Capital Vol. III Part V
Division of Profit into Interest and Profit of Enterprise. Interest-Bearing Capital

Chapter 24. Externalization of the Relations of Capital in the Form of Interest-Bearing Capital


The relations of capital assume their most externalised and most fetish-like form in interest-bearing capital. We have here M — M', money creating more money, self-expanding value, without the process that effectuates these two extremes. In merchant's capital, M — C — M', there is at least the general form of the capitalistic movement, although it confines itself solely to the sphere of circulation, so that profit appears merely as profit derived from alienation; but it is at least seen to be the product of a social relation, not the product of a mere thing. The form of merchant's capital at least presents a process, a unity of opposing phases, a movement that breaks up into two opposite actions — the purchase and the sale of commodities. This is obliterated in M — M', the form of interest-bearing capital. For instance, if £1,000 are loaned out by a capitalist at a rate of interest of 5%, the value of £1,000 as a capital for one year = C + Ci', where C is the capital and i' the rate of interest. Hence, 5% = 5/100 = 1/20, and 1,000 + 1,000 × 1/20 = £1,050. The value of £1,000 as capital = £1,050, i.e., capital is not a simple magnitude. It is a relationship of magnitudes, a relationship of the principal sum as a given value to itself as a self-expanding value, as a principal sum which has produced a surplus-value. And capital as such, as we have seen, assumes this form of a directly self-expanding value for all active capitalists, whether they operate on their own or borrowed capital.

M — M'. We have here the original starting-point of capital, money in the formula M — C — M' reduced to its two extremes M — M', in which M' = M + DM, money creating more money. It is the primary and general formula of capital reduced to a meaningless condensation. It is ready capital, a unity of the process of production and the process of circulation, and hence capital yielding a definite surplus-value in a particular period of time. In the form of interest-bearing capital this appears directly, unassisted by the processes of production and circulation. Capital appears as a mysterious and self-creating source of interest — the source of its own increase. The thing (money, commodity, value) is now capital even as a mere thing, and capital appears as a mere thing. The result of the entire process of reproduction appears as a property inherent in the thing itself. It depends on the owner of the money, i.e., of the commodity in its continually exchangeable form, whether he wants to spend it as money or loan it out as capital. In interest-bearing capital, therefore, this automatic fetish, self-expanding value, money generating money, are brought out in their pure state and in this form it no longer bears the birth-marks of its origin. The social relation is consummated in the relation of a thing, of money, to itself. Instead of the actual transformation of money into capital, we see here only form without content. As in the case of labour-power, the use-value of money here is its capacity of creating value — a value greater than it contains. Money as money is potentially self-expanding value and is loaned out as such — which is the form of sale for this singular commodity. It becomes a property of money to generate value and yield interest, much as it is an attribute of pear-trees to bear pears. And the money-lender sells his money as just such an interest-bearing thing. But that is not all. The actually functioning capital, as we have seen, presents itself in such a light, that it seems to yield interest not as a functioning capital, but as capital in itself, as money-capital.

This, too, becomes distorted. While interest is only a portion of the profit, i.e., of the surplus-value, which the functioning capitalist squeezes out of the labourer, it appears now, on the contrary, as though interest were the typical product of capital, the primary matter, and profit, in the shape of profit of enterprise, were a mere accessory and by-product of the process of reproduction. Thus we get the fetish form of capital and the conception of fetish capital. In M — M' we have the meaningless form of capital, the perversion and objectification of production relations in their highest degree, the interest-bearing form, the simple form of capital, in which it antecedes its own process of reproduction. It is the capacity of money, or of a commodity, to expand its own value independently of reproduction — which is a mystification of capital in its most flagrant form.

For vulgar political economy, which seeks to represent capital as an independent source of value, of value creation, this form is naturally a veritable find, a form in which the source of profit is no longer discernible, and in which the result of the capitalist process of production — divorced from the process — acquires an independent existence.

It is not until capital is money-capital that it becomes a commodity, whose capacity for self-expansion has a definite price quoted every time in every prevailing rate of interest.

As interest-bearing capital, and particularly in its direct form of interest-bearing money-capital (the other forms of interest-bearing capital, which do not concern us here, are derivatives of this form and presuppose its existence), capital assumes its pure fetish form, M — M' being the subject, the saleable thing. Firstly, through its continual existence as money, a form, in which all its specific attributes are obliterated and its real elements invisible. For money is precisely that form in which the distinctive features of commodities as use-values are obscured, and hence also the distinctive features of the industrial capitals which consist of these commodities and conditions of their production. It is that form, in which value — in this case capital — exists as an independent exchange-value. In the reproduction process of capital, the money-form is but transient — a mere point of transit. But in the money-market capital always exists in this form. Secondly, the surplus-value produced by it, here again in the form of money, appears as an inherent part of it. As the growing process is to trees, so generating money (tocoz) appears innate in capital in its form of money-capital.

In interest-bearing capital the movement of capital is contracted. The intervening process is omitted. In this way, a capital = 1,000 is fixed as a thing, which in itself = 1,400, and which is transformed after a certain period into 1,100 just as wine stored in a cellar improves its use-value after a certain period. Capital is now a thing, but as a thing it is capital. Money is now pregnant. [Goethe, Faust, Part I, Scene 5. — Ed] As soon as it is loaned out, or invested in the reproduction process (inasmuch as it yields interest to the functioning capitalist as its owner, separate from profit of enterprise), interest on it grows, no matter whether it is awake or asleep, is at home or abroad, by day or by night. Thus interest-bearing money-capital (and all capital is money-capital in terms of its value, or is considered as the expression of money-capital) fulfils the most fervent wish of the hoarder.

It is this ingrown existence of interest in money-capital as in a thing (this is how the production of surplus-value through capital appears here), which occupies Luther's attention so thoroughly in his naive onslaught against usury. After demonstrating that interest may be demanded if the failure to repay a loan on a definite date to a lender who himself required it to make some payment, caused a loss to him, or resulted in his missing an opportunity to make a profit on a bargain, for instance, in buying a garden, Luther continues:

"Now that I have loaned you them (100 gulden), you cause me a double loss due to my not being able to pay on the one hand nor buy on the other, so that I have to lose on both sides, and this is called duplex interesse, damni emergentis et lucri cessantis.... On hearing that John sustained losses on his loan of 100 gulden and demands just damages, they rush in and charge double on every 100 gulden, such double reimbursement, namely, for the loss due to non-payment and to inability to make a profit on a bargain, just as though these 100 gulden had the double loss grown on to them, so that whenever they have 100 gulden, they loan them out and charge for two losses, which they have not at all sustained... Therefore you are a usurer, who takes damages out of his neighbour's money for an imaginary loss that you did not sustain at all, and which you can neither prove nor calculate. This sort of loss is called by the jurists non verum, sed phantasticum interesse. It is a loss which each conjures up for himself... It will not do to say, therefore, that there could have been losses because I could not have been able to pay or buy. Else it would mean ex contingente necessarium, which is making something out of a thing that is not, and a thing that is uncertain into a thing that is absolutely sure. Would not such usury devour the world in a few years? ... If an unhappy accident befalls him against his will, and he must recover from it, he may demand damages for it, but it is different in trade and just the reverse. There they scheme to profit at the expense of their needy neighbours, how to amass wealth and get rich, to be lazy and idle and live in luxury on the labour of others, without any care, danger, and loss. To sit by the stove and let my 100 gulden gather wealth for me in the country and yet keep them in my pocket, because they are only loaned, without any danger or risk; my friend, who would not like that?" (Martin Luther, An die Pfarherrn wider den Wucher zu predigen, etc., Wittenberg, 1540.)

The conception of capital as a self-reproducing and self-expanding value, lasting and growing eternally by virtue of its innate properties — hence by virtue of the hidden quality of scholasticists — has led to the fabulous fancies of Dr. Price, which outdo by far the fantasies of the alchemists; fancies, in which Pitt believed in all earnest, and which he used as pillars of his financial administration in his laws concerning the sinking fund.

"Money bearing compound interest increases at first slowly. But, the rate of increase being continually accelerated, it becomes in some time so rapid, as to mock all the powers of the imagination. One penny, put out at our Saviour's birth to 5 per cent compound interest, would, before this time, have increased to a greater sum, than would be contained in a hundred and fifty millions of earths, all solid gold. But if put out to simple interest, it would, in the same time, have amounted to no more than seven shillings and four pence half-penny. Our government has hitherto chosen to improve money in the last, rather than the first of these ways."[1]

His fancy flies still higher in his Observations on Reversionary Payments, etc., London, 1772. There we read:

"A shilling put out to 6% compound interest at our Saviour's birth" (presumably in the Temple of Jerusalem) "would ... have increased to a greater sum than the whole solar system could hold, supposing it a sphere equal in diameter to the diameter of Saturn's orbit." "A state need never therefore be under any difficulties; for with the smallest savings it may in as little time as its interest can require pay off the largest debts" (pp. XIII, XIV).

What a pretty theoretical introduction to the national debt of England!

Price was simply dazzled by the gargantuan dimensions obtained in a geometrical progression. Since he took no note of the conditions of reproduction and labour, and regarded capital as a self-regulating automaton, as a mere number that increases itself just as Malthus [An Essay on the Principle of Population, London, 1798, pp. 25-26. — Ed] did with respect to population in his geometrical progression, he was struck by the thought that he had found the law of its growth in the formula s = c(1 + i)n, in which s = the sum of capital + compound interest, c = advanced capital, i = rate of interest (expressed in aliquot parts of 100) and n stands for the number of years in which this process takes place.

Pitt takes Dr. Price's mystification quite seriously. In 1786 the House of Commons had resolved to raise £1 million for the public weal. According to Price, in whom Pitt believed, there was, of course, no better way than to tax the people, so as to "accumulate" this sum after raising it, and thus to spirit away the national debt through the mystery of compound interest. The above resolution of the House of Commons was soon followed up by Pitt with a law which ordered the accumulation of £250,000,

"until, with the expired annuities, the fund should have grown to £4,000,000 annually." (Act 26, George III, Chap. 3l.) ["An Act for vesting certain sums in Commissioners, at the End of every Quarter of a Year, to be by them applied to the Reduction of the National Debt" (Anno 26 Georgii III, Regis, cap. 31). — Ed.]

In his speech of 1792, in which Pitt proposed that the amount devoted to the sinking fund be increased, he mentioned machines, credit, etc., among the causes of England's commercial supremacy, but as

"the most wide-spread and enduring cause, that of accumulation. This principle, he said, was completely developed in the work of Smith, that genius ... and this accumulation, he continued, was accomplished by laying aside at least a portion of the annual profit for the purpose of increasing the principal, which was to be employed in the same manner the following year, and which thus yielded a continual profit."

With Dr. Price's aid Pitt thus converts Smith's theory of accumulation into enrichment of a nation by means of accumulating debts, and thus arrives at the pleasant progression of an infinity of loans — loans to pay loans.

It had already been noted by Josiah Child, the father of modern banking, that £100 at 10% would produce in 70 years by compound interest £102,400. (Traité sur le commerce, etc., par J. Child, traduit, etc., Amsterdam et Berlin, 1754, p. 115. Written in 1669.)

How thoughtlessly Dr. Price's conception is applied by modern economists, is shown in the following passage from the Economist:

"Capital, with compound interest on every portion of capital saved, is so all-engrossing that all the wealth in the world from which income is derived, has long ago become the interest of capital... All rent is now the payment of interest on capital previously invested in the land." (Economist, July 49, 1851.)

In its capacity of interest-bearing capital, capital claims the ownership of all wealth which can ever be produced, and everything it has received so far is but an instalment for its all-engrossing appetite. By its innate laws, all surplus-labour which the human race can ever perform belongs to it. Moloch.

In conclusion, the following hodge-podge by the romantic Müller:

"Dr. Price's immense increase of compound interest, or of the self-accelerating forces of man, presupposes an undivided, or uninterrupted, uniform application for several centuries, if they are to produce such enormous effects. As soon as capital is divided, cut up into several independently growing shoots, the total process of accumulating forces begins anew. Nature has distributed over a span of about 20 to 25 years the progression of energy which falls on an average to the share of every labourer (!). After the lapse of this time the labourer leaves his career and must transfer the capital accumulated by the compound interest of labour to a new labourer, mostly distributing it among several labourers or children. These must first learn to activate and apply their share of capital, before they can draw any actual compound interest on it. Furthermore, an enormous quantity of capital gained by civil society even in the most restless communities, is gradually accumulated over many years and not employed for any immediate expansion of labour. Instead, as soon as an appreciable sum is gathered together, it is transferred to another individual, a labourer, bank or state, under the head of a loan. And the receiver then sets the capital into actual motion and draws compound interest on it, so that he can easily pledge to pay simple interest to the lender. Finally, the law of consumption, greed, and waste opposes those huge progressions, in which man's powers and their products would multiply if the law of production, or thrift, were alone effective." (A. Müller, Elemente der Staatskunst, III, pp. 147-49.)

It is impossible to concoct a more hair-raising absurdity in so few lines. Leaving aside the droll confusion of labourer and capitalist, value of labour-power and interest on capital, etc., the charging of compound interest is supposed to be explained by the fact that capital is loaned out to bring in compound interest. The method employed by our Müller is thoroughly characteristic of the romanticism in all walks of life. It is made up of current prejudices, skimmed from the most superficial semblance of things. This incorrect and trite content should then be "exalted" and rendered sublime through a mystifying mode of expression.

The process of accumulation of capital may be conceived as an accumulation of compound interest in the sense that the portion of profit (surplus-value) which is reconverted into capital, i.e., serves to absorb more surplus-labour, may be called interest. But:

1) Aside from all incidental interference, a large part of available capital is constantly more or less depreciated in the course of the reproduction process, because the value of commodities is not determined by the labour-time originally expended in their production, but by the labour-time expended in their reproduction, and this decreases continually owing to the development of the social productivity of labour. On a higher level of social productivity, all available capital appears, for this reason, to be the result of a relatively short period of reproduction, instead of a long process of accumulation of capital.[2]

2) As demonstrated in Part III of this book, the rate of profit decreases in proportion to the mounting accumulation of capital and the correspondingly increasing productivity of social labour, which is expressed precisely in the relative and progressive decrease of the variable as compared to the constant portion of capital. To produce the same rate of profit after the constant capital set in motion by one labourer increases ten-fold, the surplus labour-time would have to increase ten-fold, and soon the total labour-time, and finally the entire 24 hours of a day, would not suffice, even if wholly appropriated by capital. The idea that the rate of profit does not shrink is, however, the basis of Price's progression and in general the basis of "all-engrossing capital with compound interest."[3]

The identity of surplus-value and surplus-labour imposes a qualitative limit upon the accumulation of capital. This consists of the total working-day, and the prevailing development of the productive forces and of the population, which limits the number of simultaneously exploitable working-days. But if one conceives of surplus-value in the meaningless form of interest, the limit is merely quantitative and defies all fantasy.

Now, the concept of capital as a fetish reaches its height in interest-bearing capital, being a conception which attributes to the accumulated product of labour, and at that in the fixed form of money, the inherent secret power, as an automaton, of creating surplus-value in geometrical progression, so that the accumulated product of labour, as the Economist thinks, has long discounted all the wealth of the world for all time as belonging to it and rightfully coming to it. The product of past labour, the past labour itself, is here pregnant in itself with a portion of present or future living surplus-labour. We know, however, that in reality the preservation, and to that extent also the reproduction of the value of products of past labour is only the result of their contact with living labour; and secondly, that the domination of the products of past labour over living surplus-labour lasts only as long as the relations of capital, which rest on those particular social relations in which past labour independently and overwhelmingly dominates over living labour.


1. Richard Price, An Appeal to the Public on the Subject of the National Debt, 2nd ed., London, 1774, p. 19. He cracks the naive joke: "It is borrowing money at simple interest, in order to improve it at compound interest." (R. Hamilton, An Inquiry into the Rise and Progress of the National Debt of Great Britain, 2nd ed., Edinburgh, 1814, p. 133.) According to this, borrowing would be the safest means also for private people to gather wealth. But if I borrow £100 at 5% annual interest, I have to pay £5 at the end of the year, and even if the loan lasts for 100 million years, I have meanwhile only £100 to loan every year and £5 to pay every year. I can never manage by this process to loan £105 when borrowing £100. And how am I going to pay 5%? By new loans, or, if it is the state, by new taxes. Now, if the industrial capitalist borrows money, and his profit amounts to, say, 15%, he may pay 5% interest, spend 5% for his private expenses (although his appetite grows with his income), and capitalise 5%. In this case, 15% is the precondition for paying continually 5% interest. If this process continues, the rate of profit, for the reasons indicated in former chapters, will fall from 15% to, say, 10%. But Price entirely forgets that the interest of 5% presupposes a rate of profit of 15%, and assumes it to continue with the accumulation of capital. He has nothing whatsoever to do with the actual process of accumulation, but rather only with lending money and getting it back with compound interest. How that is accomplished is immaterial to him, since it is the innate property of interest-bearing capital.

2. See Mill and Carey, and Roscher's mistaken commentary on this score. [Marx refers to the following works: J. St. Mill, Principles of Political Economy, Second edition, Vol. I, London, 1849, pp. 91-92; H. Ch. Carey, Principles of Social Science, Vol. III, Philadelphia, 1859, pp. 71.73; W. Roscher, Die Grundlagen der Nationalökonomie, 3 Auflage, Stuttgart und Augsburg, 1858, § 45. — Ed.]

3. "It is clear, that no labour, no productive power, no ingenuity, and no art, can answer the overwhelming demand of compound interest. But all saving is made from the revenue of the capitalist, so that actually these demands are constantly made and as constantly the productive power of labour refuses to satisfy them. A sort of balance is, therefore, constantly struck." (Labour Defended Against the Claims of Capital, p. 23. By Hodgskin.)