Wednesday, 23 December 2015

Capital III, Chapter 21 - Part 3

The ability to charge this interest depends on the profit in two ways. If the capital could not be employed to produce a profit, there would be no demand for the capital. Equally, unless the capital produces a profit, it is impossible to pay interest, because the interest is only a fraction of the surplus value produced.

“It is plain that the possession of £100 gives their owner the power to pocket the interest — that certain portion of profit produced by means of his capital. If he had not given the £100 to the other person, the latter could not have produced any profit, and could not at all have acted as a capitalist with reference to these £100.” (p 339)

Marx quotes the banker Gilbart.

“"That a man who borrows money with a view of making a profit by it, should give some portion of his profit to the lender, is a self-evident principle of natural justice." (Gilbart, The History and Principles of Banking, London, 1834, p.163.) (Note 55, p 339)

But, as Marx says, the interest here has nothing to do with natural justice or any concept such as morality or fairness.

“The justice of the transactions between agents of production rests on the fact that these arise as natural consequences out of the production relationships.” (p 339)

This applies equally today to attempts by the capitalist state, via central banks, to determine interest rates, either by diktat, i.e. the setting of “legal” or official interest rates, or else by manipulation of the money-supply. The former cannot work because ultimately market interest rates will be determined by the demand and supply of money-capital. The latter cannot work because printing additional money tokens simply depreciates the money tokens, leaving both sides of the supply demand equation unchanged.  Marx describes this, at more length in "Theories of Surplus Value".

Marx writes there,

“Hume attacks Locke, Massie attacks both Petty and Locke, both of whom still held the view that the level of interest depends on the quantity of money, and that in fact the real object of the loan is money (not capital).

Massie laid down more categorically than did Hume, that interest is merely a part of profit. Hume is mainly concerned to show that the value of money makes no difference to the rate of interest, since, given the proportion between interest and money-capital—6 per cent for example, that is, £6, rises or falls in value at the same time as the value of the £100 (and. therefore, of one pound sterling) rises or falls, but the proportion 6 is not affected by this.”

It is only if this £100 is used as capital, i.e. used so as to self-expand its value, that any interest can be paid. If A lends £100 to B, who simply uses it to buy commodities, with a value of £100, then, at the end of this process, B has no means of paying any interest on the £100. If they sell these commodities, at their value, they will only obtain enough money in return to repay the initial capital sum, but not the interest.

If they are a worker, and consume the commodities, they bought with this £100, so as to reproduce their labour-power, then, when they sell their labour-power, they will only get back for it what it cost to produce, i.e. £100, or again only sufficient to repay the capital sum, and not the interest.

A merchant capital that borrows this £100 will be able to repay this capital sum, plus the interest, because, as capital, it shares in the total surplus value, and obtains the average rate of profit. It pays the interest out of the profit it receives, which in turn it derives out of the surplus value produced by industrial capital. Ultimately then, interest, as with the merchant's profit is simply a fraction of the total surplus value produced but, the rate of interest is determined by quite different rules, than those which determine the rate of profit.

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