Market, Loan Capital

under capitalism, a special sphere of economic relations in which supply and demand for loan capital take shape. In the loan capital market the sellers of capital are monetary capitalists (the owners of loan capital), who are represented by a vast system of credit and financial institutions, including commercial and investment banks, insurance companies, pension funds, and investment companies. The buyers are private commercial establishments, governments, or individuals (the population).

The loan capital market includes a market for short-term credit (capital)—a money market where commercial and treasury notes are bought and sold. There is also a long-term credit market, which is subdivided into a long-term capital market and a market for paper securities, where the stocks and bonds of private enterprises and bonds issued by central and local government bodies are bought and sold. In the long-term capital market, credit and financial institutions grant loans for extended periods of 20–100 years.

The loan capital market was poorly developed under pre-monopoly capitalism, owing to the limited supply and demand for the monetary capital, for which there were several reasons. Because it consisted primarily of banks, the credit system was not yet able to engage extensively in the accumulation of monetary capital and the people’s monetary savings. Other types of credit and financial institutions were just beginning to emerge. The demand for monetary capital, chiefly short-term capital, came from individual enterprises, and the state and the population very rarely turned to the loan capital market. The market for paper securities was just emerging.

Monopoly capitalism stimulated the development of the loan capital market. An enormous demand for loan capital was generated by the formation of joint-stock companies, the high concentration and centralization of production, the development of new sectors based on scientific and technological discoveries, the growing role of the state in the economy, and various other factors. State-monopoly capitalism created the preconditions for the further growth of the loan capital market. The governments of the capitalist countries actively shape economic policy, including credit policy. The state influences the loan capital market by establishing the discount rate of central banks, thus regulating the supply and demand for loan capital. As a result of the creation of state credit institutions, the state has become both a buyer and a seller on the loan capital market.

From the late 1960’s and early 1970’s credit and financial institutions commonly concluded long-term agreements, or credit lines, with commercial and industrial monopolies, stipulating the amount of a loan and the period during which a corporation could borrow from a bank or other credit and financial institution. Credit lines are especially common in the USA, which has a powerful loan capital market and a vast network of credit and financial institutions.