Thursday, 18 February 2016


In every mode of production, the surplus value is divided into revenues. Interest is the form of revenue obtained by the owners of loanable money-capital.

This form of capital, like merchant capital, pre-dates capitalism itself. It is not capital in the sense that Marx describes it, as being a social relation between wage-labour and capital, which expands and produces surplus value on the basis of that relation, in production. Interest bearing capital, like merchant capital, does not enter into a social relation with wage labour, it does not engage in production, and does not thereby produce surplus value. Like merchant capital, interest-bearing capital is only able to to expand, because it is able to obtain a share of the surplus value that has been produced by others, in the realm of production.

The money lender is able to obtain interest from the slave owner, because the slave owner produces a surplus product, and in a money economy, which arises upon the back of commodity production and exchange, the money value of this surplus product, assumes the form of a surplus value. The slave owner is, thereby enabled to pay interest to the money lender out of this surplus value.

Similarly, the feudal lord extracts surplus value in the form of rent. To the extent that this rent takes on money form, the landlord is thereby enabled to pay interest to the money lender. The petty commodity producer may also produce a surplus value, being the difference between the value of their labour-power, i.e. what they must spend to buy the necessary commodities required for the reproduction of their labour-power, and the new value created in production, by their labour. They are thereby enabled to pay interest on borrowed money out of this surplus value.

As Marx discusses, in Theories of Surplus Value, it is this which leads Adam Smith to describe interest as a secondary form of revenue, because it is always obtained as a result of the primary owners of surplus value borrowing money from the money lender, and then paying interest to them, as the price of having done so.

In pre-capitalist economies, the resort to borrowing money tends to be something done only in extremis. The direct producer, has no need to borrow money, so long as they can continue to reproduce their labour-power out of their own production. It is only when some kind of natural disaster prevents that, that the direct producer must make up their shortfall by buying additional products in the market, for which they will need to spend money, which they may not have.

The petty-commodity producer will again seek to reproduce the value of their means of production out of the value of their end product, and will likewise seek to produce at least enough new value by their labour, to cover the value of their labour-power, and thereby ensure its reproduction. It is again only when this becomes impossible that the petty commodity producer will have to borrow money either to cover the cost of reproducing their means of production or means of consumption, so as to continue to produce.

The non-owner of means of production, i.e. the wage labourer, is never in possession of the surplus value they produce, and so is never in a position to pay interest to a money lender, out of such surplus. What they are paid as revenue themselves, i.e. wages, is only ever (taking temporary fluctuations into account) enough to enable them to buy the commodities required for the reproduction of their labour-power.

Of course, in reality, the worker also is faced with paying interest. At times, their actual wages may be less than is required to cover the purchase of their necessaries, and they may have to borrow money to achieve that goal. The lender of the money is not concerned with why they have borrowed that money, whether it is to be used productively to generate surplus value, out of which the interest can be paid, or whether it is simply to be used to fund consumption. Either way the lender demands the payment of interest. But, if the worker then has to pay this borrowed money back, plus interest, that is revenue which the worker does not have to buy the required necessaries in the next period.

Economically, the interest must then be funded, one way or another, out of the surplus value produced by the worker but appropriated by the primary exploiter. If peasant producers are unable to reproduce their labour-power, because they have had to finance some of their activities by borrowing, and now have to repay that borrowing with interest, they will have less to be able to hand over to the landlord, for example. Workers whose wages are consistently too low to cover the reproduction of their labour-power, and who borrow, must either obtain higher wages later on, so that they can cover the cost of those necessities, plus the interest on their borrowing, or else they will be able to consume fewer commodities, so that the market price of those commodities will fall in response to the under-consumption. If not, labour-power will not be reproduced, the supply of labour-power will fall, and so wages will rise.

This illustrates a fundamental difference between interest and these other forms of revenue. The value of labour-power is objectively determined by the labour-time required for the reproduction of the producer, and this remains true whether the producer is a member of a primitive commune, a peasant producer, an artisan petty commodity producer, a wage worker, or a worker in a communist society. The new value created by all these producers is equally objectively determined, by the length and intensity of the normal working-day. Consequently, Marx shows, the mass of surplus value is also objectively determined, as the difference between these two values. It determines the maximum that can be extracted as rent in pre-capital societies, and profit in capitalist societies.

But, interest is determined by no such objective laws. In pre-capitalist societies, where borrowing is used as a last resort, the number of money lenders is small, and the amounts of money lent is relatively small in total. Various taboos and restrictions are placed upon lending money at interest, and consequently, no legal protection is given to the lenders, if they do not obtain repayment. Consequently, the fact that those borrowing are desperate, and those lending seek to cover themselves against default, leads to usurious rates of interest being charged on borrowed money.

There is little in the way of competition between such lenders to limit these interest rates, or to establish an average rate of interest.

Under capitalism, the objective laws which determine the value of labour-power, and also determine the new value produced by labour, and consequently the mass of surplus value, remain. This surplus value now assumes the form of profit, and the relation between this profit, and the capital advanced for its production establishes the general annual rate of profit. But, under capitalism, money-capital is merely one phase of the circulation of industrial capital, and like the other circulation phase of capital, commodity-capital, is subordinated to productive-capital, which generates the surplus value, which is merely realised in circulation.

Money-capital expands massively in absolute terms, but shrinks, relatively, in terms of the total value of output. On the one hand, large amounts of the money-capital required by the productive or merchant capitalist is simply realised for them in the value of the commodities they sell. Take the merchant capitalist. They have commodities to sell with a value of £12,000, and of this £2,000 constitutes surplus value. In other words, the merchant bought commodities from the producer with a value of £12,000, for £10,000. They sell these commodities at their value of £12,000, and thereby realise the £2,000 of surplus value contained in them.

They now use the £2,000 of surplus value to meet their own consumption requirements, whilst reproducing their commodity-capital, by using the remaining £10,000 to once more buy commodities. Although, £12,000 was thrown into circulation here, none of it necessitated borrowing from a money lending capitalist. The merchant already had £12,000 of commodity-capital, which was realised as £12,000 in money. Of this £10,000 of money-capital was metamorphosed into commodity-capital, whilst £2,000 was spent as revenue by the merchant.

Even had the merchant initially borrowed £10,000 to cover their purchase of £12,000 of commodities, that comprised their commodity-capital, this would not change things. Once they sold these commodities at £12,000, one of two things could happen. If they had borrowed the initial money-capital for five years, then they would simply use £10,000 of the realised £12,000 to reproduce their commodity-capital, thereby necessitating no additional money-capital, and paying interest on the money-capital they originally borrowed, out of the £2,000 of profit, made on the sale, and then using the remainder of that £2,000 to cover their own consumption.

Alternatively, had they borrowed the initial £10,000 for just one year, they would repay this capital sum, from the proceeds of the sale of the commodities. They would again, pay the interest on that capital sum out of the £2,000 of profit realised in the sale, and cover their consumption out of the remaining portion of that profit. They would then be in the position of borrowing £10,000 to cover their purchase once more of the commodities to comprise their commodity-capital. But, this is not an additional requirement for money-capital. It is simply the initial requirement, once more rolled over.

The same is true in relation to a productive-capitalist. They start with a quantity of productive-capital. As a consequence of production, a surplus value is created. The productive-capital has now been metamorphosed into a quantity of commodity-capital, which embodies this surplus value. They then realise this value by selling these commodities, either directly to consumers or to merchants, the capital value is thereby metamorphosed into a quantity of money-capital, which they use to reproduce the previously consumed mass of productive-capital, and from the surplus value realised they fund their own personal consumption.

As Marx says, such simple reproduction remains at the heart of all capitalist production. The money-capital required to reproduce the consumed productive-capital, is simply realised out of the sale of the commodities that comprise the commodity-capital, without the need for any additional money-capital to be thrown into circulation. To the extent that the vast majority of production is accounted for by this simple reproduction process, it is clear that no additional requirement for money-capital is generated by it. Indeed, the very process of capitalist development, which increases the rate of turnover of capital, which also creates a release of capital, via increased productivity, which reduces the value of the consumed capital, and the process of creating greater efficiency in the circulation process, reduce the amount of money-capital required.

In fact, an examination of this process illustrates that no additional money-capital need be injected from outside this process, to meet the needs of an expanded reproduction either. If the profit obtained by the productive or merchant capitalist is large enough, and this tends naturally to be the case, as productivity rises, and a process of concentration and centralisation of capital occurs, then each individual capitalist will require a smaller proportion of their mass of profit to cover their personal consumption. Indeed, as Marx describes the same process by which the rise in productivity, causes the value of constant capital to decline, and annual rate of profit to rise, also leads to a fall in the value of the commodities which comprise the personal consumption of the capitalist. That itself also reduces the proportion of their profit required for that purpose, and so increases the proportion available for accumulation.

Out of the realised value of production, not only thereby is the money capital produced which reproduces the consumed capital, and provides the revenue required by capitalists to cover their purchase of personal consumption goods, but it also realises the money-capital required for the accumulation of additional productive-capital.

However, as Marx sets out in Capital II, whilst this is true at a global level, it is not true at an individual level. One capital may realise a large amount of money-capital, but only a part of it may be required to replace its fixed capital, in the next year. It may not be able, for a variety of reasons to accumulate additional capital. For example, the technical requirements of production determine that additional productive-capital can only be employed in certain proportions, and minimum levels.

Consequently, each individual capital accumulates reserve funds of this money-capital which can only be used, when they have reached a particular size, or when fixed capital needs to be replaced, and so on. But, no capital wants to have capital, including money-capital, sitting around doing nothing. Consequently, these reserve funds get thrown into the money market, where they become available for other capitals to borrow.

At any one time, therefore, these reserve funds are getting thrown into the money market, creating additional supply, whilst other capitals that seek to expand, but lack the money-capital to do so immediately, are borrowing from the money market, creating demand. In addition, a stock of loanable money-capital always exists, because some capitalists withdraw from the realm of production and distribution, and hold their wealth purely in the form of loanable money-capital. The interaction between this demand and supply of money-capital, thereby determines the rate of interest.

The average rate of interest is the market price for the use value of capital, its ability to produce profit. Interest itself is the revenue obtained by the owners of this interest-bearing capital, just as wages are the revenue obtained by wage labourers, and rent is the revenue obtained by landowners, and profit of enterprise is the revenue obtained by the owners of capital.

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