Re: [OPE-L] The Financialization of Capitalism

[Rakesh Bhandari <bhandari@xxxxxxxxxxxx>]

Title: Re: [OPE-L] The Financialization of Capitalism

>
> It has been argued [10][1,2,3,12,7,11]
> that the real rate of return on capital tends to decline over the
> course of capitalist development. If the rate of interest does not
> fall at a corresponding rate then the level of voluntary fundraising
> by firms will decline, since a diminishing portion of firms will be
> making enough profits to cover the rate of interest. However, the
> level of savings will not necessarilly decline at a corresponding
> rate.

Paul, this does not seem to me to follow, for even if the rate of interest does fall at a corresponding rate, the real rate of return on capital still may have still declined to such a point that fresh borrowings are not made.

Here are some quotes from Mattick's Marx and Keynes; by the way there is a brilliant piece by John Milios in the most recent Science and Society on Tugan Baronwsky which ends with discussion of Mattick.

"But no generalization regarding the behavior and importance of the rate of interest can be passed on this possibility [of positively affecting investments].  High interest rates are not incompatible with high rates of profit.  When all is well in the sphere of profit production, a relatively high rate of interest will not hamper capital formation.  It may even quicken its place, if productivity develops fast enough to satsify both loan capital and productive captial".

" A decade of falling interest rates after 1929 did not affect investment decisions seriously. Interest-rate manipulation ceased to be regarded as a main instrument for the control of business activities, an 'in the academic view it seems that the importance of the rate of interest was very much exaggerated in traditional theory, and that Marx was after all not much at fault in ignoring it altogether.'(quoting Joan Robinson)

Quoting Keynes "'the collapse in the marginal efficiency of capital may be so complete that no practical reduction in the rate of interest will be enough" to stimulate investments. 'With markets organized and influenced as they are,' he wrote, 'the market estimation of the marginal efficiency of capital may suffer from such enormous fluctuations that it cannot be sufficiently offset by corresponding fluctuations in the rate of interest.'"

> As the demand for funds within the
> industrial and commercial sector dries up in the face of high interest
> rates, lending comes to be directed increasingly towards the funding
> of the state debt and consumer credit.

Why would not states and consumers be limited as to their borrowings by high interest rates as well? What guarantee that they'll be able to absorb the surplus stock of liquid money capital? Which you seem to believe on theoretical grounds will rise in the course of accumulation, though (now in reply to Allin) it may now show up in the M2 numbers as you also seem to be suggesting

Rakesh

> With a growing portion of capital
> depending on interest rather than industrial profit, there grows an
> increased political pressure to maintain high interest rates. This
> baneful effect of the rentier interest which was already lambasted by
> Hobson[4] and Keynes[5][6] , for its role in consuming capital and
> hindering investment, looks set to grow. Early 20th century critics 
> of the rentier class like Hobson, Keynes Veblen and even Lenin,
> identified another trait ? its predatory charcter. To this trait
> they attributed the disaster of the Great War, and the deferred
> disaster that was the Versailles treaty.
> The rentier interest stood ultimately on
> moral grounds quite alien to those of natural right. Speaking of the
> absentee ownership of natural resources, Veblen said ?The owners own
> them not by virtue of having produced or earned them, ? These owners
> own them because they own them, .. title is traceable to an act of
> seizure, legalized by statue or confirmed by long undisturbed
> possession.?[15]  This trait  is best exemplified in
> Russian rentiers like Abramovich, whose billions derive from an
> undisguised  seizure of natural resources within living
> memory.
> References
> [1]
> Gérard Duménil. The profit rate: Where and how much did it fall?
> did it recover? (usa 1948-2000). Review of Radical Political Economy,
> 34:437-461, 2002.
> [2]
> R Edvinsson. A tendancy for the rate of profit to fall. In Paper
> presented at the economic-historical meeting in Lund, October
> 2003.
> [3]
> R Edvinsson. Growth, Accumulation, Crisis: With New Macroeconomic Data
> for Sweden 1800-2000. PhD thesis, Stockholm University, 2005.
> [4]
> J.A. Hobson. Imperialism: a study. Unwin Hyman, 1902.
> [5]
> J M Keynes. The economic consequences of Mr Churchill. Hogarth Press,
> 1925.
> [6]
> J. M. Keynes. The General Theory of Employment Interest and Money.
> Macmillan, London, 1936.
> [7]
> M.A. Lebowitz. Marx's Falling Rate of Profit: A Dialectical View. The
> Canadian Journal of Economics, 9(2):232-254, 1976.
> [8]
> M. Levy and S. Solomon. Of wealth power and law: the origin of scaling
> in economics. citeseer.nj.nec.com/63648.html.
> [9]
> Moshe Levy and Sorin Solomon. New evidence for the power-law
> distribution of wealth. Physica A, 242:90-94, 1997.
> [10]
> Karl Marx. Capital, volume 3. Progress Publishers, Moscow, 1971.
> [11]
> G. Michaelson, W. P. Cockshott, and A. F. Cottrell. Testing marx: some
> new results from uk data. Capital and Class, pages 103-129, 1995.
> [12]
> F. Moseley. The Decline of the Rate of Profit in the Postwar U. S.
> Economy: An Alternative Marxian Explanation. Review of Radical
> Political Economics, 22(2-3):17, 1990.
>
> [13]
> William J. Reed. The pareto law of incomes - an explanation and an
> extension, 2000.
> [14]
> William J. Reed. The pareto, zipf and other power laws. Economics
> Letters, 74:15-19, 2001.
> [15]     Veblen, Thorstein, Absentee Ownership,
> Allen and Unwin, London 1923.
>
>
> File translated from TEX by TTH, version 3.00.
> On 21 Nov 2006, 14:43.