Credit?

[Hermes]

I'm reading Reform or Revolution, but I'm not really sure I understand the concept of credit enough to grasp her meaning in the first couple paragraphs of the second part.

Is credit just where one capitalist borrows money from another capitalist in the hopes of being able to return that loan based on profits gained from that capital? This is my current understanding, or lack thereof, of credit, but then how does it lend itself to over-extension? Is it because it allows those who wouldn't otherwise have the capital to make such a venture, thus expanding?

Sorry for the ignorance.

[theblackmask]

I think you've got the general idea of it. Keep in mind, though, the text is over 100 years old. Capital has had a century to establish itself to the point that some of Luxemburg wrote is simply not relevant.


Is credit just where one capitalist borrows money from another capitalist in the hopes of being able to return that loan based on profits gained from that capital?As Rosa states, "Its two most important functions are to extend production and to facilitate exchange." So yes, capitalists borrow amongst each other to try and make money. Modern credit allowed businesses to expand beyond where they normally could, and allowed some businesses to profit from exchanging money with others. The thing is, credit has established itself to a point now where entire businesses are run on credit. It is not simply a case of "having a minimum of metallic money as a real base." From major retailers, to someone running an eBay store out of their mom's basement, credit is necessary for daily operation. Credit has advanced from "an instrument for the suppression or the attenuation of crises" into a deeply rooted, permanent fixture of almost all business. Credit is more of an organ of Capital than an instrument. the system simply could not exist without it.

Luxemburg plays up the fact that credit is "easily disarranged at the slightest occasion," which it most likely was at the time of her writing. As witnessed in the latest "credit crunch," only the bottom rungs of retailers were affected. Far from credit destroying the "very productive forces it itself created," it simply makes it easier for bigger businesses to swallow up smaller ones. It does not "bring and extend the crisis." It does not shrink the market, it simply consolidates it.

So, yeah, Luxemburg's initial description of credit is accurate, but how she ascribes a revolutionary potential to credit, by calling it "a means of destruction of the most extreme revolutionary significance" does not really apply to current times. Not to mention, consumer credit, such as student loans and credit cards, did not exist back then, and are not accounted for.