Turnover of industrial capital, commercial and bank credit: modern Unoist approach 4. Emergence of bank credit

 

4. Emergence of bank credit:    

4.1 From commercial credit to bank credit:

Marx pointed out that commercial credit forms the basis of proper credit money (banknotes) and of the entire credit system (Marx 1991, pp.525, 610). This description can be interpreted in different ways. The simplest interpretation is that bank credit is created through the discounting of commercial bills, thereby overcoming their limitations.

However, recent Unoist scholars, based on the theory of differentiation and emergence, have argued that bank credit emerges from commercial or industrial capital engaged in credit trade (Yamaguchi 1985; Obata 2008).

 The most important condition for commercial credit is that the seller (B1) knows that the buyer (A1) will be able to pay. However, even if sellers in sector B do not know whether A1 can pay in the future, a third-party X can mediate the credit relation. If (1) X knows A1’s ability to pay, and (2) X is trusted by some sellers in sector B, X can exchange their own debt for A1’s debt. A1 can then purchase products from one capital of B sector using X’s debt. Then, X evolves into banking capital.

Different types of capital can take the role of X. Historically, many bankers originated as long-distance merchants. Theoretically, the commercial capital can handle many trades on credit and tends to issue bills with multiple signatories, which are more likely to be trusted. Thus, commercial capital can evolve into banking capital (Yamaguchi 1985, pp.224–225).

Alternatively, the buyer of A1’s product may know A1’s ability to pay—namely, the salability of product A—better than others. If this buyer is trusted by B1, it can mediate the credit relation between A1 and B1(Obata 2009, 226-234).

These attempts contribute to the theoretical explanation of the emergence of bank credit as a way to overcome the limits of commercial credit. However, they share a common weakness: the ad hoc assumption of a trustworthy third party. This problem can be solved by placing B1, the original credit giver in the commercial credit, in the position of X (See the next section). In this way, bank credit emerges as a development of commercial credit itself, not just as a solution to its limitations.

4.2 Profit transfer in the commercial credit among three capitals

In commercial credit, B1 is assumed to be able to assess A1’s creditworthiness and to hold its creditworthiness due to its strong sales position. Under these favorable conditions, B1’s inventory lowers, and it cannot sell directly to A1 on a larger scale. However, B1 can earn additional profit by mediating credit beyond its own productive activity.

In this case, B1 guarantees A1’s future payment to other firms in sector B (e.g., B2), which cannot assess A1’s creditworthiness directly. B1 issues its own debt in exchange for A1’s debt. A1 can then use B1’s debt to purchase products from B2. Since B2 trusts B1’s ability to pay, it does not need to assess A1’s creditworthiness. This saves B2 the capital and cost required for credit assessment. In return, B2 transfers part of the additional profit from the credit sale to B1. If B1 expands its credit mediate to other areas in the aid of its creditworthiness and ability to assess other capitals’ creditworthiness, B1 evolves into banking capital.

 

To express the profit transfer, we denote:

• Y’: the capital saved by B2 due to B1's guarantee of A1's payment.
• α−γ: the profit transferred per unit of product from B2 to B1 (B2 retains γ as its additional profit from the credit sale)

For simplicity, assume B1 allots capital Y′ for this credit mediation.　

A1, B1 and B2 compete to maximize their respective profit rates through α and γ.

The profit rates are:

When B1 functions as a bank, the deposit rate　γ/PB   is given by:

Thus γ/PB  represents the portion of profit received by B1. It is determined by (i) a share of the profit generated in sector A, (ii) an additional share generated jointly by sectors A and B, and (iii) a deduction for profit retained in sector B.

This equation is not easy to interpret compared with the markup on the commercial credit, which means that the deposit rate reflects a more complex relationship between the three capitals. Moreover, the result depends on the specific assumptions used. Nonetheless, this analysis shows that the interest rate can be derived from the internal relationships between multiple capitals involved in the credit transaction.