value, but for that same sum a smaller quantity of use-values is received. In this case the demand for loanable money capital will stay the same, so the rate of interest will not rise — even though the demand for the commodity had risen relative to its supply, and the price of the commodity with it. The rate of interest can only be touched once the total demand for loan capital grows, and under the assumptions just made that is not the case.
But the supply of an article can also fall below the average — as with a harvest failure in corn, cotton and so on — and the demand for loan capital grow, because people are speculating that prices will climb still higher, and the readiest means of making them climb is to withdraw part of the supply from the market for a while. To pay for the goods bought without selling them, money is raised by way of the commercial 'bill of exchange operations'. In this case what grows is the demand for loan capital, and the rate of interest can climb because of this attempt to hold the commodity's supply back from the market by artificial means. So the higher rate of interest signals that the supply of commodity capital has been artificially reduced.
On the other hand, the demand for an article can grow because its supply has grown and the article stands below its average price.
Here the demand for loan capital can stay level or even drop, since the same amount of money now buys more goods. Speculative stockpiling might also appear: in part to seize the favourable moment for production purposes, in part because prices are expected to rise later. In that event the demand for loan capital could rise, and the higher rate of interest would then stand for capital invested in an over-large build-up of stocks of the elements of productive capital. At this point we look only at the demand for loan capital as the demand for and supply of commodity capital affect it. Earlier we already set out how the shifting state of the reproduction process across the phases of the industrial cycle acts on the supply of loan capital. Overstone cunningly lumps together the trivial claim that the market rate of interest is fixed by supply and demand for (loan) capital with his own premise that loan capital is the same as capital in general. In that way he tries to make the usurer the one and only capitalist, and his capital the one and only capital.
When money is tight, the demand for loan capital is a demand for means of payment, and nothing beyond that. In no way is it a demand for money as a means of purchase. The rate of interest can then climb very high, and it makes no difference whether real capital — productive and commodity capital — is there in excess or is scarce.
A demand for means of payment is simply a demand to be able to turn something into money, as far as merchants and producers can offer good security. Where they cannot, it is a demand for money capital: an advance of means of payment then gives them more than the money form, it gives them the equivalent they are missing, in whatever form, so that they can pay.
This is the point at which both sides of the ordinary theory are right and wrong at once when they judge crises. Those who say that means of payment alone are lacking either have only the holders of bona fide securities in mind, or they are fools who think it is a bank's duty, and within its power, to turn every bankrupt swindler into a solid solvent capitalist by scraps of paper. Those who say that capital alone is lacking are either just splitting hairs — at such times inconvertible capital is present in masses, thanks to over-importing and overproduction — or they mean only the credit-jobbers, who really are now in a position where they can no longer get other people's capital to do business with, and who then demand that the bank should not only help them pay for the capital they have lost but also enable them to carry on the swindle.
It is the foundation of capitalist production that money stands over against commodities as an autonomous form of value, or that exchange-value has to obtain an autonomous form in money. That is possible only if one particular commodity becomes the material in whose value all the other commodities are measured, and thereby becomes the universal commodity, the commodity par excellence, as against all the rest. This has to show itself in two ways, and especially in developed capitalist countries, which to a large extent replace money — partly through credit operations, partly through credit money.
In times of pressure, when credit shrinks or stops altogether, money suddenly stands against commodities, absolutely, as the sole means of payment — the true existence of value. Hence the general fall in the value of commodities, and the difficulty or even the impossibility of turning them into money, that is, into their own purely fantastic form.
Second, credit money is only money in so far as it fully stands in for real money at the sum of its nominal value. Once gold flows out, whether it can be converted into money becomes doubtful — its identity with actual gold is in question. Hence the forcible measures, the raising of the interest rate and so on, to secure the conditions of that convertibility. Erroneous legislation, resting on wrong theories of money and forced on the nation by the interest of the money-dealers, Overstone and his like, can drive this nearer or further to a pitch. But the basis is given with the basis of the mode of production itself. A devaluation of credit money — not to speak of its total loss of monetary character, which is anyhow purely imaginary — would shake every existing relation.
The value of commodities is therefore sacrificed to keep this value's fantastic and autonomous existence safe in money. As money value it is safe only so long as money itself is safe. A few millions in money, then, are paid for with many millions in commodities. In capitalist production this cannot be avoided, and it forms one of that production's particular charms. Earlier modes of production know nothing of it, because on the narrow base they move on, neither credit nor credit money comes to development.
So long as the social character of labour appears as the commodity's existence in money, and hence as a thing outside real production, monetary crises are unavoidable, whether they come independently of real crises or as their intensification. On the other hand it is clear that a bank whose credit is not shaken eases the panic in such cases by increasing credit money, and makes that panic worse by drawing credit money in. The whole history of modern industry shows that metal would in fact be required only to settle international trade once its balance is momentarily upset — if production at home were organized. That no metal money is needed at home even now is shown by the suspension of cash payments by the so-called national banks, the one expedient resorted to in every extreme case.
Two individuals: it would be laughable to claim that in their trade with each other the payments balance runs against both. If each is the other's debtor and creditor, then clearly, should their claims fail to cancel out, one of them must be the other's debtor for what is left over. With nations it is not so at all. And that it is not is conceded by every economist in the proposition that a nation's payments balance may run for it or against it, although its trade balance must in the end come out even. The payments balance differs from the trade balance in this: it is a trade balance due on a set date. What crises do is squeeze the gap between the payments balance and the trade balance into a brief stretch of time; and the particular conditions that take shape in the nation where the crisis sits, the one whose day of payment has now arrived, already bring such a shrinking of the settling time along with them. First, precious metals are shipped abroad. Then consigned goods are dumped on the market. Commodities get exported so that they can be sold off, or so that cash advances can be raised on them at home. The rate of interest climbs, credits are cancelled, securities slide, foreign securities are dumped, foreign capital is lured in to be put into these devalued securities, and finally bankruptcy, which squares a whole mass of claims. Often metal is still sent to the country where the crisis broke out, because bills on it are unreliable, so payment in metal is the surest. Add to this that with regard to Asia all capitalist nations are for the most part its debtors at the same time, directly or indirectly. Once these various circumstances have had their full effect on the other nation caught up in it, that nation too exports gold or silver — in short, its day of payment arrives — and the same phenomena repeat themselves.
In commercial credit, interest — the difference between the credit price and the cash price — enters into the price of the commodity only in so far as the bills have a longer term than usual. Where they do not, it does not enter. And the reason for this is that each person takes this credit with one hand and gives it out with the other. (This does not tally with my own experience. — F. E.) But in so far as discounting comes in here in this form, it is not governed by this commercial credit; it is governed by the money market.
Suppose the demand and supply of money capital — the thing that fixes the rate of interest — were the same as the demand and supply of real capital, as Overstone claims. Then we need only look either at different commodities, or at one and the same commodity at different stages (raw material, semi-finished goods, finished product), and we are left with the rate of interest having to be low and high at the same time.
The record for 1844 and 1845 shows how that comes out. In 1844 the Bank of England's rate of interest moved between 4 per cent, from January to September, and 2 1/2 to 3 per cent, from November to the end of the year. In 1845 it stood at 2 1/2, 2 3/4 and 3 per cent from January to October, and between 3 and 5 per cent in the remaining months. Fair Orleans cotton averaged 6 1/4 d. in 1844 and 4 7/8 d. in 1845; the Liverpool cotton stock was 627,042 bales on 3 March 1844 and 773,800 bales on 3 March 1845. Judging by the low price of cotton, the rate of interest should have been low in 1845, and in fact it was, for most of that time. Judging by the yarn, though, it should have been high, for yarn prices were relatively high and profits absolutely high. Cotton at 4 d. a pound could be spun in 1845 at a spinning cost of 4 d. (good secunda mule twist, no. 40), so that it cost the spinner 8 d.; and he could sell it in September and October 1845 at 10 1/2 d. or 11 1/2 d. per pound. (See Wylie's evidence below.)
The whole question can be brought to a decision this way:
The demand and supply of loan capital would be the same as the demand and supply of capital in general — though this last phrase is absurd: for the industrialist or the merchant a commodity is a form of his capital, but what he demands is never capital as such, always only this particular commodity as such, which he buys and pays for as a commodity, corn or cotton, whatever role it is meant to play in the circuit of his capital. It would be the same if there were no money-lenders at all and instead the lending capitalists owned machinery, raw material and so on and lent these things out or hired them out — the way houses are rented today — to industrial capitalists, who would themselves own part of the machines and materials. In a situation like that, handing over loan capital would come to the same thing as supplying the industrial capitalist with elements of production and the merchant with commodities. But it is plain that the split of profit between the one who lends and the one who borrows would then depend, first of all and entirely, on how much of this capital is lent and how much is the property of the person who uses it.
With Mr Weguelin (B. A. 1857) the rate of interest is determined by 'the amount of unemployed capital' (252); it is 'only an index of the amount of unemployed capital seeking investment' (271). Later he calls this unemployed capital 'floating capital' (485), and by that he understands 'Bank of England notes and other means of circulation in the country, for instance the notes of the country banks and the coin in the country … I include in floating capital the reserves of the banks as well' (502, 503), and later bullion too (503). So the same Weguelin says that the Bank of England has a great influence on the rate of interest at times 'when we' (the Bank of England) 'actually hold the greater part of the unemployed capital in our hands' (1198), whereas according to Overstone's statements above the Bank of England 'is no place for capital'. Weguelin goes on:
Weguelin told the committee that, as he saw it, the discount rate is set by how much capital lies idle in the country; and that idle capital, he said, shows up in the Bank of England's reserve, which is really a reserve of metal. So if the stock of metal is drawn down, that leaves less idle capital in the country and therefore pushes up the value of the remainder. (1258.)
J. Stuart Mill says, at 2102:
To keep its Banking Department solvent, the Bank is obliged to do its utmost to fill that department's reserve; so as soon as it finds that a drain has set in, it must secure its reserve, and either restrict its discounts or sell securities.
The reserve, taken as the Banking Department alone, is a reserve for deposits only. By the Overstones' account, the Banking Department should simply act as a banker, without regard to the 'automatic' note issue. But in times of real pressure the Bank keeps a very sharp eye on the metal reserve, independently of the Banking Department's reserve, which consists of notes alone — and it must, if it is not to fail. For in the same measure as the metal stock shrinks, the reserve of banknotes shrinks too, and nobody should know that better than Mr Overstone, who arranged precisely this so wisely with his Bank Act of 1844.
The amount of money that gets turned back into capital in this way comes out of a reproduction process running on a mass scale. But take that money by itself, as money capital available for loan, and it is not itself a mass of reproductive capital.
The most important thing in what we have set out so far is this: when the part of revenue meant for consumption grows, that first presents itself as an accumulation of money capital. (We leave the worker out of the picture here, because his revenue equals the variable capital.) So something enters the accumulation of money capital that is essentially different from the real accumulation of industrial capital — because the part of the year's product meant for consumption never becomes capital in any way at all.
A part of it does replace capital, namely the constant capital of the people who produce means of consumption. But to the extent that it really does turn into capital, it exists as goods — in the natural form of the revenue of the producers of that constant capital. The same money that stands for revenue, that does nothing but carry consumption along, regularly turns into loanable money capital for a while. Where this money stands for wages, it is at the same time the money form of variable capital; and where it replaces the constant capital of the producers of means of consumption, it is the money form that their constant capital temporarily takes on, and it serves to buy the natural elements of that constant capital as they are replaced. In neither form does it in itself express accumulation, even though its mass grows with the scale of the reproduction process. But for a time it does the job of loanable money, that is, of money capital.
On this side, then, the accumulation of money capital must always mirror a bigger accumulation of capital than is really there — because the growth of individual consumption, being mediated by money, shows up as an accumulation of money capital, since it supplies the money form for real accumulation, for money that opens up new capital investments.
So the piling up of loanable money capital partly says nothing more than this: all the money that industrial capital turns into as it goes round its circuit takes the form of money the reproductive agents borrow, not money they put up themselves. So the advance of money that has to happen in the reproduction process really shows up as an advance of borrowed money. In fact, on the basis of commercial credit, one of them lends the other the money he needs in the reproduction process. But this takes the form that the banker, to whom one group of the reproductive agents lends it, lends it on to the other group — and so the banker appears as the benefactor. At the same time, control over this capital ends up entirely in the hands of the bankers as middlemen.
There are still a few special forms of this accumulation of money capital to set out. Capital is set free, say by a fall in the price of the elements of production, raw materials and so on. If the industrialist cannot expand his reproduction process straight away, part of his money capital is thrown out of the circuit as superfluous and turns into loanable money capital. Second, capital is released in money form — with the merchant especially — as soon as business is interrupted. If a merchant has worked through a run of deals and cannot start a new run until later because of such interruptions, the money he has realized is for him nothing but a hoard, surplus capital. But at the same time it directly amounts to an accumulation of loanable money capital.
In the first case, the accumulation of money capital means that the reproduction process is being repeated under more favourable conditions, that a part of capital previously tied up has genuinely been freed — so the same money can expand the reproduction process. In the other case, on the other hand, it means nothing but an interruption in the flow of transactions. But in both cases the money turns into loanable money capital, amounts to an accumulation of it, and works in the same way on the money market and the rate of interest — even though in the one case it means real accumulation is being promoted, and in the other that it is being held back.
Finally, an accumulation of money capital is brought about by the number of people who have feathered their nests and drawn back from reproduction. The more profit has been made over the course of the industrial cycle, the more of them there are. Here the accumulation of loanable money capital expresses, on the one hand, real accumulation (as far as its relative size goes); and on the other hand, nothing more than this: the extent to which industrial capitalists turn into nothing but money capitalists.
Take the other portion of the profit — the portion not intended to be consumed as revenue. It turns into money capital only when it cannot be put to use straight away in widening the business within the sphere of production that yielded it. Two reasons can lie behind this. Either that sphere already holds all the capital it can take. Or the accumulation must first reach a certain size before it can serve as capital, in line with the proportions that new investment requires in this particular business. So it changes first into loanable money capital and helps production expand in other branches. With all other circumstances assumed unchanged, the amount of profit meant for conversion back into capital will depend on the amount of profit made, and therefore on how far the reproduction process itself has expanded. But if this new accumulation runs into trouble when it is put to use — no openings for investment, branches of production overfull, loan capital supplied beyond demand — then this glut of loanable money capital proves nothing but the limits of capitalist production. The credit swindling that follows shows that no positive obstacle blocks the employment of this excess capital. There is an obstacle nonetheless, thanks to its own laws of valorization, thanks to the limits within which capital can valorize itself as capital. A glut of money capital as such does not necessarily mean overproduction, nor even a lack of fields of employment for capital.
The accumulation of loan capital simply means that money settles out as money available for lending. This process is very different from money really being turned into capital; it is only money piling up in a form in which it can be turned into capital. But as has been shown, this accumulation can stand for things that are very different from real accumulation. While real accumulation is constantly expanding, this expanded accumulation of money capital can be partly its result, partly the result of things that accompany it but are quite different from it, and partly even the result of real accumulation being blocked.
Simply because the accumulation of loan capital is swollen by such things — independent of real accumulation, yet still accompanying it — a plethora of money capital must regularly occur at certain phases of the cycle, and this plethora develops along with the credit system. And with it there must develop at the same time the necessity of driving the production process beyond its capitalist barriers: too much trade, too much production, too much credit. At the same time this must always happen in forms that provoke a reaction.
As for money capital accumulating out of ground-rent, wages and so on, there is no need to go into that here. One thing is worth stressing: the business of really saving and doing without (carried on by hoarders), in so far as it supplies elements of accumulation, is left — through the division of labour as capitalist production advances — to those who receive the minimum of such elements, and often enough lose what they have saved, as the workers do when banks fail.
For one thing, the industrial capitalist does not "save" his capital himself; it is in proportion to the size of his capital that he has other people's savings at his disposal. For another, the money capitalist makes other people's savings into his capital, and makes the credit that the reproductive capitalists give one another and that the public gives them into his own private source of enrichment. With this, the last illusion of the capitalist system — as if capital were the offspring of a person's own work and saving — goes to pieces. Not only does profit consist in the appropriation of other people's labour; the capital with which that other people's labour is set in motion and exploited consists of other people's property, which the money capitalist places at the industrial capitalist's disposal, and for which he in turn exploits him.
There are still a few things to note about credit capital.
How often one and the same piece of money can figure as loan capital depends entirely — as we have already worked out above — on the following.
(1) On how often it realizes commodity values, in a sale or in a payment — that is, transfers capital — and further on how often it realizes revenue. How often it comes into someone else's hands as realized value, whether the value of capital or of revenue, therefore plainly depends on the scale and volume of real transactions.
(2) On the economy of payments, and on the development and organization of the credit system.
(3) Finally, on the linkage of credits and the speed at which they act, so that when the money drops at one point as a deposit, it goes straight out again at another point as a loan.
Suppose the form in which the loan capital exists were nothing but that of actual money — gold or silver, the commodity whose material serves as the measure of value. Even then, a large part of this money capital is necessarily always merely fictitious: that is, titles to value, exactly like value tokens.
So far as money functions in the circuit of capital, it does form money capital for a moment. But it is not turned into loanable money capital. It is either exchanged for the elements of productive capital, or, when revenue is realized, paid out as a means of circulation — and so it cannot turn into loan capital for its owner. In so far, however, as it is turned into loan capital and the same money repeatedly represents loan capital, it is clear that it exists as metal money at one point only; at every other point it exists only in the form of a claim on capital.
On our assumption, the accumulation of these claims springs from real accumulation, that is, from the transformation of the value of commodity capital and so on into money. And yet the accumulation of these claims or titles, as such, is different both from the real accumulation it springs from and from the future accumulation — the new production process — that the lending of the money mediates.
At first sight loan capital is always present in the shape of money; later on it is a claim on money, since the money it began as now lies with the borrower in real money form. As far as the lender goes, it has changed into a claim on money, into a title of ownership. So one and the same quantity of real money can stand for widely different quantities of money capital. Plain money — no matter whether it stands for capital that has been realized or for revenue that has been realized — turns into loan capital simply by being lent out, by turning into a deposit, if we take the general form under a developed credit system. To the depositor it is money capital. In the banker's hands, though, it may be no more than potential money capital, sitting idle in his till rather than in its owner's.
As material wealth grows, so does the class of money capitalists. On the one hand, the number and the wealth of the capitalists who withdraw from business, the rentiers, grows; and on the other, the credit system is pushed further forward, and with it the number of bankers, money-lenders, financiers and so on. — As available money capital grows, so does the mass of interest-bearing paper — government paper, shares and so on, as set out earlier. But at the same time the demand for available money capital grows as well, because the jobbers who speculate in these papers play a leading role in the money market. If all the buying and selling of this paper were only the expression of real investment of capital, it would be right to say that it cannot affect the demand for loan capital: when A sells his paper, he draws out exactly as much money as B puts into the paper. But even then — the paper does exist, while the capital it originally represented does not, or at least not as money capital — it always creates new demand for that kind of money capital, to that extent. In any case, though, it is money capital that B had at his disposal before and A has at his disposal now.
B. A. 1857, no. 4886. Chapman was asked whether it is a correct account of the causes that determine the rate of discount to say that it is fixed by the quantity of capital on the market that can be applied to the discounting of commercial bills, as distinguished from other kinds of securities. Chapman: no; he held that the rate of interest is affected by all easily convertible securities (all convertible securities of a current character). It would be wrong to limit the question simply to the discount of bills; for when there is a great demand for money on (the deposit of) Consols, or even on Exchequer bills, as has been very much the case lately, and at a rate much higher than the commercial rate, it would be absurd to say that the commercial world is not touched by it. It is very materially touched by it.
4890. When sound and current securities, of the kind bankers recognize as such, are on the market and their owners want to borrow money on them, that certainly has its effect on commercial bills. A man can hardly expect to be let money at 5 per cent on commercial bills if the lender can lend his money at the same moment at 6 per cent on Consols or whatever else it may be; Chapman says it affects his own commercial world in the same way. No one can expect him to discount bills at 5 1/2 per cent if he can lend his money at 6 per cent.
4892. They do not speak of people who buy £2,000 or £5,000 or £10,000 of securities as fixed capital investments, as though such people materially affected the money market. If he is asked about the rate of interest on (a deposit of) Consols, he means people who deal in hundreds of thousands of pounds, the so-called jobbers, who take large portions of loans or buy on the market and then have to hold that stock until they can get rid of it at a profit; these men must borrow money for that purpose.
With the development of the credit system, large concentrated money markets come into being, such as London, which are at the same time the main seats of the trade in these securities. The bankers put the public's money capital at the disposal of this gang of dealers on a massive scale, and so this brood of gamblers grows.
"Money on the Stock Exchange is usually cheaper than anywhere else," said the man who was then Governor of the Bank of England in 1848, before the Lords' secret committee. (C. D. 1848, printed 1857, no. 219.)
We have already seen, in looking at interest-bearing capital, that the average rate of interest over a long stretch of years is fixed — other things staying the same — by the average rate of profit, not by the profit of enterprise. The profit of enterprise is itself nothing but profit minus interest.
It has also been said already, and will be looked at further below, that the commercial rate of interest — the rate money-lenders charge for discounting and for loans inside the world of trade — goes through a phase in the course of the industrial cycle in which it climbs above its minimum and reaches its average middle level, and then later goes above that. This movement follows from a rise in profit.
Two things, though, are to be noted here.
First: if the rate of interest stays high over a long period (and we are talking here about the rate of interest in a given country, England say, where the average rate of interest is a given over long stretches and also shows itself in the interest paid on loans for longer periods — what one might call private interest), then that is evidence, at first sight, that the rate of profit is high during that time. But it does not necessarily prove that the rate of profit of enterprise is high. That latter distinction more or less drops away for capitalists who work predominantly with their own capital: they realize the high rate of profit, since they pay the interest to themselves. A high rate of interest lasting a long time — and we are not talking here about the phase of an actual squeeze — is possible when the rate of profit is high. But it is possible that this high rate of profit, once the high rate of interest is deducted, leaves only a low rate of profit of enterprise. The latter may shrink while the high rate of profit carries on. That is possible because undertakings that have once been started have to be carried on. In this phase, business is carried on to a great extent with nothing but credit capital, other people's capital; and the high rate of profit can, in places, be speculative and prospective — counting on what is still to come. A high rate of interest can be paid while the rate of profit is high but the profit of enterprise is shrinking. And it can be paid — this is partly what happens in periods of speculation — not out of profit at all, but out of other people's borrowed capital itself, and that can go on for a while.
Second: to say that the demand for money capital is growing, and therefore the rate of interest with it, because the rate of profit is high, is not the same thing as saying that the demand for industrial capital is growing, and that this is why the rate of interest is high.
In times of crisis the demand for loan capital, and with it the rate of interest, reaches its maximum, while the rate of profit, and with it the demand for industrial capital, has as good as disappeared. At such times everyone borrows only in order to pay, to settle commitments already entered into. In times of revival after the crisis, by contrast, loan capital is demanded in order to buy, and to turn money capital into productive or commercial capital. And then it is demanded either by the industrial capitalist or by the merchant. The industrial capitalist lays it out in means of production and in labour-power.
A rising demand for labour-power can never in itself be a ground for a rising rate of interest, in so far as that rate is determined by the rate of profit. Higher wages are never a ground of higher profit, although — looking at particular phases of the industrial cycle — they can be one of its results.
The demand for labour-power can increase because the exploitation of labour is going on under especially favourable circumstances. But a rising demand for labour-power, and therefore for variable capital, does not in and of itself increase profit — it cuts it back proportionately. All the same, the demand for variable capital can grow along with it, and so can the demand for money capital, and that can raise the rate of interest. The market price of labour-power then rises above its average, more than the average number of workers is employed, and at the same time the rate of interest rises, because in those circumstances the demand for money capital rises. A rising demand for labour-power makes this commodity dear like any other; it raises its price, but not profit, which rests principally on this very commodity being relatively cheap. At the same time, however — under the circumstances we have assumed — it raises the rate of interest, because it increases the demand for money capital.
If the money capitalist, instead of lending the money out, turned himself into an industrialist, the fact that he has to pay more for labour would not in and of itself raise his profit; it would reduce it proportionately. Circumstances may be such that his profit rises all the same, but never because he pays more for labour. That last circumstance, in so far as it increases the demand for money capital, is enough to raise the rate of interest. If wages rise from whatever cause, in otherwise unfavourable conditions, the rise in wages would lower the rate of profit but raise the rate of interest, to the extent that it increased the demand for money capital.
Apart from labour, what Overstone calls the 'demand for capital' is nothing but a demand for commodities. A demand for commodities pushes their price up, whether that demand has risen above the average or the supply has fallen below it. If the industrial capitalist or the merchant now has to pay £150, say, for the same mass of commodities that he used to pay £100 for, he would have to borrow £150 where otherwise £100, and so at 5 per cent interest he would have to pay £7 1/2 where he otherwise paid £5. The mass of interest he has to pay would rise, because the mass of capital borrowed has risen.
Mr Overstone's whole attempt comes down to presenting the interests of loan capital and of industrial capital as identical, while his Bank Act is precisely calculated to exploit the difference between those interests to the advantage of money capital.
It is possible that the demand for commodities, when their supply has fallen below the average, absorbs no more money capital than before. The same sum, perhaps a smaller one, has to be paid for their total value, but for that same sum a smaller quantity of use-values is received. In this case the demand for loanable money capital will stay the same, so the rate of interest will not rise — even though the demand for the commodity had risen relative to its supply, and the price of the commodity with it. The rate of interest can only be touched once the total demand for loan capital grows, and under the assumptions just made that is not the case.
But the supply of an article can also fall below the average — as with a harvest failure in corn, cotton and so on — and the demand for loan capital grow, because people are speculating that prices will climb still higher, and the readiest means of making them climb is to withdraw part of the supply from the market for a while. To pay for the goods bought without selling them, money is raised by way of the commercial 'bill of exchange operations'. In this case what grows is the demand for loan capital, and the rate of interest can climb because of this attempt to hold the commodity's supply back from the market by artificial means. So the higher rate of interest signals that the supply of commodity capital has been artificially reduced.
On the other hand, the demand for an article can grow because its supply has grown and the article stands below its average price.
Here the demand for loan capital can stay level or even drop, since the same amount of money now buys more goods. Speculative stockpiling might also appear: in part to seize the favourable moment for production purposes, in part because prices are expected to rise later. In that event the demand for loan capital could rise, and the higher rate of interest would then stand for capital invested in an over-large build-up of stocks of the elements of productive capital. At this point we look only at the demand for loan capital as the demand for and supply of commodity capital affect it. Earlier we already set out how the shifting state of the reproduction process across the phases of the industrial cycle acts on the supply of loan capital. Overstone cunningly lumps together the trivial claim that the market rate of interest is fixed by supply and demand for (loan) capital with his own premise that loan capital is the same as capital in general. In that way he tries to make the usurer the one and only capitalist, and his capital the one and only capital.
When money is tight, the demand for loan capital is a demand for means of payment, and nothing beyond that. In no way is it a demand for money as a means of purchase. The rate of interest can then climb very high, and it makes no difference whether real capital — productive and commodity capital — is there in excess or is scarce.
A demand for means of payment is simply a demand to be able to turn something into money, as far as merchants and producers can offer good security. Where they cannot, it is a demand for money capital: an advance of means of payment then gives them more than the money form, it gives them the equivalent they are missing, in whatever form, so that they can pay.
This is the point at which both sides of the ordinary theory are right and wrong at once when they judge crises. Those who say that means of payment alone are lacking either have only the holders of bona fide securities in mind, or they are fools who think it is a bank's duty, and within its power, to turn every bankrupt swindler into a solid solvent capitalist by scraps of paper. Those who say that capital alone is lacking are either just splitting hairs — at such times inconvertible capital is present in masses, thanks to over-importing and overproduction — or they mean only the credit-jobbers, who really are now in a position where they can no longer get other people's capital to do business with, and who then demand that the bank should not only help them pay for the capital they have lost but also enable them to carry on the swindle.
It is the foundation of capitalist production that money stands over against commodities as an autonomous form of value, or that exchange-value has to obtain an autonomous form in money. That is possible only if one particular commodity becomes the material in whose value all the other commodities are measured, and thereby becomes the universal commodity, the commodity par excellence, as against all the rest. This has to show itself in two ways, and especially in developed capitalist countries, which to a large extent replace money — partly through credit operations, partly through credit money.
In times of pressure, when credit shrinks or stops altogether, money suddenly stands against commodities, absolutely, as the sole means of payment — the true existence of value. Hence the general fall in the value of commodities, and the difficulty or even the impossibility of turning them into money, that is, into their own purely fantastic form.
Second, credit money is only money in so far as it fully stands in for real money at the sum of its nominal value. Once gold flows out, whether it can be converted into money becomes doubtful — its identity with actual gold is in question. Hence the forcible measures, the raising of the interest rate and so on, to secure the conditions of that convertibility. Erroneous legislation, resting on wrong theories of money and forced on the nation by the interest of the money-dealers, Overstone and his like, can drive this nearer or further to a pitch. But the basis is given with the basis of the mode of production itself. A devaluation of credit money — not to speak of its total loss of monetary character, which is anyhow purely imaginary — would shake every existing relation.
The value of commodities is therefore sacrificed to keep this value's fantastic and autonomous existence safe in money. As money value it is safe only so long as money itself is safe. A few millions in money, then, are paid for with many millions in commodities. In capitalist production this cannot be avoided, and it forms one of that production's particular charms. Earlier modes of production know nothing of it, because on the narrow base they move on, neither credit nor credit money comes to development.
So long as the social character of labour appears as the commodity's existence in money, and hence as a thing outside real production, monetary crises are unavoidable, whether they come independently of real crises or as their intensification. On the other hand it is clear that a bank whose credit is not shaken eases the panic in such cases by increasing credit money, and makes that panic worse by drawing credit money in. The whole history of modern industry shows that metal would in fact be required only to settle international trade once its balance is momentarily upset — if production at home were organized. That no metal money is needed at home even now is shown by the suspension of cash payments by the so-called national banks, the one expedient resorted to in every extreme case.
Two individuals: it would be laughable to claim that in their trade with each other the payments balance runs against both. If each is the other's debtor and creditor, then clearly, should their claims fail to cancel out, one of them must be the other's debtor for what is left over. With nations it is not so at all. And that it is not is conceded by every economist in the proposition that a nation's payments balance may run for it or against it, although its trade balance must in the end come out even. The payments balance differs from the trade balance in this: it is a trade balance due on a set date. What crises do is squeeze the gap between the payments balance and the trade balance into a brief stretch of time; and the particular conditions that take shape in the nation where the crisis sits, the one whose day of payment has now arrived, already bring such a shrinking of the settling time along with them. First, precious metals are shipped abroad. Then consigned goods are dumped on the market. Commodities get exported so that they can be sold off, or so that cash advances can be raised on them at home. The rate of interest climbs, credits are cancelled, securities slide, foreign securities are dumped, foreign capital is lured in to be put into these devalued securities, and finally bankruptcy, which squares a whole mass of claims. Often metal is still sent to the country where the crisis broke out, because bills on it are unreliable, so payment in metal is the surest. Add to this that with regard to Asia all capitalist nations are for the most part its debtors at the same time, directly or indirectly. Once these various circumstances have had their full effect on the other nation caught up in it, that nation too exports gold or silver — in short, its day of payment arrives — and the same phenomena repeat themselves.
In commercial credit, interest — the difference between the credit price and the cash price — enters into the price of the commodity only in so far as the bills have a longer term than usual. Where they do not, it does not enter. And the reason for this is that each person takes this credit with one hand and gives it out with the other. (This does not tally with my own experience. — F. E.) But in so far as discounting comes in here in this form, it is not governed by this commercial credit; it is governed by the money market.
Suppose the demand and supply of money capital — the thing that fixes the rate of interest — were the same as the demand and supply of real capital, as Overstone claims. Then we need only look either at different commodities, or at one and the same commodity at different stages (raw material, semi-finished goods, finished product), and we are left with the rate of interest having to be low and high at the same time.
The record for 1844 and 1845 shows how that comes out. In 1844 the Bank of England's rate of interest moved between 4 per cent, from January to September, and 2 1/2 to 3 per cent, from November to the end of the year. In 1845 it stood at 2 1/2, 2 3/4 and 3 per cent from January to October, and between 3 and 5 per cent in the remaining months. Fair Orleans cotton averaged 6 1/4 d. in 1844 and 4 7/8 d. in 1845; the Liverpool cotton stock was 627,042 bales on 3 March 1844 and 773,800 bales on 3 March 1845. Judging by the low price of cotton, the rate of interest should have been low in 1845, and in fact it was, for most of that time. Judging by the yarn, though, it should have been high, for yarn prices were relatively high and profits absolutely high. Cotton at 4 d. a pound could be spun in 1845 at a spinning cost of 4 d. (good secunda mule twist, no. 40), so that it cost the spinner 8 d.; and he could sell it in September and October 1845 at 10 1/2 d. or 11 1/2 d. per pound. (See Wylie's evidence below.)
The whole question can be brought to a decision this way:
The demand and supply of loan capital would be the same as the demand and supply of capital in general — though this last phrase is absurd: for the industrialist or the merchant a commodity is a form of his capital, but what he demands is never capital as such, always only this particular commodity as such, which he buys and pays for as a commodity, corn or cotton, whatever role it is meant to play in the circuit of his capital. It would be the same if there were no money-lenders at all and instead the lending capitalists owned machinery, raw material and so on and lent these things out or hired them out — the way houses are rented today — to industrial capitalists, who would themselves own part of the machines and materials. In a situation like that, handing over loan capital would come to the same thing as supplying the industrial capitalist with elements of production and the merchant with commodities. But it is plain that the split of profit between the one who lends and the one who borrows would then depend, first of all and entirely, on how much of this capital is lent and how much is the property of the person who uses it.
With Mr Weguelin (B. A. 1857) the rate of interest is determined by 'the amount of unemployed capital' (252); it is 'only an index of the amount of unemployed capital seeking investment' (271). Later he calls this unemployed capital 'floating capital' (485), and by that he understands 'Bank of England notes and other means of circulation in the country, for instance the notes of the country banks and the coin in the country … I include in floating capital the reserves of the banks as well' (502, 503), and later bullion too (503). So the same Weguelin says that the Bank of England has a great influence on the rate of interest at times 'when we' (the Bank of England) 'actually hold the greater part of the unemployed capital in our hands' (1198), whereas according to Overstone's statements above the Bank of England 'is no place for capital'. Weguelin goes on:
Weguelin told the committee that, as he saw it, the discount rate is set by how much capital lies idle in the country; and that idle capital, he said, shows up in the Bank of England's reserve, which is really a reserve of metal. So if the stock of metal is drawn down, that leaves less idle capital in the country and therefore pushes up the value of the remainder. (1258.)
J. Stuart Mill says, at 2102:
To keep its Banking Department solvent, the Bank is obliged to do its utmost to fill that department's reserve; so as soon as it finds that a drain has set in, it must secure its reserve, and either restrict its discounts or sell securities.
The reserve, taken as the Banking Department alone, is a reserve for deposits only. By the Overstones' account, the Banking Department should simply act as a banker, without regard to the 'automatic' note issue. But in times of real pressure the Bank keeps a very sharp eye on the metal reserve, independently of the Banking Department's reserve, which consists of notes alone — and it must, if it is not to fail. For in the same measure as the metal stock shrinks, the reserve of banknotes shrinks too, and nobody should know that better than Mr Overstone, who arranged precisely this so wisely with his Bank Act of 1844.