In Part 2, I showed how a capital loss can only
be made good out of the surplus value. It means using it immediately
to replace the capital lost, which implies a big one-off hit, or else
it means borrowing money-capital, to buy the required
productive-capital, which implies a reduction in the surplus value
drawn out over a longer period of time.
What is true for the individual capital is true
for the aggregate capital. If we take ourselves out of the
mystifying realm of money relations, and look at things in their real
physical relations, this becomes clearer. Suppose, instead of
supplying the firm with money to buy productive-capital, the
money-capitalist instead owned the material needed for production,
and owned the wage goods needed for the firms workers to live. Or
better still imagine several such capitalists own this capital, and
lend it out to a number of productive-capitalists. They charge these
productive-capitalists interest on the loan, paid again in the form
of a part of the physical product, which the productive-capitalists
hand over out of their surplus product.

In other words, the rate of interest is really
determined by the demand for and supply of the physical capital. If
productive-capital wants to expand faster, then the competition for
the physical surplus product becomes greater. If the physical
surplus product shrinks or grows more slowly, then its supply
relative to the demand for it falls, so again competition for it
rises. But, in a capitalist economy, everything is bought with
money. The competition for this physical surplus product, therefore,
assumes the form of a competition for money-capital, to be able to
purchase this physical product, which itself assumes the form of
money-capital, so as to be able to expand. In other words, as Marx
says, the rate of interest is determined by the demand for and supply
of money-capital. If capitalists seek to expand faster – or simply
have to obtain additional money-capital to make good capital losses,
suffered in flood, fire, famine and war, or indeed because they overproduced – this will increase the
demand for money-capital, which will cause interest rates to rise.
If the volume of profits increases at a faster rate, this will mean
that productive-capital can meet its requirements more easily from
its own resources, whilst the money it deposits in the banks,
increases the supply of available money-capital, which thereby
reduces the rate of interest.
Back To Part 2
Forward To Part 4
Back To Part 2
Forward To Part 4
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