In discussing fixed capital, Marx refers to growing “pressure on the money-market” as a factor in the downfall of capitalist booms.
“If we conceive society as being not capitalistic but communistic, there will be no money-capital at all in the first place, not the disguises cloaking the transactions arising on account of it. The question then comes down to the need of society to calculate beforehand how much labour, means of production, and means of subsistence it can invest, without detriment, in such lines of business as for instance the building of railways, which do not furnish any means of production or subsistence, nor produce any useful effect for a long time, a year or more, while they extract labour, means of production and means of subsistence from the total annual production.
“In capitalist society however where social reason always asserts itself only post festum [after the event], great disturbances may and must constantly occur [as a result of surges of fixed capital investment]. On the one hand pressure is brought to bear on the money-market, while on the other, an easy money-market calls such enterprises into being en masse, thus creating the very circumstances which later give rise to pressure on the money-market. Pressure is brought to bear on the money-market, since large advances of money-capital are constantly needed here for long periods of time...
“A band of speculators, contractors, engineers, lawyers, etc., enrich themselves... This lasts until the inevitable crash.” (Capital volume 2)
In Capital volume 3 Marx further discusses credit.
Credit develops necessarily within capitalism:
• to facilitate the movement of capital from one sector to another, i.e. to allow the equalisation of the rate of profit;
• to reduce the costs of circulation;
• to speed up the movement of capital through its different phases, or indeed to make it possible as a continuous process; and to increase the scope for the expansion of capital;
• to pool together all that would otherwise rest in individual reserve funds, and to give to money-capital “the form of social capital” concentrated in the hands of banks.
Thus the credit system gives greater elasticity both to capitalist production — and to capitalist overproduction.
“The credit system appears as the main lever of over-production and over-speculation in commerce... the reproduction process, which is elastic by nature, is here forced to its extreme limits... The credit system accelerates the material development of the productive forces and the establishment of the world-market... At the same time credit accelerates the violent eruptions of this contradiction — crises — and thereby the elements of disintegration of the old mode of production”.
In chapter 30 of Capital volume 3 Marx describes the typical pattern of the boom-slump cycle.
“After the reproduction process has again reached that state of prosperity which precedes that of over-exertion, commercial credit becomes very much extended [i.e. trade credit between capitalist firms is easy and extensive]... The rate of interest is still low, although it rises above its minimum...
“[But] those cavaliers who work without any reserve capital or without any capital at all and thus operate completely on a money credit basis begin to appear... in considerable numbers.
“To this is now added the great expansion of fixed capital in all forms, and the opening of new enterprises on a vast and far-reaching scale. The interest now rises to its average level. It reaches its maximum again as soon as the new crisis sets in...
“Credit suddenly stops then... the reproduction process is paralysed, and... a superabundance of idle industrial capital appears side by side with an almost absolute absence of loan capital....
“The industrial cycle is of such a nature that the same circuit must periodically reproduce itself, once the first impulse has been given. During a period of slack, production sinks below the level which it had attained in the preceding cycle and for which the technical basis has now been laid. During prosperity — the middle period — it continues to develop on this basis. In the period of over-production and exertion, it strains the productive forces to the utmost, until it exceeds the capitalistic limits of the production process”.
But why do the contradictions express themselves in a sudden crisis and not in gradual corrections? Because a decline of credit is by its very nature self-multiplying — no capitalist can afford to offer easy credit when others are tightening — and comes at a point when many business failures or outright swindles have developed and remain hidden only because of easy credit.
“In a system of production, where the entire continuity of the reproduction process rests upon credit, a crisis must obviously occur — a tremendous rush for means of payment — when credit suddenly ceases and only cash payments have validity. At first glance... the whole crisis seems to be merely a credit and money crisis.... But the majority of these bills [bills of exchange, or invoices, which cannot be converted into cash] represent actual sales and purchases, whose extension far beyond the needs of society is... the basis of the whole crisis”. [By “needs”, here, Marx means effective market demand, not human needs].
“The whole process becomes so complicated [with a developed credit system]... that the semblance of a very solvent business with a smooth flow of returns can easily persist even long after returns actually come in only at the expense of swindled money-lenders and partly of swindled producers. Thus business always appears almost excessively sound right on the eve of a crash... Business is always thoroughly sound and the campaign in full swing, until suddenly the debacle takes place”.
And again: “It is a basic principle of capitalist production that money, as an independent form of value, stands in opposition to commodities, or that exchange-value must assume an independent form in money... [Thus] in times of a squeeze, when credit contracts... money suddenly stands as the only means of payment and true existence of value in absolute opposition to all other commodities....
“Secondly, however, credit-money itself is only money to the extent that it absolutely takes the place of actual money to the amount of its nominal value. With a drain on gold its convertibility, i.e. its identity with actual gold, becomes problematic. Hence coercive measures, raising the rate of interest, etc., for the purpose of safeguarding the conditions of this convertibility. This can be carried more or less to extremes by mistaken legislation...
“The basis, however, is given with the basis of the mode of production itself. A depreciation of credit-money... would unsettle all existing relations. Therefore, the value of commodities is sacrificed for the purpose of safeguarding the fantastic and independent existence of this value in money...
“For a few millions in money, many millions in commodities must therefore be sacrificed. This is inevitable under capitalist production and constitutes one of its beauties”.