Tsunao Inomata, 1932

Credit and Credit Money

Source: Chapter four of part one of Kin no keizaigaku (Political Economy of Gold), 1932;
Translated: for marxists.org by Michael Schauerte;
CopyLeft: Creative Commons (Attribute & ShareAlike) marxists.org 2008.

This is a translation of a chapter of Inomata's roughly 900-page book, Kin no keizai (Political Economy of Gold), published in 1932 by Chuo-kōron. The book sold extremely well, despite heavy-handed government censorship that crossed out whole sentences and paragraphs (see image at bottom of this page).

1. Circulating Credit and Commercial Bills

In the preceding chapters [of Political Economy of Gold] we were able to gain a basic understanding of capitalism’s laws of development, so now we can proceed to examine credit, which is what best characterizes the capitalist economy, and which bears a close relationship to money.

Already we noted [earlier in the book] that the credit relation can arise in a society of simple commodity production, where credit emerges from the function of money as a means of payment. Moreover, the role played by credit in capitalist production was touched on in the earlier chapters.

The credit that arises from the processes of capitalist production can be broadly divided into circulating credit and capital credit. Let’s begin by taking a look at circulating credit.

Circulating credit is also called “commercial credit,” and because it arises from credit-based transactions, it is also called “payment credit.”

Capitalists seek to sell their manufactured commodities as soon as is possible. But there are cases where things do not progress so conveniently. For instance, fabrics produced might have to be stored for a certain period of time because of the season of the year. And there are other cases where it takes ten or twenty days for a commodity to reach its market. Etc., etc. This means that during this time the commodity metamorphosis of their capital is stalled; therefore, the turnover of capital becomes sluggish and the rate of profit declines.

And there is another bothersome issue for capitalists that can arise: If a capitalist does not obtain money by selling his textiles, he will not be able to get his hands on the money needed to buy some of the necessary raw materials for subsequent production. If coal is the thing he cannot buy, for instance, that generates a problem for the coal capitalist as well. The coal has been extracted, but because the textile capitalist has not sold his goods, the coal capitalist is unable to sell coal to obtain money. The textile and coal commodities face each other as C1?C2, but simply because money (M) has not appeared as the mediator, the circulation of both commodities, as well as the circulation of capital, comes to a halt.

In the above case, if the textile capitalist wants to get hold of coal, his only resource is to borrow money from somewhere. And in that case interest must be paid.

For capitalists, credit resolves a bothersome problem. The coal capitalist trusts that the textiles will be sold so that the textile capitalist will be able to pay, and thus sells the coal on credit. This allows the commodities as well as capital to circulate.

The function of circulating credit is now clear. It removes the barrier to the movement of the metamorphosis of capital that arises when capital is stalled in the commodity form. Thanks to credit, the capitalist is able to shorten the turnover of capital and avoids borrowing money from another person and having to pay interest. Also, if he is able to borrow money, it can be used to expand production. In any case, he can obtain his all-important profit without any decrease. Thus he happily uses credit. And credit develops.

Credit develops increasingly from another “objective” cause. That is, there is a relative decrease in the proportion of variable capital, which takes the form of wages so that it does not generate a credit relation; while the constant capital, which does generate a credit relation, increases steadily.

In the meantime, if the coal capitalist sells coal to the textile capitalist on credit, the payment date is set and the “deed” is certainly not forgotten—or if the word “deed” seems to old-fashioned, this document of credit can be called a bill.

There are two main types of bills. In the case just spoken of, where only two persons are involved in the credit transaction, the bill drawn is a “promissory note.” But a case involving three persons is also possible. If the coal company sells coal on credit to the textile company, the textile capitalist can likewise sell his goods on credit to a department store, in which case the textile capitalist draws a “bill of exchange” made out to the department store. The department store receives this bill. And when the due date arrives, the department store directly pays the coal company, so that two credit transactions are settled at the same time.

Commercial bills can be transformed into money, which we shall discuss in a moment.

2. Capital Credit and Money Credit

The topic here is capital credit, but we first need to address the money-form of capital, which is the premise of this credit.

Capital can be deadlocked in the commodity form (as in the case just discussed), but it can also be stalled in the money form.

Another way of expressing the fact that capital is stalled in the money form is to say that capital is in an idle state. Still another way is to say that profit gains have stopped. If capital successfully passes through the transformation of M?C?M+s, so as to return to the capitalist in the money-form along with s (profit), and this then stays in the capitalist’s hands so that the next transformation process is not initiated, it is in an idle state. However, owing to one of the following sorts of circumstances, there are cases where a part of the capital cannot avoid ending up in an idle state.

(1) One part of the capital recovered in the money-form has to be set aside to replenish the fixed capital after a given period of time—say, ten years. The capital accumulated for this reserve is thus in an idle state.

(2) One part of capital used as circulating capital is also in an idle state. Assume, for instance, a nine-week turnover period, where six weeks are spent on production and a further three weeks are needed to sell the goods produced (with these three weeks being the circulating time). In such a case, if each week of production requires 10,000 yen, in order for the capitalist to continue production additionally in the three weeks after that six-week production period that lead up to the recovery of the funds invested, an advance of 30,000 yen would be needed in addition to the other 60,000 yen. However, this additional 30,000 yen is only put to use in the seventh week, so it would be in an idle state for the first six weeks. And from the perspective of the subsequent capital turnover, 30,000 yen would always be in an idle state for three weeks.

(3) One part of the capital paid as wages is also idle. If half of the sum of 60,000 mentioned above is paid out as wages, then that 30,000-yen amount would be paid out as 5,000 yen per week. So at the start of the second week, there would be 25,000 yen in an idle state, 20,000 yen in that state the following week, and so on.

(4) Finally, in a case where a capitalist intends to transform his realized surplus-value into capital again to expand production, this surplus-value would be accumulated as a reserve for a time and not used to purchase the needed machinery, etc. until it had reached a certain magnitude. During that time, therefore, it would be in an idle state.

Thus, all industrial capitalists will have capital in an idle state, to a greater or lesser extent, but this is not accumulated to the point where profits cannot be made. Moreover, capital in that idle state cannot be used by each capitalist in his business, so if a capitalist seeks to use this capital, there is no choice but to lend it to another person. This capital is in the form of money, so it is in a state where it can be lent out at any time.

But are there those willing to borrow it? Yes, indeed. Moreover, there are many industrial capitalists willing to borrow it.

Capital not only realizes the surplus-value squeezed out in the form of money, but when initiating the operation of exploitation, capital must first of all be in the form of money. Thus, under capitalist production, possessing money not only means possessing the potential to obtain things equivalent to it in value, but furthermore it means possessing the potential to obtain profit, so that money is now both the general form of value and at the same time the general form of capital. Therefore, the pursuit of profit necessarily encompasses the pursuit of capital in the money form.

If a capitalist owns money himself there is no problem, but even if this is not the case it is possible to obtain surplus-value. Capitalists can borrow money that is put to use as capital, recover their money by selling the commodities produced, and then repay the amount borrowed.

On the one side, then, are those who borrow money as capital, and on the other those who lend it as such. In this way, capital credit emerges.

To begin with, taking our previous example, there is the loaning of money that occurred when the obligation to pay of the textile capitalist vis-a-vis the coal capitalist was paid instead by a third party. In that particular case, instead of the credit relation between the textile capitalist and coal capitalist being settled, a relation of money loaning between the textile company and the third party arose. And for the genesis of this new credit relation, the giving and receiving of money itself is necessary.

Capital credit is formed through the handing over of money. This is different from that payment of credit. And therefore their functions also differ.

In the case of the capital credit, the one loaning the money is the owner of the idle capital. The one who borrows it is the one who wants to put it to use as capital. The function of capital credit thus involves the transformation of capital in an idle state into capital in an active state. And through this the stagnation of capital in the money form is relieved.

Capital is loaned to become loan capital. Because loan capital is always in the form of money, it is called money capital. Furthermore, because this capital brings interest into the hands of its owner it is also called interest-bearing capital.

This interest, incidentally, is surplus-value or taken out of profit, as noted earlier in this book, and this point should become even clearer now. The capitalist who employs the loan capital can use it to obtain profit and then hand over a part of this profit as interest to the loan capitalist. So we can easily understand how the magnitude of interest is determined.

The magnitude of interest must first be thought of in proportion to the magnitude of loan capital, but the proportion of interest to loan capital is the interest rate. For example, if 100 yen generates 5 yen in interest, the interest rate would be 5 percent. The upper limit of the interest rate, for society as a whole, is clearly the average rate of profit, because the maximum upper limit of interest is profit.

Granted, in individual cases, a particular interest rate can be higher than the average profit rate of society. For instance, a capitalist with a higher-than-average rate of profit would be able to pay a higher rate of interest. Or there is the converse case where a capitalist in the difficult situation of being unable to borrow money at a particular time, would be willing to endure a high rate of interest. In this latter case, the lender can extract high interest as a risk premium.

Generally speaking, however, if the interest rate were to rise above the level of the profit rate, one part of the capital invested in production would be withdrawn to be supplied as loan capital, thereby lowering the interest rate.

As for the lowest limit for the rate of interest, it could feasibly drop to zero, but such a case would be exceedingly unlikely.

Thus the rate of interest fluctuates somewhere between its upper limit of the average profit rate and its lower limit of zero. And the rising and falling of the interest rate is determined by the supply and demand of loan capital and the competition between the capitalists who loan this capital and those capitalists who borrow it. So at a given time, the point at which supply and demand coincide naturally forms a socially average interest rate.

This average interest rate decreases along with a decrease in the average rate of profit. It is well known, for instance, that the profit rate is high in economically backward countries, so that the interest rate is high as well. There is a movement of loan capital between countries as well that occurs, forming an average international rate of interest. Moreover, as the movement of money capital between countries is easier than the movement of productive capital, an average international rate of interest is more easily formed than an average international rate of profit.

Loan capital or money capital are formed upon the basis of the credit relation, but these are rather peculiar types of capital.

Productive capital, in the case where it enters circulation—which is to say the case where it is transformed by going from the hands of its owner to the hands of another person, and from another person’s hands back to its owner—always presents itself as money or commodities. It certainly does not present itself as capital. Only in the process of production, which is the process of the exploitation of labor, does it present itself as capital. The case is different, however, for money capital. It enters circulation entirely as capital. If capitalist A loans 10,000 yen to capitalist B, that money goes from the hands of A to B—thus circulating. In this example, the 10,000 yen of money is value that generates surplus-value, as far as both A and B are concerned. In other words, it is capital for both of them. So this is the giving and receiving of capital.

Money capital in this case, moreover, is a type of commodity. The value of 10,000 yen is a commodity with the use-value of generating surplus-value. This is the relation where capitalist B obtains the right to use the commodity with this use-value for a certain period of time, paying capitalist A one part of the profit in the form of interest, as the fee for the use of the money capital.

The circulation form of money capital is also distinctive.

In the case of industrial capital (productive capital), the circulation form is M-C-M+s. But more exactly this involves M first being transformed into means of production and labor-power (C), passing through the production process (P), and then becoming manufactured goods (C'), so that circuit is in fact:


Next, there is the circulation form of commercial capital, which is merely the transformation of money into commodity (purchase), and the re-transformation of that same commodity into money (sale); in other words:


Here, there is no production process at all. Therefore, the shape of the commodity also remains unchanged. So the profit of commercial capital obtained is merely one part of the profit generated by industrial capital.

What about the circulation form of money capital? It is the even simpler:


That’s it. This is because during the handing over of the money from lender to borrower, it is not transformed into a commodity; nor does it pass through the production process. All of those things occur after the money capital has already exited circulation to arrive in the hands of the borrower.

Money capital is always in the form of money. And two points arise from this fact.

First, because money capital does not take the form of commodities or means of production, as in the case of industrial capital or commercial capital, and because it is instead always provided in the form of money, it can be useful right away when there is a need to purchase something or make a payment. This capital, in other words, is capital at the ready that can be called on at any time which comes out of a strategic reserve. It truly comes in handy. So the owner of this money capital, although having nothing at all to do with production himself, is a big shot because he has a grip on this important thing. At times he can easily control the destiny of borrowers. With the development of capitalism, credit also increasingly develops, with enormous sums of money capital concentrated under the control of banks, so that money capital comes to assume great power.

Secondly, even though money capital only has the form of money, it still undeniably receives one part of the surplus-value. So in capitalist society, the ownership of money is deemed to bestow the right to receive a part of the surplus-value and the right to receive interest. Thus, merchants, capitalists, and society appraise not only money borrowed, but their own money as well as accruing interest!

Looking back historically, at almost the same time the circulation and hoarding of money began, money capital was generated. In other words, loan capital predates capitalism. However, the character of interest-bearing capital, which is the loan capital (money capital) of today, is different from that early money capital.

The usury capital of days gone by arose from the old form of the money hoard, and imposed itself on the peasants, handicraftsmen, and other economically weak persons and the impoverished, thus exploiting them. It also exploited the peasantry indirectly by loaning money to the feudal lords to spend in their lavish ways. Today, meanwhile, money capital (loan capital) exploits the proletariat via the industrial capitalists.

Long ago, those troubled by usury capital, apart from the feudal lords, were basically those who had suffered some misfortune or disaster. The capitalists borrowing money capital today, meanwhile, obtain a means for vast exploitation and a means of expanding production. Thus, the capitalist credit that provides this increasingly develops, and thus money capital also develops.

Even in the present day, though, usury capital exists and is widespread, and will remain as long as small-scale farmers, craftsmen, and merchants continue to exist. Still, from the perspective of society, this usury capital is overwhelmed by and subordinated to the power of the modern money capital (loan capital), so that the two are not confused.

3. Banks

The amount of money capital in present-day capitalist society has reached enormous proportions, the bulk of which is in the hands of banks—as everyone knows.

The money capital in the possession of banks is basically made up of the banks’ own capital (i.e. capital stock and reserve funds) and its deposits.

Our assumption up to now has been that the borrowing and lending of capital is directly carried out by the industrial capitalists themselves. Certainly, they on the one hand have idle capital that is difficult to employ in their own businesses, and which they wish to lend to other capitalists, while at the same time there are those who want to borrow the idle capital that is in the hands of other capitalists to expand production and broaden exploitation. Because of this, capital credit comes to be generated.

It is not that easy of a matter, however, for a given capitalist who may need a certain sum of money to immediately purchase machinery, for example, to locate another industrial capitalist willing to lend that exact sum for the exact period required. Rather, even if there are those with the given sum of capital that is idle for a certain period of time, it would be quite a feat to have them lend that exact sum for the exact period of time required. Moreover, industrial capitalists do not have much interest in always keeping a large sum of cash on hand. For them, it is a hope and would suit their purposes to have those in charge of the money capital, so that it is safe and would provide them with interest.

For the reasons stated, the direct lending and borrowing, and direct credit relation, between individual capitalists runs into various obstacles. Along with the development of credit, a special sort of institution emerges that can resolve those obstacles. I’m speaking, of course, of banks.

A bank initially uses its own capital to engage in the business of money-lending. And by means of this, the bank gathers deposits. Individual capitalists take their idle capital and deposit it in the bank. Instead of directly loaning the capital themselves, they provide the bank with credit, lending it to the bank.

The capitalists no longer have to seek out, among each other, someone to borrow from. Banks come to perform the function of intermediary between all of the lenders and borrowers. Most of the credit that banks now receive and provide originally was capital that industrial or commercial capitalists themselves received or provided among each other. This credit, in other words, in its essence has the character of capital credit. When this capital credit is provided by banks, it is called “bank credit.”

Marx brilliantly expressed the general function of banks which I have just noted:

Generally speaking, this aspect of the banking business consists of concentrating large amounts of the loanable money-capital in the bankers' hands, so that, in place of the individual money-lender, the bankers confront the industrial capitalists and commercial capitalists as representatives of all moneylenders. They become the general managers of money-capital. On the other hand by borrowing for the entire world of commerce, they concentrate all the borrowers vis-a-vis all the lenders. A bank represents a centralization of money-capital, of the lenders, on the one hand, and on the other a centralizations of the borrowers. (Capital, Vol. 3, Ch. 25)

Banks receive interest from money lent, while paying interest for money borrowed (i.e. deposits). Of course, banks run their business by accruing more interest than what is paid out, with the difference between them being a bank’s profit. More precisely speaking, this is the profit on bank credit. The proportion between a bank’s profit and its capital is its rate of profit, and this profit rate will be close to the general average rate of profit. If it were lower than that level, the bank capitalists would withdraw their capital from banks to invest in industry; just as in the opposite case, where the profit rate is higher than the average rate, an excessive number of banks would arise, so that the rate of bank profit would fall.

As the reader knows, in terms of bank deposits, there are current deposits, which come with the promise of withdrawal at will at any time, and the fixed deposits, where the promise is made to not withdraw the money for a certain period of time. The fixed deposits, because of this promise, pay out higher interest. Having said that the promise is made to not withdraw the money for a certain period of time, if interest is forgone, the funds can be withdrawn at any time; but as long as the circulation of capital is proceeding “steadily” most of the promises regarding fixed deposits will be kept, and also the money in the current deposits will not be temporarily withdrawn.

The amount of reserves needed by a bank to respond to withdrawn deposits (reserves on deposits) is something learned from experience. This will be some fraction of the total deposits. And this amount will be kept on hand by the bank, with the remaining sum lent out.

Thus, the capital in an idle state of society as a whole becomes relatively small. The idle capital, if viewed as money, is “hoarded money.” So the amount of hoarded money decreases enormously. The reader will likely recall when I stated that as commodity-production society reaches an increasingly high level, idle capital flows to and is concentrated in the banks on a massive scale, thus being reduced to the minimum amount necessary for commodity circulation. Phrased differently, banks, by absorbing, concentrating, and then distributing this idle capital, reduce the actual magnitude of it to the minimum amount that is needed for the circulation of capital to continue. Here we have one of the social functions of banks.

Banks also provide depositors with check books. The depositors can then write a certain monetary sum on the check—within the limits of their deposits—endorse it, and hand it over to the person one wishes to pay. The recipient can then hand over the check to a bank and receive money from the payer’s account. And if the recipient has a current account himself, instead of receiving the check, he can have the sum transferred to his own account. In this manner, many payments are merely settled by the transfer of funds. A similar transfer is even possible if the particular banks used by capitalists are different as long as the banks involved agree to the settlement of the payment by check on a certain date. In this relation, banks play the role of depositor, i.e. the cashier of the capitalists.

There is another major role of banks. They not only accumulate the deposits of capitalists, but also of small-scale farmers, craftsmen, and merchants and in some cases workers as well. And this money is lent to capitalists to serve as a lever for exploitation. The deposits of the masses could be called their “nest egg.” As these people are quite helpless, and not capitalists, this is hard-earned money that is put aside to preserve their lives. Along with the progressive development of capitalism, the ones with the money, the capitalists, seek to put money to use as capital in order to generate profit, rather than saving it, whereas those without money feel their lives increasingly threatened and are thus compelled to increasingly break their backs to save money.

Because the deposits of the masses of common people also earn interest, it may seem that they are also petty capitalists, but that is a mere external appearance. And this is an external appearance that is easily deceptive. In the case of capitalists, their interest and profits received not only makes possible a lavish life, but is also the source of the power of their rule. The interest that the common people receive from their deposits is a pittance that only covers a small fraction of the costs of their slave-like lives.

Just like interest, the sum of the individual savings of common people are so small as to be irrelevant, but taken together these people form a huge mass of tens of thousands, so the total of their money that accumulates in the banks is an enormous sum. Banks, by turning this money into capital, noticeably increase their own power and that of the individual capitalists. The masses of common people, by depositing their hard-earned money in banks, provide capitalists with a broad means of exploitation, thus providing capitalists with a service. The Japanese Ministry of Finance deposits, as well as the postal accounts, where the money of the common people is accumulated, can be put to use in many ways by capitalists.

Turning now from the borrowing of banks and deposits, how is this money then lent out?

Primarily speaking, this is first of all used for the discounting of bills. In our earlier example, the textile capitalist issues a promise to pay to the coal capitalist. Let’s say that the latter feels the need for money before the bill comes due. He could then take his bill to the bank and have it discounted. If the bank approves, it will hand over cash in return for the interest that would have accrued from that day until the bill came due. If the face (or “par”) value of the bill is 10,000 yen, with 16 days until it comes due, and the daily interest is 3 yen, then the bank would request payment of 48 yen. The remaining 9,952 yen would be handed over to the coal capitalist. This is what is referred to as discounting a bill. And on the surface the bank has purchased the bill. That is because the bank now has the right to redeem the bill on its maturity date. In reality, credit has been transferred, and now the bank has loaned the 10,000 yen to the textile capitalist.

The credit that banks provide through discounting commercial bills is limited to quite short periods of time. For longer-term credit, banks require more secure collateral. The most common guarantees for a loan are stocks, corporate bonds, government bonds, and other securities. Commercial bills themselves can also be used as collateral.

It is not the case, though, that the bank takes the capitalists’ commodities like a pawnshop that puts watches and garments in storage. Capitalists put goods in warehouses and receive receipts in return. If such a receipt is then handed over to a bank, it will loan money. Similarly, cargo ships or railways will hand over a shipping receipt to a capitalist, which can provide it to the bank to secure a loan, in which case, commodities in transfer are used as collateral.

Finally, land, buildings, and other forms of real estate are also used as collateral. As capitalism develops, the composition of capital rises, with fixed capital becoming more significant. With this, long-term credit increases, so that factories, machinery, vessels, and other types of fixed capital serve as collateral. When capitalists borrow money for banks to use as fixed capital rather than circulating capital, fixed capital credit arises, and this becomes increasingly prevalent.

In addition to the types of lending just looked at, banks are engaged in various types of operations, such as receiving handling fees for sending funds to capitalists. There is also the relatively recent development of so-called “issuing business,” which is an important part of a bank’s business. This involves the handling fees related to the issuance of stocks or corporate bonds by companies, and the generated interest.

Finally, banks are involved in the issuance of public bonds by the state and regional governments. Not only do they receive interest from this operation, they also come to be given special powers by the state.

4. Credit Money

We have now gained a general conception of the banks that arose as credit intermediaries, and prior to that we saw that credit transactions take the place of cash payment, and that commercial bills are an outcome of these transactions.

These commercial bills are, to take our previous example, what the textile capitalist issued. In that case, he bought coal on credit. He has an obligation of 10,000 yen vis-a-vis the coal capitalist, so the promise-to-pay that he issued is one type of certificate of debt. The coal capitalist who receives this thus has a certificate of debt worth 10,000 of yen from the textile capitalist.

But now let’s imagine that the coal capitalist buys machinery worth 10,000 yen, and instead of paying cash for it he transfers the 10,000 yen certificate of debt vis-a-vis the textile capitalist to the hands of the manufacturer of the machinery. The procedure to do so is easy. He would just endorse the promise-to-pay from the textile capitalist and hand it over to the machinery manufacturer.

The 10,000-yen promissory note would re-enter circulation. But the direction this time is different. Before, when the note passed from the hands of the textile capitalist to the coal capitalist, it was merely as a certificate of credit, as a certificate of debt—merely as a certificate of the money lent. The textile capitalist was obliged to pay on the maturity date. It was on that day that money would first appear as a means of payment. However, that is not the case now. The coal capitalist did not give the machinery manufacturer a certificate saying on which month and day he would pay. On the maturity date, the one who will pay is the textile capitalist. The obligation of the coal capitalist is shifted to the shoulders of the textile capitalist. But along with doing this, the coal capitalist has bought the machinery commodity. It is clear, then, that the promissory note of 10,000 yen has taken the place of money to obtain the commodity in this case.

In such a case, if the promissory note is handed over in immediate return for the machinery, it is replacing money as a means of purchase (circulation). And if it is issued after the machinery is handed over, it replaces money as a means of payment.

Thus, the commercial means emerging from credit can go on to play the role of money as its proxy. This is credit money.

And that 10,000-yen promissory note can circulate in place of money any number of times before its maturation date, going from the machinery manufacturer to another manufacturer, and from there to a power company, etc., etc.

The same can occur for a check. Already in that case the one who pays on the maturation date is the bank. So checks can also become credit money.

However, neither commercial bills nor checks are that convenient as credit money. First of all, it is bothersome to verify the credit of the issuer. Second, the face value may be too great or small, or may be a fraction. Third, as there is a maturation date, they cannot circulate that long. For all of these reasons, such credit money only circulates in a limited sphere and does not enter general circulation.

But there are also banknotes or convertible notes. This is the paper currency we are all familiar with. This is still credit money, albeit the most developed and the most general type.

The paper currency issued by the Bank of Japan today, i.e. banknotes, is also the most developed type of banknote, and for this reason quite difficult to correctly grasp. So we can understand this currency better if we start by looking at the more simple kinds of banknotes. The reader first needs to be aware of the fact that originally banknotes, or paper currency, could be issued by any bank and were not necessarily limited to special banks (e.g. central banks). This can be said both theoretically and historically. In reality, there were initially numerous banks that issued paper currency and in the United States in an earlier period various banks issued various sorts of paper currency.

We have seen that in paying for commodities, capitalists can hand over a check, instead of cash. In such a case, a capitalist can say to the other person in the transaction, “I have loaned money to a bank (deposit), so you can receive the cash from the bank. And the bank can say a similar thing; when the bank has purchased a bill, or made a loan on the basis of collateral, it can say to the other person: “For now I’ll give you banknotes, but whenever you want gold you can exchange the notes for it.” The capitalist, meanwhile, accepts the banknotes of the bank if it is believed that the bank has adequate reserves.

Banks provide credit to another by discounting bills and lending money, but when the stage comes to hand over the promised sum of money, at that point the trust of the other and as a symbol of their trust hands over banknotes. Thus, banknotes are merely a type of certificate of credit.

Those accepting banknotes from a bank first of all accept them as a certificate of trust. But it is because commercial bills and checks accepted as certificates of credit re-circulate to take the place of money, that banknotes also pass from hand to hand to re-circulate and take the place of money. The characteristics of banknotes, as an instrument of credit, is first that they do not have to be endorsed; second that there is no designated payment date, so that they can at any time be exchanged for gold coins; third that its denominations are not fractions but 1-yen, 5-yen, 10-yen, etc.; and fourth that one only has to deal with banks which have a great deal of trust. These are the reasons that banknotes can also enter general circulation to take the place of money. First and foremost, they can take the place of money in the function of means of circulation, and further, if the trust in the bank is not shaken, they can take the place of money in the function as means of payment.

A banknote can be passed long from one hand to another until it is exchanged for gold coins, but the banknote itself is a slip of paper that is essentially without value. Therefore, the reason the notes circulate is that they are tokens of credit. At their basis is credit. And at the basis of credit, further, there must be money of metallic substance. The fact that value-less slips of paper are able to be the proxy of money in some of its functions is something that we have already investigated.

How is the trust and credit in the banknotes issued by banks maintained? This is maintained by the reserve that is able to respond to demands for exchange with gold coins (i.e. convertibility). This reserve is made up first of all by the gold bullion or gold coins. Secondly, the bank has securities and commercial bills. These form the reserve only to the extent that they can be turned into bullion or gold coins, so of course they are not as secure as bullion or gold coins. This is particularly the case during an economic crisis or other disturbance.

In normal times, however, once a banknote has left the bank to enter circulation, it does not tend to return. It is not the case that all of the holders of banknotes all together, suddenly demand the conversion of the notes into gold. This means that the bank does not have to keep on hand a reserve equal to the total sum of banknotes. They know from experience that only a fraction of that sum is needed to make settlements. Thus, banks are able to accrue a great amount of interest from the banknotes issued without any reserve. The reason is that the banks receive interest for their loans, but unlike the case of deposits, do not have to pay out interest and the only cost is that of printing out the slips of paper. So the interest received is a clear profit.

With banknotes coming into wide circulation based on the development of credit, in some cases the state springs into action to play a technical role. The bourgeois state implements various laws so that banknotes can circulate without hindrance. One example is affixing one type of banknote and having its face value amount based on the monetary system. The state might (1) set the limit for the issuance of banknotes or the proportion of reserves necessary for them so that banknotes cannot be issued without the backing of convertibility or so that the excessive issuance of banknotes does not bring about economic disorder; (2) limit the issuance of banknotes to one specially authorized bank or to several of them; or (3) might compel banks to pay a part of their interest received to the state; etc., etc.

These specially authorized banks are called issuing banks. They become the “banks used by banks,” and in many cases develop into a “central bank.” At any rate, such banks are special.

One thing in particular that we need to note is that the bourgeois state actively utilizes the issuance of banknotes. First of all, as the reader knows, they are utilized for state finances. For instance, to perform the task of acquiring government bonds, etc. Second, via means such as the interest rate policy, there is an attempt to regulate the economy. Third, it provides currency banks and other special banks with assistance. Fourth, it is an organ to rescue capitalists at times of crisis, etc. And so on. To achieve these objectives, it turns the issuing banks into semi-public/semi-private entities. The Bank of Japan is one example of this.

However, no matter whether an issuing bank becomes semi- or fully a state bank, this fact alone does not change at all the credit-money character of banknotes.

5. The Role of Credit

I want to bring this fourth chapter to a close by providing an overview of the role of credit under capitalistic production.

In the realm of circulation, credit serves to reduce the costs needed for circulation. This is because (1) as long as most transactions become credit transactions, which cancel each other out, and as long as credit money circulates in place of gold coins, there is a saving in terms of the circulation of gold coins themselves; (2) it speeds up the circulation of the means of circulation; (3) it speeds up the turnover of capital; (4) the reserve fund needed is gradually limited to a small amount. In other words, the hoarded money and idle capital are reduced.

Next, credit accelerates the equalization of the profit rate. The equalization of the profit rate is accelerated as capital more easily moves between the spheres of production, and it is clear that credit facilitates this movement.

At the same time, though, credit accelerates commercial speculation as well as promoting overproduction, as we pointed out in the discussion of credit in the preceding chapter.

Furthermore, credit facilitates an expansion of production, which rapidly augments the productive power of labor, and accelerates the formation of a world market. Thus credit plays the role of making production increasingly social while at the same time increasingly concentrating the possession of wealth and ownership of the means of production in a few private hands, rapidly generating a rentier class, increasing the speculative and deceitful elements, serving as a lever to push the private character of ownership to its limit. In a word, the internal contradictions of capitalism are intensified. The business form of the joint-stock company emerges directly from the development of credit. And this form is assumed by all of the main commercial enterprises as well as banking enterprises.

Along with the genesis of the joint-stock company, capitalists become joint-stock capitalists. The joint-stock capitalist is one type of money capitalist. They are completely removed from the production process. Whereas industrial or commercial enterprises, even in the joint-stock form, generate profits, these profits are distributed among shareholders as dividends. Stock shares are sold with the right to earn the interest called dividends, with a price corresponding to the size of the dividend. That price is basically equal to the sum of the dividend divided by the average interest rate. Therefore, the dividends received by the owners of stocks (i.e. joint-stock capitalists) are basically comparable to average interest. Just as the same quantities of capital receive the same quantity of profit, this is now a case where the same quantity of interest is received. The capitalist has become a rentier. The sum invested in the total stocks of a company is, as a rule, greater than the sum of its productive capital. Moreover, the former is also viewed as capital. This is fictitious capital.

When a capitalist’s business takes the joint-stock form, it becomes easier to attract capital. Likewise, it becomes easier to receive credit from banks. This means that joint-stock companies noticeably accelerate the accumulation of capital.

With the development of joint-stock companies, the control over capital is increasingly concentrated in the hands of a few. For example, a person with 10 million yen in capital, as the major shareholder of a company, plays a major role where it is possible to control a capital of 50 or 60 million yen. Further, by creating subsidiaries of the joint-stock company, many times that amount of capital can be controlled.

As the accumulation and concentration of capital progresses through the development of joint-stock companies, and for the reasons noted earlier in this book, monopolies emerge. While it may not proceed to the point where there is only a single, giant corporation in a given production sphere, if there are only five or so major companies, they can enter into agreements to raise prices and the like. In other words, monopolies take the form of cartels or syndicates, or trusts, where open or secret combinations between companies are formed that result in enormous power, so that a seventh or eighth of products stem from monopolies. Further, huge capitalists unite various monopolist companies into a pool (Konzern).

With industrial capital being concentrated into monopolies, at the same time banks are also concentrated into monopolies. It is quite easy for bank capital to be concentrated, as there are no limits posed by production technology. This means that four or five, or even just two or three, huge banks have monopoly control over the bulk of a nation’s money capital.

The capital of these banks is loaned out to the monopolized industrial capital, etc. And much of this capital, as noted earlier, is in the form of fixed capital credit. Therefore, bank capital has now fused with industrial capital, so that there is a close relation of interests between banks and industrial enterprises. For this reason, the large monopoly capital that emerges from this merger of industrial capital and bank capital is referred to as finance capital. This finance capital is under the control of a handful of powerful capitalists.

The stage of monopoly or finance capital is the stage of imperialism. At this stage, the conflict between all of the intrinsic contradictions of capitalism [CENSORED]. So now imperialist world war has become [CENSORED]. The world [CENSORED]. At the same time, capitalism becomes overripe and rotten. And within its womb is [CENSORED].