THE DEVELOPMENT OF CAPITALIST CREDIT MONEY

THE DEVELOPMENT OF CAPITALIST CREDIT MONEY

Accounts of the rise of capitalism, influenced by neoclassical economics or classic Marxism have focussed almost exclusively on either the

exchange or production of commodities.¹⁵ Money is seen to play a passive role in these economic processes; its forms and functions are taken to be merely responses to developments that take place elsewhere in the 'real' economy (Ingham 1999). However, in addition to the appearance of extensive markets, machine technology, factory organisation and labour-capital relations, I would argue that the historical specificity of capitalism is also to be found in the creation of a means of financing by pure abstract value. Four questions are involved. First, does it make sense to see capitalism as a historically specific 'mode' or economic system? Work influenced by mainstream economic theory, for example, might refer descriptively to 'capitalism', but explanations and interpretations are couched in terms of ahistorical universals - such as increases in productivity, or transactions cost efficiency brought about by the extension of the division of labour and market exchange. However, assuming that capitalism is to be explained as a particular historically located system, the second question is whether money undergoes any fundamental change during its development? In particular, is the distinction between coin and credit money significant? Third, if money did undergo significant changes, how are they to be explained? Are monetary changes to be explained as responses to the 'needs' of the underlying economy? For example, is the bill of exchange to be explained by its function of economising on the use of precious metal? Or were significant monetary changes, at least in part, the result of relatively autonomous social and political changes. Finally, were the changes in money an independent force in capitalist development?

The idea that the development of credit money, as a relatively autonomous economic force, is important in explaining capitalism's development is to be found in the work of writers who were influenced by the German historical school of economics and, to a lesser degree, in the French Annates school of history.¹⁶ '[T]he financial complement of capitalist production and trade', Schumpeter wrote, was so important that the 'development of the law and practice of negotiable paper and of "created" deposits afford the best indication we have for dating the rise of capitalism' (Schumpeter 1994 [1954]: p. 78; see also p. 318. This creation of credit money in a banking system is a self-generating, relatively autonomous process insofar as the 'banks can always grant further loans, since the larger amounts going out are then matched by larger amounts coming in' (Schumpeter 1917: p. 207 quoted in Arena and Festre 1999 [1996]: p. 119). Moreover, Schumpeter believed that the distinctiveness of capitalism was, in part, to be found in the entrepreneur's role as debtor. Although accumulated wealth 'constitutes a practical advantage'; usually someone 'can only become an entrepreneur by previously becoming a
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debtor'. Moreover, in capitalism 'no one else is a debtor by the nature of his economic function' (Schumpeter 1934: pp. 101-3, quoted in Arena and Festre 1999: p. 119). From the French school, Bloch captured this same essential element of capitalism with the crisp observation that it is 'a regime that would collapse if everyone paid his debts' (Bloch 1954: p. 77). The essence of capitalism lies in the elastic creation of money by means of readily transferable debt.¹⁷

The beginning of what Keynes referred to as a 'monetary production economy' is to be found in the seventeenth century when signifiers of private debt gradually evolved into widely accepted and then legally enforceable means of payment. At this time in western Europe, private bank-issued money existed alongside the sovereign public currencies (Boyer-Xambeu 1994). Eventually, the integration of state borrowing and bank lending in the creation of 'national' debts led to the creation of entirely new forms of means of payment. These were based upon distinctive social relations and forms of organisation that had not existed in the ancient and classical economies (Weber 1981 [1927], Chapter XX).

These forms of capitalist credit money were the results of two related changes in the social relations of monetary production in mediaeval and early modern Europe. First, as we shall see, the bills of exchange used by merchants and traders could be detached from the existence of any particular commodities in exchange and transit and used as a pure form of credit. Later, in a crucial further stage of dislocation, the debt eventually became detachable from any particularistic creditor-debtor relation. In this way, signifiers of debt became transferable to third parties and could circulate as 'private' money (Kindleberger 1984; Boyer-Xambeu 1994). For the very first time, the extensive production and control of a form of money was, now, in the hands of agents who operated outside the state's monopoly of currency issue. With this change, the private capitalistic financing of enterprise on a large scale became a possibility. Eventually, such signifiers of debt became completely 'depersonalised' (payable to X or bearer) and were issued as bank money; that is to say, the promises to pay drawn on banks became a widely accepted means of payment. In a second and related major structural change in early modern Europe, some states began to finance their activities by borrowing from their wealthy merchant classes. Their promises to repay these 'national debts' became the basis for public credit money that existed in an uneasy and uncertain relationship with the coinage.

These capitalist non-commodity forms of money cannot be satisfactorily explained simply as a process of the progressive
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'dematerialisation' of money which is driven exclusively by the rational pursuit of cost efficiency. Orthodox economic explanations imply that the development of credit and modern forms of finance result from 'economising' on mining and minting and/or as the response to the insufficiently elastic supply of commodity money to meet the needs of the expansion of commerce and industrial production in capitalism. Of course, economic interest was a spur to the development of advantageous monetary practices; but these were only made possible as a result of changes in social and political structure that were, in the first instance, only indirectly related to the pursuit of economic 'efficiency'. In the first place, monetary practice, as ever, evolved with regard to the demands made by states in pursuit of their own interests. Second, the particular character of these changes cannot be understood outside the exigencies and enabling opportunities that were presented by the unique configuration of mediaeval Europe's social and political structure. The disintegration of Rome left the cultural shell of a civilisation coextensive with Christendom, but comprising multiple, insecure, acephalous political jurisdictions (Mann 1986). The evolution of capitalist credit money was, arguably, one of the most important consequences of these particular circumstances