over 30 years ago
we noted that:
Throughout the
industrial cycle the characteristic movement of the money-capital
interest rate is as follows:
??at the beginning of the
industrial cycle, a low rate of interest coincides with a contraction, and at
the end of the industrial cycle a high rate of interest coincides with a
superabundance of industrial capital. The low rate of interest that accompanies
the ?improvement? shows that the commercial credit requires bank credit only to
a slight extent because it is still self-supporting?. (Marx vol 3)
It
is necessary to grasp the origin of the general movements in the interest rate,
in the course of the productive process- the changing demand for
money-capital.
The decline in the
rate of profit is the _expression_ of an intensification of the contradiction of
capitalist production. The drive to expand capital, given inadequate profit
rates, is continued on the basis of extended credit. However the issue of
bankers? credit and their willingness to discount paper securities is
reduced as bankers see too many such securities and not enough money deposited,
whilst the demand for money-capital forces up interest. Credit, though
expensive, is still given however. In this system, where the entire continuity
of the reproduction process rests on credit, and where the relative
costliness of credit is rising whilst the rate of profit declines -a
crisis must soon occur. The general difficulty in expanding the real process of
production will sooner or later result in a chain reaction of an inability to
clear paper securities among capitalists connected through commercial
credit. It is this failure which mediates the outbreak of a crisis. A tremendous
rush for the means of payment follows, as the repayment of debt is demanded and
credit is extremely difficult to obtain. With the collapse of sales in a crisis,
the rate of discount for bankers? credit is highest. Now, generally, only cash
payments have validity. At first glance, this may create the impression of a
credit and money crisis only, the lack of real returns being unrecognised in
this paper world.
..... The
dominance of credit can conceal the increasing difficulty capitalists face in
realising their commodities at prices which enable them to maintain their rate
of profit. Rapid and apparently reliable returns always keep up for a period
after they are really over , precisely because of the existence of credit.
Credit takes the place of real returns. A relatively high rate of real
interest for loans must be paid alongside a slow increase in the mass of
profit. The maturity period of loans is prolonged while capitalists
strive to pay interest rates which rise relatively to the rate
of profit. Interest will even be paid for out of additional borrowed capital -
and this is done in part during times of speculation - staving off creditors
with increasing indebtedness.
As the collapse
begins, everyone is borrowing in order to pay. Money is required as a means of
payment and nothing else.
Capital Vol III op cit
p438.
----- Original Message -----
Sent: Wednesday, May 16, 2007 4:41
PM
Subject: 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.
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