Loan Capital

Money-capital lent to functioning capitalists by owners of money-capital for the purpose of gaining interest.

Loan capital is not functioning capital, it is the capitalist form of interest-bearing capital, which only needs to go through two stages: lending and repayment. Loan capital originates from three major sources: first, the idle money-capital in the hand of functioning capitalists; second, the money-capital of money-capital owners; and third, the capital scattered in the society. The loan capitalist temporarily transfers the right to use a certain amount of money to the functioning capitalist, who uses the borrowed loan capital which is in money form to engage in production or circulation for the purpose of obtaining surplus-value. After a certain period of time the loan capital is repaid to the loan capitalist and a portion of the surplus-value is transferred to loan capitalist in the form of interest as remuneration for the use of the loan capital. Through loan capital, a separation occurs between the property and the right to use of capital. For the owner of the loan capital, it is the property in the money-capital that is retained; whereas the functioning capitalist who lends from the owner of the money-capital has only the right to use the money-capital. Loan capital achieves a valorization in the value of capital in this unique way. Interest is part of average profit made by the functioning capitalist and reflects the relation between the loan capitalist and the functioning capitalist in sharing the surplus-value created by the wage-laborers.

Marx pointed out that the formula of the movement of loan capital is M–M’ (M’ = M + i, i being the interest). This formula hides the real source of interest obtained by loan capital, creating the illusion that interest is the result of capital’s valorization on its own, thus concealing the truth that loan capitalists and functioning capitalists are jointly involved in the apportionment of the surplus-value created by the laborers.