Monday, 11 January 2016

Capital III, Chapter 22 - Part 8

“The average profit does not obtain as a directly established fact, but rather is to be determined as an end result of the equalisation of opposite fluctuations. Not so with the rate of interest. It is a thing fixed daily in its general, at least local, validity — a thing which serves industrial and mercantile capitals even as a prerequisite and a factor in the calculation of their operation. It becomes the general endowment of every sum of money of £100 to yield £2, 3, 4, 5. Meteorological reports never denote the readings of the barometer and thermometer with greater accuracy than stock exchange reports denote the rate of interest, not for one or another capital, but for capital in the money-market, i.e., for loanable capital generally.” (p 368)

The problem in establishing an actual average rate of profit, because of the impossibility of moving productive-capital freely from one sphere to another, is, in part, resolved with the replacement of the monopoly of private capital with socialised capital, in the form of the joint stock company. Under this form, ownership of capital takes the form of share ownership, and these shares can be freely traded on the stock market.  The share itself is not capital, but merely fictitious-capital.  The capital itself, as loanable money-capital, is in the possession of the firm, which uses it as capital.  The share certificate is merely a certificate, in the possession of  the lender of that money-capital, entitling them to interest, in the form of dividends, on the money-capital loaned.

In this form, just as the interest rate is determined by a competitive struggle, demand and supply, for money-capital, so a similar competitive struggle determines the prices of these shares. Each share sees its price rise as the profits of the particular capital rises, as its potential for producing profit rises, and vice versa. As the price of such shares rises, therefore, the yield on the share – the proportion of dividend it pays, relative to the price of the share – falls, and vice versa. In this way, competition drives towards an average yield, in just the same way that an average rate of interest is formed, and this yield applies not just to shares, but other financial assets such as bonds. If the yield on bonds is higher than on shares, money-capital will tend to move out of the stock market and into the bond market, and vice versa.

Once again, variations in these yields will not be reflection of a failure of competition to bring about an average yield, but only a reflection of different levels of risk. The yield on equities will also be on average higher than for bonds, because bonds should be lower risk than equities. If a company goes bust, bond holders get paid ahead of shareholders, for example.

“Moreover, with the development of large-scale industry money-capital, so far as it appears on the market, is not represented by some individual capitalist, not the owner of one or another fraction of the capital in the market, but assumes the nature of a concentrated, organised mass, which, quite different from actual production, is subject to the control of bankers, i.e., the representatives of social capital. So that, as concerns the form of demand, loanable capital is confronted by the class as a whole, whereas in the province of supply it is loanable capital which obtains en masse.” (p 368)

No comments: