Friday, 10 June 2016

Capital III, Chapter 36 - Part 6

Marx makes the point that there are many different interest rates that reflect different types of borrowing, in different markets, and so simply taking the Bank of England discount rate provides no real comparison or guide.

“For instance, if we wish to compare the English interest rate with the Indian, we should not take the interest rate of the Bank of England, but rather, e.g., that charged by lenders of small machinery to small producers in domestic industry.” (p 597)

That is even more apparent in the current global economy, where central banks have made official interest rates meaningless, via astronomical amounts of money printing, and manipulation of government bond prices.  As Marx points out, following Hume and Massie, it is of course impossible to influence the average rate of interest by printing money, and thereby depreciating it, because the rate of interest is determined by the demand and supply for money-capital.

Depreciating the currency simply changes the unit of measurement of the amount of demand and supply, and consequently cancels itself out, leaving the rate of interest unchanged.  All that can be changed is the prices of those financial assets that are bought.  But, the consequence of that is to raise other interest rates elsewhere in the economy.  So, for example, we see some small and medium sized businesses unable to obtain money-capital, consumers led to take out pay day loans at up to 4000% p.a. rates and so on.

It then leads to other forms of higher cost lending being developed.  For example, there has been a development of peer to peer lending for small and medium sized businesses, but at rates of up to 10% p.a.  Furthermore, in a global economy, money printing in one economy, leads to money flows to other countries where it shows up as higher consumer price inflation than would have been the case, and consequently higher interest rates.

At the same time, the depreciation of the currency by money printing, and QE causes a hyper inflation of fictitious capital prices, which in turn sucks currency out of other parts of the economy leading to consumer price deflation, and slow growth, whilst sucking in international money-capital flows, in search of capital gain, or protection against capital losses, which again leads to higher interest rates in those economies that see such a drain of money-capital.

Usurer's and merchant capital promote the development of money wealth independent from wealth in the form of landed property. This money wealth necessarily becomes amassed in hoards. Even if the merchant or usurer turns over their capital as purchase of commodities for sale, or as loans to be made, the money must first have been hoarded in order to be advanced, and money continually flows back into them.

It is only because money develops as a means of payment, rather than means of circulation, that interest arises. If A has a commodity worth £10, which they wish to exchange with B, for another commodity worth £10, money need only fulfil the role of unit of account. No money itself need change hands. If A buys a commodity from B for £10, then the money acts as means of circulation. Commercial credit even means that money is not required to fulfil this function.  A simply gives B an IOU for £10, which B accepts, because he knows that later he will redeem it for £10 of commodities from A.  B is able to do this via a bill of exchange, even if he does not buy commodities from A, because commercial credit enables all of these bills to be cancelled against each other over a large number of sellers, and buyers.  Provided B has sufficient materials and work in progress, they can continue to produce without the payment being made immediately.  Moreover, even if they do not have sufficient materials, they can purchase them without paying immediately, because commercial credit means that just as they allow customers to buy now and pay later, so their suppliers allow them to do the same thing.

It is only where A buys a commodity from B for £10, but does not pay for it until some time later that the issue of interest arises, either because B charges A interest on the money, for the intervening period, or because B must themselves borrow money to cover their needs during that period.  In that case they have been led to abandon commercial credit, and to resort to bank credit.

“What squandering and corrupting wealth desires is money as such, money as a means of buying everything (also as a means of paying debts). The small producer needs money above all for making payments. (The transformation of services and taxes in kind to landlords and the state into money-rent and money-taxes plays a great role here.)” (p 598)

What is required from the money hoarder is not capital but money, to make these payments. However, in making the loan and obtaining interest, the money hoarder thereby turns their money into capital, in so far as it thereby obtains a share of the surplus labour, and ultimately control over the means of production, even if they remain nominally in the ownership of the producer.

The more production takes the form of commodity-production and exchange, the more money enters circulation, and is, therefore, available for those who need it. Likewise prior to extensive commodity production and exchange, the harder it is to obtain, and the more those who have it can charge for it.

The small producer needs money to buy means of production and subsistence. Various circumstances can arise whereby they are unable to obtain this money from the sale of their own products, for example, a crop failure can mean a peasant farmer cannot produce the seed required for the following year, and so must buy it. The same circumstance may mean they require money to buy means of subsistence for themselves and their family. But, also, particularly where there is a period of time between sale of products, and purchase of means of production, any change in market prices may mean that not enough money is generated from the sale of products to cover the replacement of the means of production.

“The same wars through which the Roman patricians ruined the plebeians by compelling them to serve as soldiers and which prevented them from reproducing their conditions of labour, and therefore made paupers of them (and pauperization, the crippling or loss of the prerequisites of reproduction is here the predominant form) these same wars filled the store-rooms and coffers of the patricians with looted copper, the money of that time. Instead of directly giving plebeians the necessary commodities, i.e., grain, horses, and cattle, they loaned them this copper for which they had no use themselves, and took advantage of this situation to exact enormous usurious interest, thereby turning the plebeians into their debtor slaves.” (p 598-9)

But, as soon as payment of rents, taxes and tithes becomes a money transaction rather than a payment in labour-time or produce, the role of the rent and tax collector becomes a basis for usury. As Marx says, this goes back to ancient Rome and fermers generaux, receveurs generaux.

In Arnold Bennett's novel, “The Card”, Denry Machin, played by Alec Guiness, in the film, is employed as a rent collector, who begins on his own account, to lend money at interest, to tenants to cover their rent, when they are short.

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