Effects On The Rate of Industrial Profit (1)
In his analysis of “Capital in General” in Capital III, and its division into the independent forms of capital – Productive-Capital, Money Capital and Merchant Capital – Marx distinguishes between the commercial capital, comprising the merchant capital and money-dealing capital, which obtains its share of surplus value, as profits, because of its role in realising produced surplus value, and interest-bearing-capital, which obtains instead interest, as the market price obtained for the sale of capital itself as a commodity. This distinction is important, because ultimately what capital is concerned with is not produced surplus value, but realised profits. Merchant capital does not increase the quantity of surplus value produced, but it does increase the quantity of it realised as profits, and as a result it acts to raise the general annual rate of profit, which can only be measured by the amount of surplus value realised. Interest-bearing capital, by contrast, neither produces surplus-value, nor facilitates its realisation. Unlike, Merchant Capital, therefore, it cannot have any role in increasing the rate of profit. It can only act as a reduction on the mass of industrial profit, and so on the rate of profit.
A considerable portion of the capital employed in the financial services industry, on this basis should be considered, money-dealing capital, as a portion of commercial capital, rather than interest-bearing capital. It is involved in the process of moving money-capital around the system, and thereby reducing the costs of circulation by various means, and thereby increasing the mass of realised profits. To that extent, its actions can be a means of raising the general annual rate of profit, just as the actions of merchant capital, in reducing the costs of circulation of commodities brings about the same effect. In Marx’s schema, these independent capitals, are merely the commodity-capital, and money-capital that form part of the circuit of industrial capital, alongside productive-capital, that have become separated from it, and they share in the industrial profit, on this basis. By contrast, interest-bearing capital exists outside this circuit. It is not additional capital, but only the same capital that functions twice – once as interest bearing capital, sold as a commodity by the rentier capitalist, and second as industrial capital in the hands of the productive or merchant capitalist. It is only in the hands of these latter that it actually functions as capital to expand value, by either producing surplus value in the case of the productive-capital, or increasing the realisation of surplus value in the hands of the merchant capitalist.
The way in which the rise in social productivity, that is the means by which the tendency for the rate of profit is established, affects merchant capital, in terms of its rate of turnover, was dealt with earlier. What was said there, more specifically, in relation to merchant capital, in relation to the reduction in costs, for commodity circulation, applies also to money-dealing capital. In so far as the rise in social productivity, reduces the value of constant and variable capital, employed as capital in circulation, it raises the general annual rate of profit, for the same reason that such reductions in the value of productive-capital, cause the rate of profit to rise. To the extent, that this rise in social productivity causes the rate of turnover of these capitals to rise, it again causes the rate of profit to rise, because this increased rate of turnover means that less capital is advanced, as capital in circulation, to circulate any given quantity of commodities, and to realise any given quantity of surplus value. But, this same rise in social productivity, in so far as it leads to the changes in the nature of labour employed, by capital in circulation, to increase the value of its product, equally acts to raise the rate of profit, for the reasons outlined by Marx, that a given quantity of complex labour will realise a greater quantity of value than the same quantity of simple labour.
In addition, the increase in social productivity, by reducing capital value, and by reducing the value of capital advanced, relative to surplus value produced, as a result of an increased rate of turnover of capital, also brings about a release of capital, as described earlier. This released capital, alongside the relative surplus population, can then be utilised for increased accumulation, either in the existing industries or in the creation of new lines of production. This applies equally to whether the capital is released from the sphere of productive-capital, or capital in circulation. The increased mass of surplus value produced, by this same level of advanced capital, therefore, results in a rise in the rate of profit.
However, this release of capital has other consequences. The greater the mass of profit produced, the greater the potential money-capital available, via the money-market, as loanable capital. The consequence is that the increased supply of loanable capital causes interest rates to fall. This is true whether the realised surplus value is used internally, by companies, to finance their requirements, thereby reducing demand for loanable capital, in the money-market, or whether these funds are deposited by firms in banks, and so increase the supply of loanable capital. On the other hand, as Marx sets out in Capital III, Chapter 21, the demand for loanable capital is itself a function of the rate of profit, because the higher the rate of profit, the more there will be a demand for capital to be used to produce such profits. The rate of interest will then be a function of these two contradictory forces, but also of the stock of loanable capital, which itself will be a function of the size and wealth of the class of rentier capitalists.
To the extent, therefore, that the rise in social productivity, which leads to the tendency for the rate of profit to fall, also leads to a release of money-capital, and increases the supply of money-capital relative to the demand for money-capital, interest rates will fall. The more interest rates fall, and consequently the less of a deduction of interest from the total realised profits, the higher the realised rate of industrial profit, enjoyed by productive and merchant capital. The same applies in relation to rent, but with the necessary modifications, as described in Part 2.
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