Credit

The deferred payment or borrowing or lending of money in the purchase and sale of commodities with claims and debts as its essential relationship. When analyzing the form of the movement of interest-bearing capital in the capitalist economy in Capital, Marx once pointed out: “This movement, disposing on condition of returning, constitutes per se the movement of lending and borrowing, that specific form of conditionally alienating money or commodities.” Under the conditions of the existence of commodity-money relation, such lending and borrowing is expressed in the form of alienation of money or commodities on condition of repayment, i.e., in this form the creditor lends money or sells commodities on credit (i.e., on deferred payment), and the debtor repays the loan on an agreed date and pays interest on it.

Credit is an economic relation subordinate to the exchange of commodities and the circulation of money. Credit arises when commodities are given away on credit and money performs the function of a means of payment. Credit is not an economic category unique to a society, but the economic relations reflected in credit differ essentially under different socio-economic conditions.

The oldest form of credit was usurer’s credit, which arose during the disintegration of primitive societies. In slave and feudal societies, usury was the basic form of credit. Exploited by usurer’s capital, peasants and other small producers could hardly sustain even simple reproduction, thus seriously holding back the development of the productive forces of society. By the end of the feudal society, however, usury was dismantling the natural economy and preparing certain preconditions for the emergence of the capitalist mode of production: on the one hand, the large amount of monetary wealth accumulated in the hands of the usurer has become one of the sources of the primitive accumulation of capital; on the other hand, the mass bankruptcy of small producers exploited by usury has furthered the formation of a class of wage-laborers.

In capitalist society, as a form of movement of loan capital, the credit system has taken the place of usury. The properties of the formation of loan capital and the circuit of industrial capital are directly connected. The temporarily idle money-capital formed in the circuit of industrial capital does not bring profit to the capitalist, who must try to lend it out; while other capitalists, in the process of reproduction, often need to replenish their money-capital. The capitalists who own money then transfer idle capital to functioning capitalists for use through credit. In addition to paying back the borrowed money on time, the functioning capitalists are required to pay a portion of the exploited surplus-value as interest to money-capitalists. Loan capital under capitalist conditions embodies the credit relation between the money-capitalist and the functioning capitalist as well as the relations of exploitation of the wage-laborer by the capitalist.

Capitalist credit is divided into commercial credit and bank credit. The former is the credit provided between functioning capitalists when they buy commodities on credit with deferred payment, which is the basis of the capitalist credit system. Bank credit was developed on the basis of commercial credit in response to the needs of expanded capitalist reproduction. It is the credit provided to functioning capitalists by banks which concentrate and hold large amounts of money capital, by means of loans and discounts. Bank credit is predominant among capitalist credits. In addition, there are the forms of state credit, consumer credit and usurer’s credit, etc.

Credit plays an important part in the capitalist economy. Firstly, it has promoted the free transfer of capital and the equalization of the rate of profit. It furthered the redistribution of capital among the branches, so that capital is rapidly transferred from less profitable branches to more profitable branches, thus contributing to the equalization of the rate of profit. Secondly, it is conducive to reduce the costs of circulation. Due to the widespread use of credit circulation instruments, are settled through the mutual cancellation of claims and debts in lieu of real money; the use of credit to sell commodities and the provision of loans by banks, etc., have accelerated the circulation of commodities and the circuit and turnover of capital, thus reducing the costs of circulation. Thirdly, it has accelerated the centralization and monopoly of capital. Banks lent large amounts of loans to big capitalists or groups of capitalists and made them grasp stronger capital, expand their scale of production, improve their production technology, enhance their competitive power, suppress and annex small and medium-sized enterprises, thus accelerating the concentration, centralization and monopoly of capital. At the stage of imperialism, bank capital and industrial capital merged into financial capital, forming the rule of the financial oligarchy. Fourthly, it has exacerbated the class contradictions and economic crises inherent in capitalist society. Capitalist enterprises, with the help of credit, constantly improved their equipment and increased the organic composition of capital, causing massive unemployment among workers and deepening the contradictions between the proletariat and the bourgeoisie. Credit fueled speculation and created false demand for commodities, which, while overproduction is masked on the surface, actually exacerbates it further and creates a more serious economic crisis. Marx pointed out that “the credit system accelerates the material development of the productive forces and the establishment of the world-market; it is the historical mission of the capitalist system of production to raise these material foundations of the new mode of production to a certain degree of perfection. 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.”