[Marxism] Surplus capital

["Jurriaan Bendien" <andromeda246@xxxxxxxxx>]

Michael writes:

i'm curious about why you assume that flows into debt securities do not
contribute to production directly? isn't debt just another form of
capital investment? and aren't interest payments simply another form of
extracting surplus capital? why do you differentiate between the two
forms of capital?

Reply:

You don't seem to have read my first post on this question. The question is
who borrows and who lends, and for what purpose. If a state bank or
government treasury issues shortterm or longterm obligations, promissory
notes, bonds and the like at a given rate of interest, it mops up idle
capital that is not being invested to finance production. Normally, the
return will be lower than the return on stocks, i.e. the industrial profit
rate will be higher than the interest rate. If however the industrial profit
rate falls, or if the stock market crashes, capital will shift to
securities.

It is of course possible that governments (or private agencies) use part of
these funds to invest finance productive activity, but if that is the case,
then we would expect at least that the data on fixed investment in
production show a corresponding increase. If that is not the case, we can
only conclude that a large amount of capital is lodged as money capital (or
commodity capital) rather than production capital. There is, in other words,
nowadays a lot of money capital sloshing around the world economy seeking a
competitive or guaranteed return, mainly in the form of interest on loans
and placements of various types. If we also find the the utilisation rate of
installed productive capacity is at 70% or 80% we can only conclude that
aggregate demand is not allocated in a way that promotes sustained growth of
production.

In addition, we can also (1) trace the growth of net interest receipts
vis-a-vis corporate profits, and we find that net interest has grown faster
than net profits of enterprise, (2) the total value of realised capital
gains for tax purposes, which grew spectacularly in the 1990s, and (3) the
growth of currency reserves and the trade in currencies (the daily trading
volume in the currency markets around the world is estimated at around $1.1
to $1.5 trillion).
One author suggested upon analysing the data that out of the total volume of
returns on capital in the US economy, that nearly a fifth consists of
"rentier profits". See:
http://www.umass.edu/peri/pdfs/epstein/Financialization/Financial.Epstein-Jayadev.pdf

Finally it be shown that the value of the volume of world trade has grown
much faster than the value of net output, i.e. the value of what Marx refers
to as "commodity capital" has grown faster than "production capital" also.
All this means is that slow growth in real net output is not attributable to
any scarcity of capital that costs a lot to borrow, but that there is an
abundance of capital which, however, is not invested productively,
principally because of perceptions of risk and market confidence or because
profitability is higher in other areas (trade in existing physical or
financial assets, speculation etc.). Provided that capital realizes a
sufficient return, this does not matter a great deal to individual investors
in search of net income, but obviously it has a big effect on the creation
of additional employment.

Insofar as interest payments constitute an increasing impost on the gross
receipts of enterprises, that means that an increasing portion of
surplus-value from current production is realised in the form of interest
income. The circuit M-C-P-C'-M' is however only one circuit of capital,
other circuits are M-M', M-C-M', C-M-C' or, in the case of countertrade
(barter, offset agreements etc.), C-C'. Seymour Melman once devoted a book
to this topic called "Profits without production".

So there are these different modes of accumulation for capital - some create
jobs, other do not, that's the point; if an increasing portion of capital is
lodged in money capital or commodity capital, based on perceptions of risk,
profitability and market confidence, instead of in production capital, this
affects employment growth. Ultimately the circuit of interest-bearing
capital is dependent on the revaluation of assets through increased demand,
and on the circuit of production capital, but ultimately the valuation of
assets also depends on the circuit of production capital, since net new
value must be added in the real economy to sustain accumulation in all the
other circuits of capital.

Jurriaan



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