Capital III, Chapter 32 - Part 7

“With the growth of material wealth the class of money-capitalists grows; on the one hand, the number and the wealth of retiring capitalists, rentiers, increases; and on the other hand, the development of the credit system is promoted, thereby increasing the number of bankers, money-lenders, financiers, etc. With the development of the available money-capital, the quantity of interest-bearing paper, government securities, stocks, etc., also grows as we have previously shown. However, at the same time the demand for available money-capital also grows, the jobbers, who speculate with this paper, playing a prominent role on the money-market.” (p 510-11)

If the buying and selling of securities was just an expression of actual investment in capital, it could have no effect on the rate of interest. Each purchase would put an equal amount of money-capital into the money-market, as the sale took out of it. But, in fact, as seen previously, a lot of these securities are not related to the provision of money-capital used for the accumulation of real capital. Yet, they create an additional demand for money-capital. For example, government securities do not represent the accumulation of additional capital, but the purchase of these securities does create an additional demand for money-capital.

Consequently, this must act to raise interest rates in general. Marx quotes the evidence of Chapman to the Bank Committee.

“No, I think that the question of interest is affected by all convertible securities of a current character; it would be wrong to limit it simply to the discount of bills, because it would be absurd to say that when there is a great demand for money upon [the deposit of] consols, or even upon Exchequer bills, as has ruled very much of late, at a rate much higher than the commercial rate, our commercial world is not affected by it; it is very materially affected by it.” (p 511)

Where the supply of additional money-capital is constrained, which happens during periods when the rate of profit is low, this can lead to “crowding out”, where commercial borrowers are unable to borrow sufficiently in the money market, at low enough rates, because they cannot compete with the demand for funds by the government.

As Marx says, this demonstrates the benefit of those capitals that can finance themselves from their own capital, because they thereby pay themselves this interest. But, also, at such times, there may be incentives to raise capital by issuing additional shares rather than commercial bonds or loans, because, generally, the cost of financing via the stock market is lower.

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