In the 20th and 21st centuries a thin piece of plastic card measuring 3 and 3/8 inches by 2 and 1/8 inches became almost ubiquitous; at least in the advanced capitalist countries. Although there are two types of such ‘cards’ (debit and credit) tucked away in individual wallets and handbags, this piece of plastic is almost always referred to as a ‘credit card’. This is an apt description because ‘credit’ has become the overwhelming economic means of exchanging goods and services within the capitalist mode of production.

Furthermore, it is the complex development of ‘credit’ which allows capitalist production of commodities and services to be pushed beyond the general capacity of people to purchase its total industrial output. This tendency known as relative-overproduction periodically triggers a systemic crisis as happened with the devastating examples of 1929 and 2008. However, in a dialectical twist of contradiction, the proliferation of credit not only leads to a collapse within the capitalist system, but also indicates the potential development of a future post-capitalist mode of production.

To explain this contradiction requires a closer look at the basic economic exchanges we all take for granted but rarely think about seriously. For example, before the existence of credit cards, working people sold their skills and energy for a wage or salary paid at the end of a week or month in the form of a packet containing ‘money’. The money was usually in the form of paper notes and coins of the currency legal in the country within which we worked.

This money we exchanged for the goods and services we required. Money was therefore the dominant medium of exchange and not just for ordinary people. Historically this was also the case for the capitalist class who employ working people. A capitalist would expend money on a factory, equipment, machines, raw materials and wages. Then directed the workers to produce goods and/or services (distributed as commodities), which he or she sold at a profit, then sought to repeat this whole production process.

Notably, this original monetary system did not depend upon social trust between the people for exchanging goods and services. Instead trust was paradoxically given to an inanimate object – a valuable metal ‘thing’ termed money – usually in the form of gold (or silver) made into bars or coins. Indeed, with the later introduction of paper currencies it was still felt important to link these ‘notes’ to an amount of gold ‘paid on demand’ (ie the Gold Standard) because ‘trust’ continued to resided in money via its promised convertibility into gold. Shakespeare’s “visible God” lived on!

Even though this convertibility was ended (1931 in the UK; 1971 in the USA) the English notes still bear the words ‘I promise to pay the bearer on demand..’. This contemporary promise is a faint echo of that earlier commitment to trust the value of an inert piece of non-perishing precious metal rather than (where possible) trust in people. However, as capitalist production and distribution increased, there was increasingly a delay between the products being finished and distributed and sufficient money from sales returning to the capitalist to continue production.

This delay gave rise to various capitalist producers and merchants supplying the raw (and finished) materials needed to other capitalists without immediate payment but with written promises to pay. So in business, trust in paper backed individual promises started to replace trust in hard cash. These promises often named ‘bills’ or now ‘financial instruments’ allowed production to continue without capitalists necessarily having the money to immediately pay for the various transactions.

Since almost every capitalist started to extend credit the commercial ‘bills’ in a great many cases would conveniently cancel each other out. For example, if capitalist ‘A’ supplied goods worth £1,000 on a months credit to capitalist ‘B’ and ‘B’ had supplied £900 of raw material on a months credit to capitalist ‘A’, then the credit notes of each could partly cancel each other out (£1000 – £900 = £100). Neither would need to keep thousands of pounds on hand and ‘B’ would only need to pay ‘A’ £100 at the end of the month.

Thus complex systems of credit developed both nationally and internationally among capitalist suppliers, producers and merchants, which allowed huge amounts of economic activity to take place without the need for large amounts of money to be held in reserve for immediate payments. For capitalists that previously held reserve money could then be used to invest in order to make more money. This allowed the capitalist classes to increase their production, distribute and sell more and thus become richer.

However, this intricate system of extended credit also introduced two contradictory characteristics to the economic cycle of social production, sale and consumption. 1; an accumulating negative outcome: 2; an interesting positive development.

First the positive outcome: The universal application of credit removed the almost complete trust in an inanimate material (money) in exchanges and re-established trust between human actors in production. People were (and still are) economically producing and exchanging based upon credit (ie trust) without the continual use of money. Apart from a minority of rogues, social production via the extended division of labour and credit was henceforth being conducted on the basis of mutual trust.

And credit was not just extended by capitalists. By always working a week or month ‘in advance’ (ie working before being paid) workers advance a form of credit (eg the value of 5 or 20 days work) to whoever employs them. It is this habit of giving and accepting credit based on social trust which is an important basis for any transition to a post-capitalist form of production. Or as Marx concluded;

“Finally, there is no doubt that the credit system will serve as a powerful lever during the transition from the capitalist mode of production to the mode of production of associated labour; but only as one element in connection with other great organic revolutions of the mode of production itself.” (Capital Volume 3 page 593)

To a large extent in the late 20th century, the plastic ‘credit’ card increasingly replaced money for the day to day exchange of goods and services for practically everyone – not just capitalists. As workers, white-collar and blue, we have become used to working and purchasing without needing pockets full of money. Providing we have a means of credit (derived from entitlement benefits or in exchange for the work we do) we now know we can continue to purchase what we need.

So just as non-profit public services and cooperatives emerged from within all capitalist systems and proved that economic alternatives to private enterprise are eminently viable; credit based economic exchanges demonstrate that alternatives to the money-mad capitalist forms of exchange designed purely to accumulate obscene levels of monetary wealth for the elite are also viable.

Turning to the negative outcome of capitalistic credit, it needs to be born in mind that, as noted above, capitalists only need money to in order to realise and accumulate their profits. For them forms of money are movable stores of accumulated value for further investment – not just a means of exchange – for they also use credit purchases for that.

However, keeping this capitalist ‘need’ of money for accumulation in mind, note also that the longer, the more complex and the more valuable the chains of capitalistic business credit become, the greater chance of even one or more defaults (ie an inability to pay with money when the payment date arrives) travelling along the chain of transactions making it collapse like a line of dominoes (ie as happened in 2008).

So it is a basic fact that financial crises sporadically occur within capitalism when the numerous chains of credit, driven on by – greed-for-profit production – become longer, more complex, involve greater product volumes than are actually needed and consist of considerably more value than the money available to settle accounts. Such crises are further exacerbated when emergency credit facilities or loans – such as pro-capitalist government bailouts etc., – become unavailable.

Now fast forward to 2020! Despite the emergency bailouts, a combination of pre-Covid austerity and now the Covid-19 Pandemic has by additional bankruptcies and unemployment;

1, further reduced the numbers of people able to pay for goods (commodities previously overproduced by businesses using normal commercial credit). Furthermore, due to a lack of cash, many individuals have also now maxed out their personal credit;

2, the Covid Pandemic has also; increased the use of business credit by capitalist producers, also because of the shortage of cash available to, and not returning from, the now unemployed, shielding or locked down former consumers.

All this means that on top of financial problems experienced by individuals, another capitalist inspired general financial and economic credit collapse is looming. It will likely be triggered by business-led credit defaults which will accumulate on the surface of the coming crisis. Even more settlement payments will become due and defaulted, even more goods will remain unsold and even more jobs and homes will be lost.

Although the timing and pace of this coming economic crisis is unpredictable, it will nonetheless involve all the countries around the globe, sooner or later. Its economic effects will also be uneven as will be the consequential social unrest that the ensuing hardship will provoke. How the crisis will be positively resolved this time around will depend upon how many people have really understood the system we are living under, and have also studied and understood how best to address its many economic, ecological, social, political and medical contradictions.

Any positive resolution of the coming crisis will also depend upon whether a critical-mass of citizens become non-sectarian activists and help tip the balance of responses in favour of campaigns for a more sustainable, humane, socially egalitarian, post-capitalist future for humanity.

Roy Ratcliffe. (November 2020.)

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  1. Christina Horsfield says:

    Credit and the coming crunch.
    Thank you Roy for explaining how everything economic works, the basics of capitalism. I never properly understood how the development of credit was the spring board for the capitalist system the accumulation of money , and mode of production.The capitalist suppliers , producers and merchants which allowed economic activity to take place the system we are all living under…Its a case of we can not trust capitalists to tell us the truth – to much money involved

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