The Basis of the Credit System: On the Art of Lending Money
In one respect, banking is a line of capitalist business like any other. Here, too, it is about taking advantage of supply and demand on “the market” to turn a sum of money into more money. But that is really all it has in common with other economic sectors. In fact, nobody fails to notice the special position held by the financial system in the bustle of the market economy. Its “market” consists in trade with money —not with some commodity or useful service, but with the abstract wealth that all other professions of this economy are after. Banks don’t use money — the universal means of access to goods and services — the way all other businesses do, which use it to buy means of production, establish industrial plants, department stores, internet sites, or restaurants, and pay workers, all in order to ultimately make more money off their customers. Banks lend money so that others will do these kinds of productive things with it and repay more than they have borrowed. Their interest and involvement in any economic activity solely and directly concerns its capitalistic purpose. Without creating exchange value and “realizing” it through sale, i.e., without transforming it into money or, in other words, without itself going through a process of expansion (“valorization”), of creating a surplus value, bank capital turns a sum of money into a larger one.
This is a miracle the entire world regards as completely normal — at any rate as long as it works. All the more does it deserve a natural explanation.
1. The capitalist business world’s notorious shortage of money
and how it is managed and exploited
through the first fundamental equation of finance capital:
Money becomes a commodity as capital and thereby itself money-capital
The need served by the banking industry arises from within the ordinary business life of the market economy, where wage labor is employed to produce and trade salable goods so that the money the company spends for this returns to it increased by a profit. The longer a firm has to wait for its proceeds, the more money it needs to continue business, and thus the lower its profit rate will turn out to be. If reserves are exhausted, any delay in the turnover of expended capital will threaten the existence of the firm. In addition to the perils of the turnover of capital, there is the pressure of competition for market shares — a pressure that every capitalist firm exerts on its peers and that it must stand up to. Like everything else in capitalism, the means needed for success can all be purchased — for a price; consequently, a company can put more of these means at its disposal the greater the sum of capital it can invest.
For both these reasons, there is — in the midst of market-economy abundance — a perpetual shortage of that one crucial means of business needed by the producers and traders of all these goods: money. It is the financial sector that looks after this need.
Additional remark 1.
The modern credit trade, even at this initial point, differs from the business of money lenders of old. The shortage it exploits on a grand scale is not the neediness that results from poverty, but a necessity of capitalist growth. The financial resources it makes available are not a makeshift for the companies that need them, but a means for enrichment. Its aim and outcome is not to plunder the partners it credits until ruination, but to take part in their expansion and accumulation process. Apart from that, banks of course also make money by providing loans to the masses, who are accustomed to debts as a costly aid to making ends meet within the narrow confines of their own ability to pay. Usury has in no way become extinct. But in the main, consumer loans are not made to take advantage of an exceptional emergency and ruin the debtor, but to continuously exploit a contradiction inherent in the system: in accordance with the “law” of profitable labor, paid wages are, on the one hand, paltry in relation to the wealth produced, but, on the other hand, indispensable for the sale of the great bulk of produced commodities. Financing consumption thus also serves the turnover and growth of the capital that profits from the needs of consumers with insufficient buying power, at their expense.
Additional remark 2.
Industrialists and merchants have developed, among other things, their own solution for their need to accelerate the turnover of their capital as much as possible: the supplier of a commodity awaiting further processing or final sale receives a promise of payment, valid for a limited time, that he can then pass on as means of payment to his own suppliers. In this “classical” form of commercial bills or bills of exchange, IOUs function like money, though only provisionally. At maturity, all who have used the bill as means of payment are liable to its last bearer for the sum owed, in real money. This practice of commercial credit has been joined by the money traders: they buy up bills, thereby transforming promised payment into useable liquidity ahead of schedule, and for this service they charge a percentage of the sum owed, calculated on the basis of the interest rate charged and the remaining term of the paper. In the meantime, all kinds of commercial credit for both buyers and sellers have come to replace the discounting of bills in the practice of the credit trade and serve to ensure and accelerate capital turnover, but otherwise do not differ in essentials from loan transactions for the purpose of increasing the amount of advanced capital.
The use-value that the financial sector provides to serve the money needs of the business world is as paradoxical as the need of capitalist owners to use more property than they own to create property. A sum of money is transferred to a capitalist — not the ownership of it, but the right to use it like his own property for a limited time, i.e., to use it as a means for accumulating his own money property. The loan business divorces the capacity of money to function as capital from property, whose power is measured in money, and turns this capacity into a commodity.
This trade with the capacity of money as capital presupposes that the use of the power of money as means of command over the production of money-valued property has become the rule in the economy, hence that money property has taken hold of the societal forces of production. If money acts as its own source, its real source — labor used for creating property — is so completely subsumed under the regime of property that it ranks from the outset as an object at the disposal of its buyer, a part of the capacity of his property, whose growth is no longer measured in the productive activity undertaken for that growth, but solely in the required capital advance. The degradation of societal work to a means of production and cost factor of capital — which, in the rate of profit, gives itself the appearance of being its own creator — is not the concern of the money traders: they take it as the starting point for their own business.
Yet with their offer — which makes the capacity of money to expand tradable, and puts this into circulation as commodity — the banks make a decisive contribution to perfecting the regime of abstract wealth over society’s productive forces and its material life process. From the outset, the one and only distinction they make between the diverse branches of business — in which the material wealth of society, the objects of private property, is reproduced and increased — concerns the amount and the security of the interest they can extract from the companies active in these branches. By allocating the one crucial means of business, money, according to this criterion, banks enforce, as an objective constraint, the alignment of all the material requirements and needs of societal production and consumption solely to the standard of the maximally profitable expansion of money. This entails the political-economic feat of emancipating companies, not only from the limitations of the size they have already achieved, but, with that, also from those of their original sphere of business, elevating commodities and services once and for all to the rank of indifferent means of profit and making capitalist competition truly universal. The banking industry thereby considerably raises the competitive standards a firm must meet, thus increasing its need for money. And that, in turn, secures the conditions for the financial sector’s own growth.
In precisely this way, banks employ the use-value of money, which they sell to the business world, for themselves, too. Merely by lending money, a proprietary act entitling them to repayment and interest, they transform money directly into money capital. The process of making more money out of money is reduced to the mere duration of the legal relationship between creditor and debtor; it has no other economic substance. It even completely abstracts from what a client does with the borrowed sum and what enables him to repay the principal and interest. Though this transaction is based on the principle that new, additional money value is thereby created, the amount of proceeds is not determined by whether this succeeds or is even really attempted. The yield is calculated as a percentage of the loaned sum, quite as if it grew solely on its own accord, and according to the time for which it is lent. Banks do take into account the fact that the growth of this sum ultimately depends on how long it is used, while abstracting from what it is used for.
Even at this elementary stage, the business of banks constitutes speculation. What they credit to their own accounts as their own profit, established in advance, are the proceeds from a market-economy process of production and trade. They may well have substantial influence over the creation of the proceeds, but, at the same time, leave it entirely to the interest-paying firms. Not only do they have no control over the proceeds, they constantly call them into question — after all, these proceeds are the result of the competition they themselves have universalized and enormously stimulated! They book other firms’ profits as their own gains as if it were entirely in their own power to really make them. In fact, with their lending business, they set their right — guaranteed by the state — to accumulate the money they lend over the economic foundation on which the redemption of this right is actually based, over the substance of the wealth they appropriate.
And the banking industry does not sort this contradiction out for itself. It embroils all those who own money and don’t squirrel it away under the mattress.
2. Creating credit and money
through the second fundamental equation of banking:
Debts function as capital and generate ability-to-pay
For the most part, finance capital does not use its own money to bring about its growth. It doubles its lending business in the opposite direction: it obtains other people’s money, purchasing if possible the right of disposal over it by paying interest to anyone who has some. It uses this money for lending as if it were its own property. Hence banks turn debts into money capital. The advance of their own money assets primarily serves to accumulate a mountain of liabilities that they use to create credit for the business world. Banks enrich themselves with the money they earn in this way and are at the same time liable for the money that money owners entrust to them, plus interest. In taking on these debts as if the actual expansion of capital — promised in their legal relationship with the rest of the economy — had already all but occurred, they take the business success of their debtors for granted.
This is how the speculative business of finance capital goes around in circles: by purchasing the command over others’ money, it acquires the means to sell money as capital, on its own account; by selling this commodity and trusting in the capacity of money to generate real proceeds, it enables itself to acquire the command over others’ money. With this circular operation, finance capital brings about its growth.
Additional remark 3.
Nowadays, no saver is so naïve as to believe that his bank keeps the money he deposits until he needs it, and is able to present it at any time, on demand. Nevertheless, experts hold that the entire debt and credit management of banks essentially consists in simply enabling somebody’s leftover money to be used exactly where it is needed in order to finance all kinds of useful things — primarily jobs — and then justly allocating the returns to the “production factor” capital; they consider that to be a rather good approximation as a model of the essence of banking. This trivialized way of looking at the banking business, however, disregards the fact that it conducts a speculative business on its own account with its own debts and the debts of others, with its own guarantees and feats of exploitation carried out by others, with risks and a legal compulsion to succeed.
On the other hand, this business likes to present itself as an industry that invests money in means of production like any other capitalist business — in this case the money borrowed from its clients — in order to have saleable products produced and sold by workers paid according to performance, with credit offers to industry and commerce being its most basic commodity. This image of an honest trade suggests that finance creates property — “added value” as many especially like to call it. With this ideology, the banking industry denies the parasitic and speculative character of its trade. In truth, finance does nothing but turn the right of disposal — legally obtained via credit — over others’ property and over profits generated elsewhere into money.
When using other people’s money for their own lending operations, banks do not restrict themselves to deposits entrusted to them for a fixed period of time. They dispose over all kinds of deposits, from short-term and long-term savings deposits to demand deposits in checking accounts that can be withdrawn at any time and in which a large part of payment transactions are carried out. The money deposited by their clients is replaced with a credit entry, and additionally used to furnish borrowers with the ability-to-pay they need, likewise usually occurring in the form of a credit entry to their account. A bank processes the payments of its depositors and debtors, as far as possible, by offsetting payments received against payments made, both internally and in exchanges with other banks. It thus manages the payment transactions that grow with its creation of credit largely via the accounting techniques of debit and credit entries. It doesn’t matter at all that these entries do not denote money on hand, but rather money lent out or used otherwise, because they represent the bank’s promises-to-pay, which fulfill their function as means of payment by offsetting each other. Through this art of “cashless payment,” banks not only spare themselves and their customers the cost of transporting money; more importantly, they thereby acquire the power to use, in principle, all the money that is earned and then spent in the market economy and that one way or another falls into their hands, for their speculative credit business.
Additional remark 4.
Banks may grant as much credit as they want, but as soon as they have to make payments — to pay out a loan or a deposit withdrawal, to debit an account or to transfer money — the outflow of money must be offset by a plus: a deposit or other payment received, a credit to an account or a business partner’s payment obligation, the bank’s own money, or debts to other banks or creditors, which book them as outstanding claims. In this sense, banks can indeed only lend what translates into their actual ability to pay. Nonetheless, banks are quite proud of their ability to create money — “deposit money,” i.e., means of payment that function as money in interbank transactions — that is, to generate ability-to-pay in excess of the money already earned elsewhere. And that isn’t wrong either. After all, the necessary equation of plus and minus in payment transactions entails a great deal of freedom for the banks: they have the license — restricted by government regulations — to make use of anything that counts as a plus in their books for making payments. And as managers of the society’s money circulation, they also have the means — limited by minimum reserve requirements — to do so; needless to say that this plus also includes the money that debtors use to pay their bills, thus filling up a business partner’s bank account. That is why it is, conversely, no problem for any respectable credit institution to recover, as needed, the credit it has created out of available deposits and paid out on its debtors’ behalf. Ideally, it recovers the credit through the entry of these outgoing payments into the accounts of its own customers, a nice short circuit. Otherwise it borrows from other banks that have received the payments made with the created credit. A bank’s ability to relieve its clients’ shortage of money with its own credit is, therefore, not limited by a given state of deposits, but is actually as great as its capacity to offset the outflow of means of payment resulting from its creation of credit with an existing amount at its disposal, as well as with an increase in its own debts — be it in the form of new deposits, incoming payments from customers’ demand deposits, deferred payment obligations to its business partners, or whatever. The fact that “banks create money” means nothing other than that the limits to granting credit do not lie in the techniques of refinancing the ability-to-pay they bring about, but in the bank’s risk calculation — and in the risk calculations of the investors and credit institutions with which it refinances the credit it creates and ability-to-pay it brings about. (More about that in point 3.)
Through its credit business, the banking industry acquires the power of disposal over the capacity of all the money that, thanks to its mediation, circulates in society; and it proves in practice that other people’s money performs the same services as actual property. Banks earn money by turning their debts into money capital; and they generate ability-to-pay with means of payment backed by their power to incur debts, a power that accrues to them from the way they earn money. By managing society’s monetary wealth, i.e., by unleashing its capitalistic capacity, banks, on the one hand, make all other trades — including a great deal of private consumption, which turns produced commodities into cash — dependent on them: nothing functions without their loan capital, but with it, just about everything works. On the other hand, the entire business of finance presupposes, and is based on, the granted credit proving itself as money capital, i.e., that it is confirmed by economic activities that reproduce and accumulate society’s abstract wealth denominated in money. The expansion of capital — which, in the legal relationship between credit institutions and the “real economy,” is not merely intended but is booked and treated as if it had already occurred — must “really” take place. The exchange value represented by payment promises and book entries exchanged between banks has to materialize and cannot simply be feigned by being circulated as means of payment. Otherwise, the only thing growing will be debts, and the wealth that these debts promise and record in the banks’ books will become increasingly illusory.
With this double dependence — of the “real economy” on finance, and of finance on “really” produced profits — the credit trade establishes a paradoxical unity in the competitive bustle of a market economy. It makes individual capitalists, who compete for credit in order to be able to compete successfully against each other, dependent upon the competitive success of all capitalists. It does so by involving them in its speculation on the expansion of the money capital it sets in motion. In capitalism, where money is the “real community” in general, credit is the real unity of the capitalist class.
3. The permanent endeavor to bring about security in the credit business
by means of the third fundamental equation of financial capital:
Liquidity generates trust, trust generates liquidity
Companies in the banking industry pursue their growth by supplying the rest of the economy to an increasing extent with ability-to-pay. In so doing, they are well aware that for all their meticulousness in assessing risk, they can never guarantee that the loans they give out and the sums of money they make available will bring about growth to the extent anticipated. Hence, while extending the volume of their business, they have to be careful not to fall victim to their own speculation and incur payment obligations that they cannot meet due to insufficient inflows of funds.
A bank’s credit management consequently doesn’t extend simply to acquiring depositors and debtors, examining their clients’ financial standing, carrying out payment transactions and accumulating interest. While making use of its liberty to expand its credit business, it also has to practice self-control: it can’t run into trouble with its payment obligations. Even when its supply of deposits dries up and debtors go bust, the bank absolutely has to remain liquid.
The refinancing of the credit and money that a credit institution creates is crucial for its ability to pay — i.e., the credit it itself enjoys, first and foremost the credit it can attract from its rival business partners for settling due accounts. As a debtor, it has to stand up to their critical judgement: it has to be creditworthy.
This requirement encapsulates the fundamental contradiction of the entire financial trade for its individual players. A bank has to successfully manage and keep control over what is beyond its control: its business deals must be successful for itself, regardless of the fact that their success is contingent on the use that its clients make of its loan capital in their fight for market share. The criterion for this success is that the bank has to prove a reliable debtor in every conceivable financial situation. So besides payment transactions carried out on behalf of clients and in which fluctuations in commodity and money circulation are inextricably mixed with the ups and downs, the successes and failures of a credit-financed business life, a responsible management also organizes a wide array of securities that guarantee unquestionable ability to pay. These include cash and other reserves that other financial institutions will accept as means of payment without reservation, assets that can be liquidated, i.e., converted into money at any time and in magnitudes that ought to more than suffice for coping with every conceivable vicissitude of business life. The power of a bank to vouch for its own debts, to secure thereby its refinancing and thus its liquidity, is in this regard a matter of size and rather directly proportional to the level of payment requests that it still considers to fall under the category of “peanuts.”
All the securities that a bank can offer to attest its creditworthiness are worth only as much as the credit it thereby enjoys — with its peers. Its creditworthiness is indeed a question of the confidence it can raise in its ability-to-pay within the cutthroat market economy. Its liquidity, which depends on this confidence, therefore has no objective measure, but is a result of persistent efforts to persuade its peers, for which financial institutions maintain a special department: liquidity management. Its assignment does not consist merely in the prudent management of payment transactions, but in the routine staging of assured creditworthiness, the permanent demonstration of incontestable ability to pay. Liquidity risks have to be identified sufficiently early and avoided by all means. After all, once the bank is suspected of falling behind with its payment obligations, a loss of confidence, and thus a real liquidity squeeze, is a foregone conclusion. In that case, the bank must actually liquidate securities, i.e., sacrifice assets meant to guarantee its reliability as debtor, in order to stay in business. Once doubts about its liquidity get out of hand, a financial institution is already illiquid, and its illiquidity confirms these doubts. For this reason, everything hangs on the bank running nowhere near such financial difficulties.
Conversely, the success of these efforts actually only proves that the experts involved are well-versed in manipulating payment periods and owed sums so as to prevent problematic “bottlenecks” in payment transactions. It in no way proves that the bank’s speculation on the success of others’ business activities, into which it has put its money, has worked out according to plan. But that isn’t the point anyway, rather to create and credibly fortify the appearance that the bank has its financial sources under control, and is therefore a reliable source and a secure guarantor of the ability-to-pay with which it endows its clients, and which must be confirmed as genuine money value by their profit making.
This appearance is indispensable — not only for the liquidity and thus the business of individual banks, but for the functioning of the entire sector. After all, this functioning is based on the credit that money and credit traders give each other for their creations; hence it is based on the presumption that, ultimately, their success and failure are actually a question of proper bank management. And the entire business world, which does business with credit and pays with money that banks have appropriated in practice and replaced with credit entries and accounting techniques, is in turn dependent on the functioning of the banking sector. For that reason, concern and care for the liquidity of the credit sector is not left up solely to its managers.
4. Certifying finance capital’s credit and money creations
through the equation the state adds as “bank of banks” to the other three:
Whatever functions as money in the credit institutions’ payment transactions is a fully adequate substitute for the legal money “commodity”
The state — which grants the credit trade the right to use others’ money as its own money capital and permits it to involve the rest of the market economy in its own speculative business — addresses the problem that thereby ensues. It operates as a bank specifically for the credit institutions it has designated. It lends them liquid funds if and when they request some.
The banks, on the one hand, make no fundamental distinction between this and other sources of refinancing. They compare the conditions, above all the interest rates, and purchase whatever they need and get. The state-authorized central bank, on the other hand, is not merely an additional source of liquidity, but a very special one. The sums of money it lends differ from the banks’ “deposit money” in that they do not merely arise and vanish in the course of transactions between credit institutions, thus serving as a functional substitute for money: these sums themselves constitute the quantified value that the credit institutes put into effect as credit and replace in their everyday business with their “cashless payment transactions.” After all, the state is the originator and guarantor of property and creator of the money in which the power of property exists in a quantified form, and which the banks help to accumulate when they let it take effect with the help of their self-created money substitute. By requiring its central bank to lend its “legal tender” against banks’ credit instruments, it places its authority behind the circle of mutual trust that underlies the financial trade’s credit and money creation. The state follows up on its formal authorization of banks to do business with loaned money by making this practical contribution towards the carrying out of that business, giving it, in this way, its official blessing.
Additional Remark 5.
The money that the central bank lends to eligible banks is, with regard to its form, no different from the money that credit institutions use to make payments among each other: it is not a money commodity, i.e., a good that has a use value apart from its use as universal equivalent, as a vehicle for a quantified right of ownership, and that itself constitutes, in that regard, a useful contribution to the wealth of society, i.e., the product of socially necessary labor. It is neither gold nor silver, nor a transfer order for fractions of a hoard of precious metals existing and guarded somewhere. It is a token for a kind of money whose primary function entering circulation does not consist in “realizing” the exchange value of a commodity, i.e., in representing a quantity of property as such. Rather, it represents the issuer’s power to give credit, i.e., to turn the capacity of money as such into a commodity and thereby to finance the production and realization of the exchange value anticipated in credit. The power at work in the central bank and evidenced in its paper money and bank money does not, however, derive from such speculatively anticipated business success, but from the state’s sovereign power of disposal over society’s work and wealth. Hence the product of this power is not a promise-to-pay that fulfils its function as means of payment when it vanishes within the banks’ clearing system, leaving traces of its economic effectiveness only in the form of debit and credit entries. Whether it has the form of a tangible banknote or a deposit with the central bank — this money is the definitively legal universal equivalent. It does not merely function as representative of quantified property, but is itself its embodiment. By virtue of state decree, it is accepted as the material that constitutes the wealth of society; it is what banks’ book entries and other symbolic monetary substitutes represent and refer to and, incidentally, already refer to in the denominations of the sums set in motion as their definitive unit of measurement — the nationally binding measure of value — and as their true, intended substance.
When the state supports the banks’ liquidity management with the central bank’s money, whose validity mustn’t be questioned, it doesn’t remove the precarious character of their credit business, the contradiction between the certainty of success documented in their books and their dependence on their clients’ competitive success. On the contrary, the state thereby stamps its sovereign and generally binding approval on the speculative calculations of finance, declaring that its political-economic raison d’état demands the subsumption of all processes of capital expansion under the success of these calculations.
For this reason, the state does not merely make offers to the financial sector but obligates it to take them. The important banks have to maintain deposits with the central bank, clear payments via these accounts, and put up with controls in which the various aspects of the mutual distrust of financial firms and their criteria for generating trust via demonstrative liquidity management are developed into a supervisory regime. In this way, the national custodians of money insist that the banking sector, in the exercise of its granted liberties, proves itself economically as a responsibly speculating and — following the rules of the profession — successful multiplier of national monetary wealth.
By quasi-economically substantiating with its central bank’s money what it legally authorizes the financial sector to do, the state confers on the sector’s credit and money creation the status of a nationally commissioned task and thereby unleashes it more than ever. With its calculated use of this liberty, the financial sector repeatedly brings about a situation in which — despite all the tricks of liquidity management and all the state’s security precautions — the ever alert mistrust between competing financial institutions gets out of hand and a liquidity crisis jeopardizes society’s payment transactions. This reveals what the nation’s financial managers, assisted by their colleagues in civil service, otherwise ceaselessly deny: it simply isn’t true that everything that functions as money between them is money. The certitude with which they treat their right to financial yields as a source of money, and turn debts into money capital, turns out to be the lie at the heart of their profession.
In the case of such a crisis, they once again count on the state to rescue their proceeds — after all, the state has played its part in all the ups and downs of their business. And its money custodians don’t have to be urged to step in with help. They take up the challenge and employ the state’s monetary power to buy up the money traders’ mutual distrust. They replace the traders’ lost trust with the power at their command in order to restore confidence and get the circle of speculative enrichment going again. That is how finance survives its periodic “meltdowns” — and sees itself entitled and empowered to move on to its truly great feats.
 Financing the state’s capitalistically unproductive consumption, a longstanding source of wealth for money capitalists, is a story all to itself and is treated in Part III of this article.
 Among other things, the nature of capital in general has the absurd implication that the period of time between the completion of a product and its use is detrimental to wealth. Because this phase concerns the period between the completion of the labor process that produces surplus value, and the realization of the commodity value that contains surplus value, it counts as an interruption of the capitalist expansion process and contradicts the true meaning and purpose of the entire undertaking. Marx concludes on the basis of this contradiction: “The necessary tendency of capital is therefore circulation without circulation time, and this tendency is the fundamental determinant of credit and of capital’s credit contrivances.” (Marx, Grundrisse, Outlines of the Critique of Political Economy, Notebook VI, The Pelican Marx Library, p. 659).
 In Theories of Surplus Value, Marx derives this point the other way around: “Since, on the basis of capitalist production, a certain sum of value represented in money or commodities — actually in money, the converted form of the commodity — makes it possible to extract a certain amount of labour gratis from the workers and to appropriate a certain amount of surplus-value, surplus labour, surplus product, it is obvious that money itself can be sold as capital, that is, as a commodity sui generis, or that capital can be bought in the form of commodities or of money.
In the considerations that follow this passage, Marx repeatedly draws attention to the fact that the use-value of the money borrowed by a capitalist firm consists in precisely this capacity to expand itself, which in fact makes up the use-value of the labor-power for which it pays wages. “Just as in the case of labour-power, the use-value of money here becomes that of creating exchange-value, more exchange-value than it itself contains. It is lent as self-expanding value…. (Marx, Theories of Surplus Value, Part III, “Addenda. Revenue and its sources. Vulgar Political Economy,” in “1. Development of interest bearing capital on the basis of capitalist production,” Progress Publishers, pp. 892–3)
 In volume 1 of Capital, chapter 4, Marx — starting from the irrationality and economic untenability of the abstract general formula for capital, according to which money creates more money — infers how a sum of money must be employed if it is to increase itself: labor, the only real source of property, is set to work, its product is sold, i.e., transformed into money, and the labor-power expended is paid with part of the money proceeds because it has the status of a commodity, whose use-value consists in the capacity to create more money value than it costs. In Volume 3, chapter 24, Marx comes back to the short-cut formula M–M′ and emphasizes that on the basis of the capitalist use of societal labor — the exploitation of wage labor — the abstraction from the economic substance of the expansion process of capital becomes economic reality in the form of interest-bearing capital, a practice that reflects the irrationality of this economy in its “most flagrant” form:
“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.” “…capital is not a simple magnitude. It is a relationship of magnitudes…” “It is the primary and general formula of capital reduced to a meaningless condensation.” “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.” (International Publishers, pp. 391–2).
 The contradiction of capital in general mentioned in footnote 2, namely, that its turnover necessarily includes phases that disrupt its process of expansion and thus contradict its purpose, has two manifestations: first, as idle capital in the form of finished commodities waiting to be transformed into money that can once again be used, and second, as already realized returns and profits that remain idle as long as they have not attained the size required — or fulfilled other conditions — for being invested profitably. Just as finance manages the first contradiction with its “credit contrivances,” it takes advantage of the complementary fact — that money proceeds accumulate in the circuit of capital without being immediately put to capitalist use — by using them as one of its sources of money, concentrating these proceeds in its own hands to obtain the basis for its own growth.
 This procedure has a long tradition, going back to the time-honored custom of money traders, who managed the transfer of monetary wealth from one owner to another by means of money tokens. These used to be drafts on real money stored at the bank, which remained lying around there while the drafts that the bank provided their clients repeatedly carried out the functions of money. Resourceful money owners soon discovered that this works even if the deposited money does not sit idly by, but performs useful services in the lending business; and state licenses have removed any hint of fraud. When Marx was gathering material about capitalism in England, this art of doubling the power of money had long since been established:
“The deposits themselves play a double role. On the one hand … they are loaned out as interest-bearing capital and are, therefore, not in the safes of the banks, but figure merely on their books as credits of the depositors. On the other hand, they function merely as such book entries, in so far as the mutual claims of the depositors are balanced by cheques on their deposits and can be written off against each other. In this connection, it is immaterial whether these deposits are entrusted to the same banker, who can thus balance the various accounts against each other, or whether this is done in different banks, which mutually exchange cheques and pay only the balances to one another.” (Capital, Volume 3, Chapter 29, International Publishers, p 469–70).
Although there have been advances in the techniques of settling payment orders, the principle remains the same.
 There is, of course, no guarantee that this accounting procedure will work out to satisfaction, nor is this automatically the case. Even here, there is an element of speculation involved; and banks are faced with the task of keeping close watch on sums of money and payment due dates, while maintaining reserve funds to be able to balance out any fluctuations. But in this regard, the banking industry, with its system of “cashless payment,” merely follows through on the slightly paradoxical circumstance that in the market economy, where everything revolves around money, real money is not needed in order for wealth in commodity form to circulate properly and for money to be earned. On the contrary, the cost of presenting abstract wealth as such in a concrete form diminishes the amount put to good use in the expansion process of capital. Replacing money as a means of circulation with tokens that only promise payment therefore pays off and causes no problems. But in the banks’ credit business, the use of such promises-to-pay, which offset each other in interbank transactions, not only economizes on physically existing money, but frees up money earned and circulating in society for use as loan capital. The fact that banks carry out their payment obligations via book entries without the intercession of real money is not a “zero-sum game,” but a means for creating credit, i.e., a means for growth. Withdrawing cash from circulation and withholding it from circulation is doubly inexpedient: not only is it an unnecessary expense — it is no longer particularly costly, but it is in any event superfluous even if cash is no longer a commodity consisting in precious metals, but legal tender in the form of paper — each sum of money that the bank does not replace with a credit entry is a potential means of growth that is withheld from the accumulation of capital. This condemns potentially profitable money capital to an existence as inactive and unproductive hoard of money.
Of course, the fact that society’s payment transactions are carried out by banks making offsetting promises-to-pay also means that the entire transactions system becomes dependent on the achievement of a balanced to and fro between incoming and outgoing payments, including deposits and withdrawals, credits and debits; and this to-and-fro expands and continues to expand in step with banks’ credit creation. In other words, it all depends on their lending operations working out and not ending in an annulment of the money that the banks let circulate in the form of tokens. Formally, the credit business is subsumed under the technique of cashless payment and is dependent on whether the banks manage to balance their payment obligations successfully. But in fact, it is the other way around: the bank-managed societal payment system is a derivative of the banks’ credit business and is dependent on its success.
 Incidentally, the volume of wealth that a credit institution can afford to display in public makes a substantial contribution to the persuasive power arising from a large volume of business — such is the primitive psychology at work in the upper reaches of the market economy. Banks flaunt their luxury in order to impress depositors and credit customers, as well as one another, with their credit power, in matters small and — above all — big. They share the sphere of public representation — urban architecture — with the state. Unlike the latter, they can be sure that their boastfulness, towering up high in the form of palaces and skyscrapers, will not be interpreted as wastefulness, but — at least in principle — as a demonstration of indestructible business success and thus as proof of integrity. Bank managers obviously are not afraid of any public skepticism about the fact that their business apparently is in need of such a demonstration. They rather count on the public appreciating the fact that they are able to afford so much glamour. In this world, even the occasional outbreak of social envy toward overpaid credit brokers is not absolutely harmful, since it teaches above all that wealth, as long as there is enough of it, is a first-class source of wealth, and that it is in optimal hands with the pros who accumulate it.
 These conditions include, for instance, requirements on the quality of the loans banks must show as collateral for the money they borrow from the central bank, or also regulations about how much of their customers’ deposits must be held in reserve in central bank accounts, a procedure meant to ensure that the banks’ credit policy keeps to the monetary and regulatory guidelines of the central bank. A brochure from the erstwhile Bayerische Vereinsbank in 1986 — probably completely outdated — advises about these minimum reserve provisions as follows:
“Banks have to hold minimum reserves for all liabilities for deposits and borrowed monies … with a duration of less than four years vis-à-vis non-bank financial institutions, credit institutions not subject to reserve requirements, and foreign banks. The reserve requirement is calculated as percentages of deposits. According to §16 of the Bundesbank Act, however, the Bundesbank [German central bank] may not set minimum reserve rates of more than 30% for demand deposits, no more than 20 % for time deposits, and no more than 10% for savings deposits … The minimum reserves are to be held with the Bundesbank as deposits in demand accounts.” (pp. 63–64)
What is here more important than the latest versions and refinements of these credit terms is their dialectical nature: by decreeing restrictions on the credit business, they aim to ensure its solidity, and by providing security, they unleash the speculative creation of money.