“But simultaneously with the development of capitalist production the credit system also develops. The money-capital which the capitalist cannot as yet employ in his own business is employed by others, who pay him interest for its use. It serves him as money-capital in its specific meaning, as a kind of capital distinguished from productive capital. But it serves as capital in another’s hands. It is plain that with the more frequent realisation of surplus-value and the rising scale on which it is produced, there is an increase in the proportion of new money-capital or money as capital thrown upon the money-market and then absorbed — at least the greater part of it — by extended production.” (p 325)
We have seen this phenomenon in the global economy over the last 25 years. As the global economy went into its Long Wave Winter phase, the rate of profit rose. An increasing amount of surplus value was produced relative to the capital used to produce it. Moreover, because of the nature of the Winter phase of the Long Wave, economic growth is below its average trend. An increasing supply of potential money-capital, with a limited increase in demand for money-capital, causes interest rates to fall. Global interest rates have been in a secular down trend since the 1980's. From around 1999, when the global economy entered the Spring Phase of the Long Wave, the boom has created huge volumes of surplus-value, as the rate of profit continued to rise.
Two factors ensured that continued to exert downward pressure on interest rates. Firstly, today's huge companies plan their expansion in accordance with what they consider will be a profitable investment, over long periods. Secondly, a lot of modern production is production of services, or intellectual production. It relies on the employment of large amounts of highly educated, complex labour, rather than buildings, machines or materials. The largest component of the value of a piece of software is not the CD it is on – even where its still in that format – but the value of the product of the labour of the programmers that developed it. Even where production is still of physical products this is true. The materials that go into an iPhone are physically less than went into a 1980's telephone, and less in value too. The majority of its value stems from the labour of its designers, of the programmers that developed its software, and who developed the chips etc. that make it function.
Consequently, huge amounts of surplus value were produced that could not be immediately used for expansion of production, and which formed money hoards. The supply of potential money-capital way exceeded demand, pushing interest rates down. These money hoards left the circuit of capital and went to buy property, shares and bonds. Alongside it went a deflation of commodity prices, caused by the same massive rise in productivity that was partly behind the rise in the rate of profit. The massive increase in productivity and fall in value of commodities, produced in vast quantities, in China, and elsewhere, should have meant falling prices. It was avoided by using massive money printing to reduce the value of money tokens, in line with the fall in the value of commodities. Commodity price inflation was, therefore, subdued, whilst asset price inflation ballooned.
It is not money printing that has caused low interest rates, but the excess supply of potential money-capital relative to its demand. Money printing has merely been a symptom of the other side of that reality. The huge increase in surplus value came on the back of an equally huge increase in productivity and production of use values. The money printing was merely the means of preventing the concomitant deflation, and of channelling the surplus-value from money hoards, in one place, into effective demand in another. The mechanism for this, and relation to money itself will be dealt with in more detail later.
“The simplest form in which the additional latent money-capital may be represented is that of a hoard. It may be that this hoard is additional gold or silver secured directly or indirectly in exchange with countries producing precious metals. And only in this manner does the hoarded money in a country grow absolutely. On the other hand it may be — and is so in the majority of cases — that this hoard is nothing but money which has been withdrawn from circulation at home and has assumed the form of a hoard in the hands of individual capitalists. It is furthermore possibly that this latent money-capital consists only of tokens of value — we still ignore credit-money at this point — or of mere claims of capitalists (titles) against third persons conferred by legal documents. In all such cases, whatever may be the form of existence of this additional money-capital, it represents, so far as it is capital in spe, nothing but additional and reserved legal titles of capitalists to future annual additional social production.” (p 325-6)
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