Capital III, Chapter 32 - Part 9

“The whole endeavour of Mr. Overstone consists in representing the interests of loan capital and industrial capital as being identical, whereas his Bank Act is precisely calculated to exploit this very difference of interests to the advantage of money-capital.” (p 514)

If the price of commodities, required as inputs, rises there will be no effect on the rate of interest, if the consequence is that the demand for these commodities falls, so that only the same outlay of capital is made. That could be because a contraction of economic activity ensues, but it could also be because of more productive means of utilising the commodity, i.e. an increase in productivity.

For example, new steam engines used coal more efficiently, so less coal was used, for the same amount of power output. In the last thirty years the rise of global GDP has been seven times more than the rise in the consumption of oil, because increasingly more efficient means of utilising it have been found. In part, that was itself prompted by the sharp rise in oil prices in the 1970's.

To the extent, therefore, that no additional demand for money-capital arises, the rise in these commodity prices does not cause interest rates to rise.

“The supply of an article can also fall below average, as it does when crop failures in corn, cotton, etc., occur; and the demand for loan capital can increase because speculation in these commodities counts on further rise in prices and the easiest way to make them rise is to temporarily withdraw a portion of the supply from the market. But in order to pay for the purchased commodities without selling them, money is secured by means of the commercial "bill of exchange operations." In this case, the demand for loan capital increases, and the rate of interest can rise as a result of this attempt to artificially prevent the supply of this commodity from reaching the market. The higher rate of interest then reflects an artificial reduction in the supply of commodity-capital.” (p 514-5)

The other scenario Marx discusses, in relation to the effect of the demand and supply of commodity-capital, is where the supply of a particular commodity has risen above its average level, so that its market price falls. In that case, it could be that although the demand for it rises at this lower price, the capital laid out for its purchase still falls, so the demand for money-capital drops, causing interest rates to fall.

But, in addition, the fall in price of the commodity could cause speculative buying. Firms may buy large quantities to stock pile in order to take advantage of the low price, so as to use the commodities in production later, when the market price may have risen. In that case, the capital laid out may rise, causing the demand for money-capital and interest rates to rise.

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