monetary capital loaned to capitalists in return for payment of interest; its source is the unpaid labor of wage workers. Loan capital is a particular historical form of capital, a form generated by the capitalist mode of production. The forerunner of loan capital was usurer’s capital.

Sources. The formation of loan capital is subject to the laws of circulation of capital operating in the process of reproduction: in certain sectors, funds are temporarily released, and in other sectors an additional demand for funds arises. The funds temporarily liberated in the process of circulation of capital are a major source of loan capital. They include (1) funds designated for replenishment of fixed capital and accumulated as the value of fixed capital is incrementally transferred, through amortization, to the commodities being produced, (2) part of working capital released in monetary form owing to the fact that the time of sale of manufactured commodities does not coincide with the time of purchase of new raw materials, fuels, and other materials necessary to continue the production process, (3) variable capital temporarily released in the interval between the receipt of cash from sale of goods and the payment of wages and (4) surplus value, earmarked for capitalization and accumulated, during expanded reproduction, up to a certain amount depending on the size of the capitalist enterprises and their technological level.

The personal incomes and savings of all classes and strata of capitalist society are also a source of loan capital. They include primarily the incomes of the exploiting classes: the landowners and the bourgeoisie, especially rentiers. After World War II, rentiers lost their independent role as creditors, largely owing to chronic inflation, which depreciated their capital. At the same time, the incomes of “positional rentiers”—the strata of the highly paid, such as high officials, the clergy, and members of the free professions, and other prosperous strata of society—came to supply a great deal of loan capital.

The savings of the toilers are also a source of loan capital. This has become more the case since World War II, because of a certain increase in nominal wages due to the pressure of the strike movement and changes in consumption structure, namely, an increase in the proportion of durables and expenditures for housing and the education of children. Lack of provision for the future and lack of confidence in their economic future also force the toilers to accumulate savings at the expense of current consumption. The monopolies use these funds as capital with the help of credit institutions; this is one of the veiled forms of exploitation of the toilers. The low incomes paid to toilers in the form of interest and dividends are a means of attracting their savings.

The capitalist state’s money accumulations, the size of which is determined by the extent of state ownership and by the amount of national income redistributed through the state budget, are a source of loan capital.

The accumulation of temporarily free monetary capital and, to a certain extent, personal income, as well as the conversion of such capital and income into loan capital, takes place in the loan capital market.

Idle money is contrary to the nature of capitalism, and owners of funds search for profitable investments. In the course of capitalist reproduction, there is a constant demand for loan funds, a demand that results from differences in the amount and terms of repayment of funds advanced to production and from the need for concurrent investment of large funds for the functioning of fixed capital and for the expansion of production.

Special characteristics. Loan capital is a special type of capital, distinct from industrial capital and commercial capital. As loan capital emerged, capital split into owned capital, which is put to temporary use in order to earn interest, and functioning capital, which is invested in enterprises in order to make a profit.

Loan capital is a unique commodity, whose use value is its ability to earn income in the form of interest. Unlike the price of ordinary commodities, which is a monetary expression of value, the price of loan capital as a commodity—the interest—is payment for this ability.

As a commodity, loan capital has a specific form of alienation. Unlike buying and selling, where value moves simultaneously from seller to buyer (commodity-money) and from buyer to seller (money-commodity), value in a loan transaction moves just one way. At first, when the loan is granted, it moves from the lender to the borrower; then, upon repayment, it moves from borrower to creditor with payment of interest.

The movement of loan capital differs from the movement of operating capital. Loan capital is constantly in monetary form since it involves granting monetary capital on loan and repayment of the loan with interest (M-M’). It is the most fetishistic form of capital. It creates the impression that money can by its very nature bring a profit. In reality, the source of profit and interest is surplus value.

Loan capital is the most parasitic form of capital. Its owner in fact performs no decision-making or management functions in an enterprise; together with investing capitalists, however, he participates in the exploitation of hired labor. The movement of loan capital is conditioned by the cyclical fluctuations in capitalist production. At the same time, there are differences between the dynamics of loan capital and commercial-industrial capital. In a period of revival and industrial growth, with expanded production and commodity turnover, the demand for loan capital and the interest rate rise, and the volume of loan capital decreases. During a crisis, the surplus of actual (commodity and productive) capital goes hand in hand with a shortage of loan capital, and the interest rate rises sharply. Large withdrawals of deposits from banks and increased demand for monetary loans to pay long-term obligations in order to escape bankruptcy contribute to this phenomenon. During a depression, when some productive capital assumes monetary form, the accumulation of loan capital outstrips the accumulation of actual capital, which leads to a lowering of the interest rate. Thus, in the course of the industrial cycle, “the movement of loan capital, as expressed in the rate of interest, is in the opposite direction to that of industrial capital” (K. Marx, in K. Marx and F. Engels, Soch., 2nd ed., vol. 25, part 2, p. 32).

Although it has monetary form, loan capital differs not only from operating capital but also from money. Loan capital is one of the forms of self-expanding value; money, by contrast, the universal equivalent, does not itself produce an increase in value. The mass of loan capital significantly exceeds the amount of money in circulation, because the very same monetary unit may operate several times as loan capital. In the USA, for example, domestic indebtedness, which reflects the mass of loan capital, reached $2.5 trillion in 1974, including $1 trillion of corporate indebtedness, $600 billion of mortgage indebtedness, more than $500 billion of federal debt, and more than $200 billion of consumer credit. The mass of money in circulation (banknotes and demand deposits) was $264 billion.

With the development of capitalism, growth in the mass of loan capital outstrips the accumulation of actual capital. In certain phases of the cycle, and in connection with the use of capital for unproductive purposes, a temporary and relative surplus of loan capital arises. Marx related the problem of surplus loan capital with the cyclical development of capitalist production; at the same time, however, he emphasized the role of noncyclical factors, such as the growth of the credit system and the increase in the sources of loan capital, especially in personal incomes and state income.

Characteristics of the movement of loan capital in the epoch of the general crisis of capitalism. The principal feature in the movement of loan capital in the epoch of the general crisis of capitalism is the concentration of the growing masses of loan capital in the hands of the large banks and other credit and financial institutions and the use of most such loan capital by the monopolies. Loan capital moves primarily in the form of bank credit at the expense of a decrease in commercial credit. It is a powerful means for the coalescence of bank capital and industrial capital and for the formation and consolidation of finance capital. The increasing internationalization of production links and increasing capitalist economic integration have led to even greater monopolization of loan capital. As the international division of labor has deepened, loan capital has moved beyond the limits of nation-states, and an international loan capital market and a Eurodollar and Eurobond market has taken shape. As the monetary crisis has developed, the shift of “wandering” loan capital from some countries to others in pursuit of less risky and more profitable investment areas has increased, which has made the capitalist economy even more unstable.

The period of the general crisis of capitalism is characterized by increasingly unproductive use of loan capital, which results from the development of monopoly capital into state-monopoly capital and from militarization of the economy. To a large extent, loan capital is used for operations with private and, especially, state securities and for speculative transactions involving real estate and movable and fixed property. A relative surplus of short-term loan capital is observed in contemporary capitalism. At the same time, given the scientific and technological revolution, growing competition, and the development of international economic cooperation, the demand for intermediate-term and long-term capital is growing. In France in the 1970’s, for example, short-term capital has accounted for three-fourths of the resources attracted by credit institutions, and long-term credits have accounted for three-fourths of the credit granted by these institutions. State-monopoly regulation of the finance-credit mechanism makes it possible to use short-term investments as a source of long-term credit—for example, by giving guarantees and tax advantages. The result is higher inflation, less liquidity in the money-credit system, and growing contradictions of capitalism.

In the loan capital market, the role of the state as creditor, debtor, and guarantor is growing. A state-monopoly loan capital fund is created on the basis of redistribution of a significant part of national income through the state budget. The monopolies turn low-profit and risky loan operations over to the state, using the state loan fund to influence market conditions and effect structural shifts in the economy. This is especially furthered by credit stimulation of capital investments, housing construction, the sale of durables on installment plans, and the development of the infrastructure and by the encouragement of export of certain commodities.

The state-monopoly loan capital fund is increasingly becoming a constitutent element in capitalist economic programming. The coalescence of the monopolies and the state gives rise to an intricate mechanism of centralized state-monopoly control of the movement of loan capital from sources to investment areas. By differentiating interest rates and other conditions of credit, the state stimulates preferential granting of credit to the enterprises best suited to national economic development programs and contributes to the redistribution of loan capital in favor of monopolies at the expense of small and middle-level businessmen.

However, state-monopoly regulation of the movement of loan capital encounters the limitations imposed by private ownership of the means of production. It cannot overcome the cyclical nature of capitalist development or resolve the fundamental contradictions of capitalism.