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THE DOMINANCE OF FINANCE CAPITAL IN PRODUCTION; Banks and the Credit system in General

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THE DOMINANCE OF FINANCE CAPITAL IN PRODUCTION; Banks and the Credit system in General Empty THE DOMINANCE OF FINANCE CAPITAL IN PRODUCTION; Banks and the Credit system in General

Post by sol_drethedon on Fri Dec 27, 2013 7:48 pm

b) Banks and the Credit system in General
While state capital assured general technical preconditions of production in the colony, and while it also ensured the general social preconditions such as 'law and order', the state was also instrumental in providing the conditions for the creation of a monetary system and currency, which in turn were responsible for the system of production. The provision of credit system that arose there upon was itself the extension of these relations from the imperialist country, which assured the monopolies the extraction of surplus value in Uganda. The financial and monetary superstructure that arose in Uganda was part of the imperialist exploitation, and its important to note its historical origins.

Historically, the role of banks as institutions for the organization of the credit system was that of a middleman whose function was to turn inactive(hoarded) money into active (productive) money. In this way the money capital turned into productive capital and in its historical movement was the very process by which the industrial bourgeoisie established their control over all national capital. By turning inactive money into active money the whole system of production, exchange and distribution was set in motion, and the industrial bourgeoisie thus became the hegemonic bourgeoisie, who alone realized surplus value, which was then distributed in different segments to the other bourgeoisie as rent, interest and profit. Marx emphasized that this process of centralization of capital separated the owners of money capital from those who applied it (industrial bourgeoisie) and thus turned the latter functioning bourgeoisie into 'mere managers, administrators of other people's capital', and the owners of capital into a 'mere money capitalist' who earned interest, 'as a mere compensation for 'owning process of production' Lenin in his analysis of imperialism added that this characteristic of capitalism reached 'vast proportions' under imperialism:

"The supremacy of finance capital over other forms of capital means the predominance of the rentier and of the financial oligarchy; it means that a small number of financially 'powerful' states stand out among all the rest."

The establishment of banks and the credit system in Uganda and their operations confirm this thesis of Marx and Lenin. As we have seen, one of the immediate tasks of the imperialists, after the establishment of state structures all over the country, was the creation of the colonial economy. The cultivation of cash crops could go on at this level, at least in the beginning, with state capital providing the general technical and social conditions of production.

The continued production, marketing and transportation of these products was however impossible without a credit system. At first the imperialist oligarchy had recourse to its sub-currency coined in India (the rupee) for the purpose. This was the reason the first bank to establish itself in Uganda was the National Bank of India, which had been operating in Zanzibar since 1893, and in Mombasa since 1896. But this bank was neither 'national' nor 'Indian.' It was a British monopoly bank operating in the England and surrounding empire of Britain. Very soon branches of the bank were established in Entebbe, Kampala and Jinja and later all over the country. In 1910 another British monopoly bank - the Standard Bank of South Africa - also established two branches in Uganda. Another Barclay's Bank (Dominion, Colonial and Overseas) also soon set up office in the region . All had their headquarters in London and kept all their reserves in London which is the same as saying that these banks acted as centralizing agents for all money capital in the British empire, among other activities which the imperialist bourgeoisie then utilized for their purposes. On the spot they engaged in colonial production and trade - financing transportation, production of raw materials and other agricultural products, financing, mining and the consumer goods trade as well as the purchase of machines and equipment from Britain to the colonies.

To enable these activities to go on, the banks set up financial houses, located in Kenya primarily to provide hire-purchase finance; and development corporations to make long-term investments. Some of the directors of the banks, finance houses and development corporations had interlocking directorships with a number of agricultural, industrial and import - export companies which they financed, thus truly controlling the production activities of the three East African countries. Each bank set up its own finance house and development corporation. The National and Grindlays Bank(formerly National Bank of India) set up the Credit Finance Corporation. The chairman of the bank, Harold Travis, held 43 directorships in companies in Kenya alone in 1968. The Standard Bank established the National Industrial Credit Limited., in which it owned only 40% shares while the other 60% were owned by another monopoly bank, Mercantile Credit Ltd. of London, described as the 'biggest and the most belligerent' of the hire-purchase firms with 'huge ramifications in industry'. All these finance houses were licensed as banks . The borrowed and lent money and specialized in hire-purchase business of all types inclusive of motor vehicles and investment in industry. There were other finance companies which operated in East Africa. These were the Traction Finance Corporation Ltd., subsidiary of Cooper Motor Corporation Jamnadas Ltd., The Trade and Finance Ltd., United Securities Ltd., The Industrial Promotion Services Limited, sponsored by the Aga Khan with wide connections in East Africa; and Africindo Industrial Developments supposedly established to encourage Indians to accelerate the entry of Africans in industry.

Apart from these finance houses, each main bank had a development corporation for engaging in long-term investments. Barclay's Bank set up Barclay's Bank Overseas Development Corporation. By the 1960's this corporation had commitments in 88 projects involving a total sum of 3,162 mainly in agriculture. The Standard Bank Development Corporation had 1,100,000 invested in East Africa, including James Finlay & Co. Ltd., African Highlands Produce Co. Ltd., Smith Mackenzie & Co. Ltd.,m the East African Trust and Investments Ltd., and others.

Besides the banks, the finance houses and development corporations, insurance companies were major agents in the centralization of capital and determination of its application. Many of these insurance companies were connected with banks and shipping lines. They engaged in life insurance and general insurance. Many of them were headquartered in Nairobi, and operated throughout East Africa through branches, brokers and agents. They covered mainly non-life activities connected with import and export like fire, motor, marine, general accident and employers' liability. In 1955, the holdings of these companies totaled 26million British Pounds in Kenya, where three quarters of it was invested. A few insurance companies were also sponsored by the Ismaili community, but tied to the needs of British finance capital.

For completeness it is also necessary to mention the centralizing activities of other small banks and finance houses. The Post Office Savings Bank was set up in the 1930s and took savings from the peasantry in particular, utilizing it for various productive purposes. There were also building societies like the First Permanent, Savings and Loan, East African Building Society, and companies such as Noble Lowndes Finance (E.A) Ltd., which also played a part in the centralisation of workers' savings for applications by the financial oligarchy.

Marlin points out that there were three main phases though which the financial and monetary operation passed in East Africa:

Stage 1: Payments were effected between colonies and their respective mother countries through exchange transactions and cashless transfers.

Stage 2: These functions led to the growth of sight and time deposit business,and employed the greater part outside the country. The volume of local lendings was directly connected with the financing of foreign trade, indirectly with related transactions within East Africa.

Stage 3: The banks repatriated their funds from London so as to increase lendings locally. At the same time they offered a wider range of service to customers.

In East Africa, as already pointed out, the Indian rupee operated for a time as the currency of the region. This was of little importance since, since, up to a bout 1914, the gold standard was the basis of all monetary systems in the world. So long as the currency notes could easily be exchanged for gold, it did not matter whether the rupee or
Sterling operated in East Africa. Since the National Bank of India was operating in Zanzibar, it became easier for the Indian silver rupee to operate in East Africa as a
whole. The fixed parities between the rupee and the sterling, which all related to gold, were 15 rupees = 1pound sterling /sovereign. With the first world war (1914 - 18), and due to the expansion of economic activity in Europe, the Bank of England printed more notes than could be supported by the available gold. The result was a great hike in prices overall, resulting in an inflation of over 40% between 1914-20 in East Africa. For this reason the pound sterling and the silver rupee were no longer tied to gold, thus creating conditions for the two currencies to diverge in value according to the volume of goods produced in the localities in which they operated. This divergence - itself a result of the crisis of British imperialism leading to war - became the basis for abandoning the rupee in favor of sterling in East Africa. This change moreover increasingly depreciated the export earnings of the peasantry and even of the colonial settlers, who sold directly to Britain, due to the declining purchasing power of the silver rupee in relation to the pound sterling. In 1920 - a year which marked the beginnings of the collapse of white settlement in Uganda - export earnings in East Africa declined by between 300 and 800 per cent as a result of the divergence, the benefit of which redounded in the pockets of the oligarchic parasitism of Britain.

To resolve this crisis the British oligarchy decided to peg their exchange rate between the pound and the silver rupee at 1pound = 10 rupees instead. Due to a rush of Indian rupees into East Africa from India,for where the exchange rate was lower, in order to reap a higher exchange rate, the Indian rupee was declared no longer legal tender in East Africa in February 1921. Instead two East African shillings (florin) were substituted for one rupee. The florin was substituted into 100 cents. Later a shilling unit was substituted for the same 100 cents,a fact that was directly calculated to reduce the workers' by 33% in Kenya. The shilling was exchangeable on the basis of one to one with the British shilling until Independence. This was so long as sterling continued to be one of the two main international currencies.

top be continued...


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