Schweickart and zero real interest rates

[Chris Burford <cburford@xxxxxxxxxx>]

Schweickart does not specifically discuss situations, arguably like the
present, when the average interest rate minus inflation in the US is
virtually zero.

However he does discuss the "purpose" and significance of having an
interest rate at all, and the effect of the differential between those who
get the interest rate and those who unfortunately do not. That I suggest is
the significance of even zero real interest rates if there is any inflation
at all. It is in fact  independent of inflation or even, conceivably,
deflation.


DS:

"If we make the functional distinction between entrepreneur (the person
actually undertaking the productive action) and investor (the person
advancing the capital) we see that the entrepreneur (qua entrepreneur)
takes no risks. [Previously Schweickart was discussing the significance of
a capitalist system that supposedly rewards risks.]

Leaving aside whatever funds of her own she may have put up, which are,
strictly speaking, inessential to her role as entrepreneur, we find that
she has nothing to lose. If the project fails, her backers lose their
investment. If the project fails, her workers lose their jobs. If the
project fails, society loses the material and intellectual resources that
could have been employed elsewhere. But the entrepreneur, apart from her
reputation, is no worse off than when she began.

[FN by DS: I don't mean to pretend that the psychological pain attendant on
failure is nothing. But in strictly monetary terms, she is no worse off
than before.]

So the (pure) profit she receives if the project is successful (what is
left after wages, material costs, interest, and dividends have been paid)
is not a reward for risk at all. It is a reward for her productive
activity. It is the investor, not the entrepreneur, who is rewarded for risk.

We are now situated to understand how it is that the investment game is
positive-sum, and why it is that the overall gain is (largely) at the
expense of the nonplayers. The basic insight is Marx's. "Use values," that
is, goods and services utilized by human beings, are the products of human
beings shaping nonhuman nature to human ends. Use values are the products
of labor and nature.

[FN: "We see , then, that labour is not the only source of material wealth,
of use-values produced by labour. As William Petty puts it, labour is its
father and the earth its mother" (Marx Capital Vol 1, p43). Contrary to
what is often alleged, Marx did not ignore the role of nature in the
production of wealth.]

Use values are producued by those human beings, entrepreneurs included, who
engage in productive activity.

[FN Use values are not restricted to material things. The people (mostly
women) who perform the enormous labor of caring for the young and the old
are engaged in productive activity, as are (I would argue) poets, priests,
performers - anyone who, by an expenditure of mental or physical energy,
produces a good or a service desired by human beings. (The question of
productive labor versus reproductive or nonproductive labor may be relevant
to some issues, but not to the one at hand.)]

Recall now the basic result we have gone to such lengths in previous
sections of this chapter to establish: Providing capital is not a
productive activity. Putting money in a bank, buying stock, investing in a
money-market fund - these activities, which form the core of the capitalist
investment game, entitle people to a share of society's produced use
values, but these people do not contribute in any direct, material way to
their production.

How is the positive-sum investment game possible? One gets something for
nothing only when someone else gets nothing for something. Investment
income - the reward to those who have risked their money in bank accounts,
stock shares, real-estate trusts, venture capitals, and the like - is
possible only because those who produce the goods and services of society
are entitled to less than their productive contributions. If capitalist
distribution did indeed accord with the canon of contribution (which, as we
have seen, is often claimed), then the capitalists would get nothing.

Let me be clear about what I am asserting and what I am not. Iam trying to
explain how it is possible that the capitalist investment game (whole and
usually in its parts) is positive-sum. In most years, more money is made on
the stock maret than is lost. How is this possible? I claim that this is
possible only because those who engage in productive activity receive less
than that to which they would be entitled were the canon  of productive
contribution governing distributon. The reward to risk derives from this
discrepancy."

David Schweickart "Against Capitalism" Westview Press 1996 pages 40-42

Comment:

I suggest this argument is why zero real interest rates are not a curiosity
but on closer examination can only be explained by considering how the
capitalist system actually functions in a late capitalist economy.

I would appreciate criticism on whether the connection I make is
reasonable, and whether Schweickart in his gentle exposition is doing
violence to a) the facts b) marxist political economy.

Otherwise I suggest the list takes the implications of this argument on board.

Of course the capitalist counter argument may be that in static terms
investors are enjoying a positive sum game at the expense of the rest of
the population, but in real use values the dynamic nature of the capitalist
economy expands the production of use values so much that everyone benefits
on average. (At least within the advanced capitalist countries). And
Schweickart does admit that his preferred system of socialised investment
would somewhat slow the pace of technological change. But perhaps the real
test should be how the overall zero sum game operates on a global level.
Whom  does it benefit, and what forces could possibly come together to
change or even modify it?

Chris Burford

London