Capital III, Chapter 22 - Part 5

The average rate of profit, as the profit margin, is determined by the objective factors, previously outlined. That is the cost-price is comprised of the value of the circulating constant capital contained in the commodity, as well as the wear and tear of the fixed capital contained in the commodity unit. The value of this constant capital is objectively determined by the labour-time currently required for its reproduction. In addition to the constant capital, the cost price comprises the amount laid out in wages. The price of production is then made up of this cost price plus the average profit.

But, the average profit is nothing more than the total surplus value created in the economy (total new value created minus total variable capital) by labour, divided by the total advanced capital. (See my post The Rate Of Turnover, Profit and The Transformation Problem for how the average rate of profit is calculated, according to Marx, on the basis of the advanced capital, and then added to the cost of production, to give the price of production.)As the value of labour-power is itself objectively determined, by the labour-time required for its reproduction, all of the variables are objectively determinable.

But, this is not the case with the rate of interest. It comes down simply to a question of supply and demand. The supply of potential money-capital may be higher because profits are high, but that same fact may cause demand to be high too. Demand may be high because profits are low and productive-capitalists cannot generate funds for investment, or supply to stay in business from their internal resources. The supply may be high because the country is rich and has a large class of rentiers.

“There is no good reason why average conditions of competition, the balance between lender and borrower, should give the lender an interest rate of 3, 4, 5%, etc., or else a certain percentage of the gross profits, say 20% or 50%, on his capital. Wherever it is competition as such which determines anything, the determination is accidental, purely empirical, and only pedantry or fantasy would seek to represent this accident as a necessity.” (p 363)

The one fact that cannot be escaped from, however, is that interest is a portion of profit. It can only be paid, ultimately, because a social surplus is produced, and under capitalism, the social surplus takes the form of surplus value.

“The same capital appears in two roles — as loanable capital in the lender's hands and as industrial, or commercial, capital in the hands of the functioning capitalist. But it functions just once, and produces profit just once. In the production process itself the nature of capital as loanable capital plays no role. How the two parties who have claim to it divide the profit is in itself just as purely empirical a matter belonging to the realm of accident as the distribution of percentage shares of a common profit in a business partnership.” (p 364)

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