Thursday, 7 January 2016

Capital III, Chapter 22 - Part 4

The development of credit means that the bank is placed in an even more powerful position as against the mass of borrowers.

“The average rate of interest prevailing in a certain country — as distinct from the continually fluctuating market rates — cannot be determined by any law.” (p 362)

The average rate of interest is not the same kind of average as the average rate of profit. Money-capital is an homogeneous commodity, in a way that all the commodities produced by industry are not. In reality, there is no average rate of profit. It is only a tendency. In reality, widely differing rates of profit exist from one industry to another, as well as between firms within the same industry.

For any class of security, however, there is an average rate of interest that exists for all of them. That is because, in the money market, the mass of suppliers of money-capital, as an homogeneous commodity, confront, via the bankers, the mass of those who wish to buy this commodity.

Consequently, this average rate of interest can be published every day, in the newspapers, as an actual figure. But, no such figure can be published for the average rate of profit, because no such actual average exists. Because the average rate of interest exists as an actual figure, determined instantaneously, as a result of these continual interactions of supply and demand, this average figure can be seen to change every day. In fact, now you only have to watch CNBC, and you will see this average rate of interest, for say the US 10 Year Treasury, change by the minute, due to this process.

However, because the average  rate of profit is only a tendency, different rates of profit exist for long periods of time, because it can only be equalised by the large scale movement of productive-capital, which can only be effected over very long periods of time.

As was seen in the chapter on the formation of the average rate of profit, and on prices of production, the process is essentially this. Capital leaves those areas where the rate of profit is below the average. This causes a reduction of supply of the commodities produced in that sphere. This reduction in supply causes the market price of these commodities to rise. As profit is the difference between market price and cost price, this means the profit per unit rises in this sector, which means the mass of profit rises relative to the advanced capital. This causes the annual rate of profit to rise towards the average.

The capital which leaves this sphere, along with new capital being mobilised, moves into the sectors where the rate of profit is highest. This causes the supply of these commodities to rise. Their market price falls, and so the profit per unit, and the rate of profit in these sectors falls towards the average.

But, these vast movements of physical productive-capital, can only be effected slowly, over long periods, and so, in the intervening period, wide disparities exist, in profit rates, between sectors.

“If prices of commodities in one sphere are below or above the price of production (wherein we deliberately leave aside the fluctuations attendant upon the various phases of the industrial cycle in each and every enterprise) the balance is effected through the expansion or curtailment of production, i.e., the expansion or curtailment of the masses of commodities thrown on the market by industrial capitals — caused by inflow or outflow of capital to and from individual spheres of production. It is by this equalisation of the average market-prices of commodities to prices of production that deviations of specific rates of profit from the general, or average, rate of profit are corrected. It cannot be that in this process industrial or mercantile capital as such should ever assume the appearance of commodities vis-à-vis the buyer, as in the case of interest-bearing capital. If perceptible at all, this process is so only in the fluctuations and equalisations of market-prices of commodities to prices of production, not as a direct fixation of the average profit. The general rate of profit is, indeed, determined 1) by the surplus-value produced by the total capital, 2) by the proportion of this surplus-value to the value of the total capital, and 3) by competition, but only in so far as this is a movement whereby capitals invested in particular production spheres seek to draw equal dividends out of this surplus-value in proportion to their relative magnitudes...The individual rates of profit in various spheres of production are themselves more or less uncertain; but in so far as they appear, it is not their uniformity but their differences which are perceptible.” (p 367)

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