Saturday, 28 May 2016

Capital III, Chapter 35 - Part 10

The rate of interest is a function of the demand and supply for money-capital. But, both the demand and supply of money-capital are, at least in part, a function of the rate and mass of profit. If production is expanding because an increased rate and mass of profit provides the surplus value for accumulation, and the incentive for that accumulation, whether the rate of interest rises or falls, or stays the same, will depend on how much this increase in profits provokes increased demand for money-capital compared with how much that very increase in profits has raised the supply of money-capital.

Simply the normal expansion of production that arises from the accumulation of surplus value, could provide the additional rails invested in India, without this requiring any additional demand for money-capital. Similarly, the increase in surplus value of A, who cannot use it immediately, may then lead to it being provided to B who requires bank credit, to cover short term payments, or money-capital to fund expansion. But, there is no reason for this to result in higher interest rates, as the additional demand for bank credit, and money-capital was matched by an equal increase in its provision.

In other words, it does not matter whether the output of this increased production is consumed in Britain or in India. The additional surplus value produced, can equally be the source of additional supply of money-capital, as a cause of its additional demand. However, if Britain supplied rails to India as commodities, which were bought and paid for by Indian companies, this would have a different effect than if the rails were supplied as capital. In the first instance, bills of exchange are drawn on India and payment flows to Britain, which means the exchange rate moves in Britain's favour. The increased supply of money-capital into Britain, from these payments acts to push interest rates down. But, if the rails are supplied as capital, no payment is made in the short run, so no effect occurs on the exchange rate or interest rate.  Instead, payments flow back, over time, in the form of interest on this capital value of the rails.

Finally, it could be the case that commodities have been exported on the basis of credit, and the potential for further exports on this basis has run out. In that case, in order to keep production going, they may be supplied as capital not commodities. In other words, rather than in return for payment they are supplied on the basis of a share in future profits. A similar thing occurs today with foreign aid, where country A provides aid to country B, but where this is tied to country B using the aid to buy commodities from companies in country A.

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