How The Storms Reduce The Rate of Profit and Raise The Rate of Interest - Part 4

In Part 3, I explained that the rate of interest is determined by the demand for and supply of money-capital, but this is really just a reflection of the fact that a capitalist economy is a money economy. It is really the demand for and supply of capital itself, that is the supply of the surplus product, compared to the demand for that product for investment, or to replace capital losses, which is the real determinant.

To the extent that the aggregate surplus product/value is diminished, therefore, simply to replace the capital lost as a result of the floods, the ratio of what is left, to the total social capital is also thereby reduced. So, the aggregate rate of profit for British Capital is thereby reduced. The potential for accumulation out of that profit – the rate of growth – is thereby also reduced, contrary to the Keynesians belief that such catastrophes act to increase the rate growth, by the destruction of capital.

By reducing the pool of available surplus value – potential money-capital – the ratio of supply of money-capital to its demand falls, thereby causing the rate of interest to rise. But, of course, in a global economy, this rate is determined by global demand and supply, modified by local risk factors. However, the floods in Britain are not the only cause of increased demand for capital. Things such as roads, rail networks, bridges, schools, hospitals, ports and so on, even where owned by the capitalist state, form part of the fixed capital of the aggregate social capital. They are pieces of capital that must be there for the aggregate capital of a country, or even the global capital to function, and thereby maximise surplus value production and realisation. If they are allowed to fall into disrepair, or become destroyed, then as with Robinson Crusoe and the destruction of his stock-pen, the ability to produce surplus is thereby diminished.

But, in recent years, after a large rise in global capital formation in the first decade of this century, the period after the 2008 financial crisis has been marked by a kind of fear or what Marx calls the time after a crisis “when the spirit of enterprise is paralysed” and when “the investment of new capital is still out of the question”. (Capital III, Chapter 30 ) Capital expenditure has declined, and will have to be increased. Its not just Cameron's commitment to spend more on flood defences. The US needs to renew much of its infrastructure, and the same applies across Europe. Germany's road network is falling apart, and it needs to spend billions of Euros, just to bring its broadband infrastructure up to a reasonable level. Big companies too depend on continually innovating to reduce their costs, and bring in new types of products so as to retain and extend their market share. The need for new sources of energy, be it new nuclear, or the development of fracking, require vast new quantities of productive-capital and mean an increased demand for money-capital to buy it. In Africa, large new economies are developing, which increasingly require vast sums of productive-capital, both to develop new industries, and to build the infrastructure that comprises the fixed capital of the aggregate social capital.

Central Planners, like Mark Carney, can't dictate the rate of interest,
 or any other prices, as the Tories hope, and as the media continue to claim.

In short, the demand for money-capital is rising rapidly, at precisely the time when the rate of profit has started to fall globally, as the forces which caused it to rise for 30 years begin to reverse. The combination of a sharp rise in the demand for money-capital, at the same time as the supply of money-capital begins to slow down, has caused global interest rates to rise. The tapering of QE is a reflection of the need for central banks not to get too far behind that curve. The sharp falls in the currencies of a range of emerging economies is another manifestation of this process, as is the sharp rise in their interest rates. Whatever, the Tories hope in placing their faith in Mark Carney, he does not have the power to stop interest rates rising, or the collapse of financial and property markets that will happen in its wake. That process is simply the unwinding of 30 years during which fictitious capital was built up at the expense of productive-capital.

“As regards the fall in the purely nominal capital, State bonds, shares etc.—in so far as it does not lead to the bankruptcy of the state or of the share company, or to the complete stoppage of reproduction through undermining the credit of the industrial capitalists who hold such securities—it amounts only to the transfer of wealth from one hand to another and will, on the whole, act favourably upon reproduction, since the parvenus into whose hands these stocks or shares fall cheaply, are mostly more enterprising than their former owners.” (TOSV2 p 496)

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