[GM 104-105-106] From The Capital, Volume 3

At the Genoa meeting we looked at what lay behind a famously crucial argument from the 3rd Volume of Capital, focussing on what our doctrine considers to be the ultimate driver of the last ten years of economic crises, although it is unknown to bourgeois economic theories.

Surplus value divided by variable capital is defined as the rate of surplus-value; the relation between surplus value and total capital is defined as the rate of profit.

Historically the rate of profit is transformed, or rather, stabilises around, an average rate of profit.

The tendency of the rate of profit to fall isn’t one of Marx’s discoveries, but rather a worrisome and unexplained observation of economists, in particular of Ricardo. In the Third Part, the rational and scientific origins of this law are laid bare; a law which expresses the fact that, taking a given quantity of capital, there is historically an increase in the part invested in the means of labour and a decrease in that spent on living labour. Since there is a proportionate decrease of the mass of living labour being applied to the increased, yet sterile, means of production, this means there is equally a reduction in the amount of unpaid labour, and the part of the value that it represents, in relation to the total capital.

The growth in the productivity of social labour, which is truly vertiginous under the capitalist mode of production, thus determines the tendency of the rate of profit to progressively decline.

The market in which commodities realise their value must be constantly extended, hence, the expansion into the foreign market to increase sales.

Periodically clashes of conflicting forces produce crises, which are just temporary solutions to the existing contradictions; violent tremors which momentarily re-establish equilibrium. Capitalist production continuously strives to overcome its contingent limitations, but it can overcome them only by means which bring it face to face with the same limitations, although on a new, larger scale.

The enormous development of the productive forces in relation to the population, and the still more disproportionate growth of instruments of credit which increase even more rapidly, find themselves in conflict as much with the foundations on which this huge productive force operates, as with the accretion of wealth and with the conditions under which this growing capital is valorised.

It is due to this conflict that crises arise.

At the following meeting the 5th Part of the 3rd Volume of Capital was expounded upon, introducing the topic covered in Chapter 24, “Externalisation of the Relations of Capital in the Form of Interest-Bearing Capital”.

After having cleared the decks of the ideological distortion which sees financial capitalism, and therefore the banking system, as the root cause of all of that is wrong with capitalism, the exposition set out from the observation that Marxism views the laws to which every form of capital is subject as being ultimately the same, even if they appear to behave differently, and act differently. From the point of view of communist morality, all forms of capitalism are despicable and inhuman.

Money, considered as an expression of a sum of value, in whatever aspect – cash, commodities, instruments of credit – is transformed into capital only on the basis of capitalist production, and only through this process does it become a value which has valorised itself, which has added value to itself. Only within this process does money assume an additional use value, i.e., it operates as capital, that is, it produces profit.

Money, under this aspect of being potential capital, that is, a means for the production of profit, becomes a commodity, but a commodity of a particular type. As opposed to ordinary commodities, the use value of the capital provided is itself value, that is, the excess of value, over and above the original size of the value, created by using the money as capital. This use value is the profit.

Capital productive of interest presents capitalist relations in their most mystified form. This is because the intermediary process between the two extremes of the capitalist cycle, D-D’, disappears. In fact, in the actual process of capitalist production, the monetary form assumes a merely fleeting existence; it is just a transitional form. On the monetary markets, on the other hand, capital seems to exist permanently under this form.

On the basis of future surplus value (profit, for the capitalists and financiers), an ever greater amount of money is advanced to gamble with on the stock markets and, at a truly pathological level in recent times, the so-called “financial engineering” multiplies it in an insane game of mirrors.

When the gap between the value which can be produced in the real production process and the value the financiers have written down on paper becomes too wide, and the crisis in the productive “substructure” (to use their words) eventually reduces the actual mass of values, then the so-called bubble bursts.

For our science, on the other hand, the conservation and reproduction of the value of the products of past labour can only result from their contact with living labour; moreover, the domination of the products of past labour over living surplus value will only last for as long as their relationship is a capitalist one; namely, that historico-socially determined relationship in which past labour becomes autonomous and opposed to living labour.

At the third meeting we finally got to set out the essential points from Chapter 25 (“Credit and Fictitious Capital”) from the 5th Part of the Third Volume. This chapter deals with the special characteristics of commercial and banking credit.

Marx’s notes, reorganised by Engels, aimed to illustrate and explain the fictitious nature of the circulation of bills and the resulting possibility of more or less legalised fraud, whose sole effect is to transfer monetary capital from one pocket to another.

With the development of commerce and capitalist production the natural basis of the credit system is perfected and generalised. Until the date they fall due, bills of exchange neutralise each other through the balancing of claims and debts and therefore function as money. These mutual advances of producers and merchants form the real basis of credit.

What is more, the custody of the reserve funds of businessmen, and the technical operations of receiving and disbursing money and international payments, become concentrated in the hands of the money-dealers.

Alongside this there develops the other side of the credit system: the management of interest-bearing capital. The money-dealers act as middlemen between the actual lender and the borrower of money-capital. They become the general managers of money-capital.

Marx quotes an economist of his time who wrote in 1834:“Whatever gives facilities to trade gives facilities to speculation”. And this process, the untrammelled expansion of the mechanism of loans and discounting, will bring about the crisis of 1846-47.

And even if at this time ‘financial engineering’, ‘derivatives’ and ‘capitalisations’ were still a long way off in the future, nevertheless the course of capitalism, its ‘financialisation’, which seems a very recent invention, was already a road well travelled.

The speaker made a historical detour to consider the British Bank Charter Act of 1844, which restricted the authority to issue banknotes in England and Wales to the Bank of England. Marx brands this Law as the maximum expression of the usurious, money-lending form of capital due to its perverse effect on the rate of interest. After the suspension of the Bank Act, the bank was able to put its supply of banknotes into circulation and ‘go for broke’, that is, any legal fetters on their issue were removed.

Engels notes that by 1848 there was already a new revival of business activity, which in 1849 would break the edge of the revolutionary movements on the continent and lead in the 1850s to a previously unheard-of industrial properity, only to be followed by the crash of 1857.

Marx notes that a secret committee of the House of Lords would be set up to investigate the crisis, and its analysis of the causes would be as follows: in the Spring of 1847 there was a undue extension of credit “because a man transferred property from business into railways and was still anxious to carry on the same extent of business. He probably thought that he could sell the railway shares for a profit and replace the money in his business. Perhaps he found that this could not be done, and he then got credit in his business where formerly he paid in cash. There was an extension of credit from that circumstance”.