Sunday, 16 October 2016

Profit, Rent, Interest and Asset Prices - Part 6 of 19

Having established the objective basis for the determination of the mass and rate of profit, Marx is then enabled to examine the basis for the other elements into which this profit is divided, i.e. rent, interest and profit of enterprise. In fact, just as wages cannot be considered separate from profit, nor can rent, interest and profit of enterprise, and each interacts with the other. In the end, as Marx says, wages depend on “the demand for labour on the part of capital, and the supply of labour by the working men.” The demand for labour depends upon the rate at which capital expands, and that depends upon the mass of surplus value available for such accumulation. The limit to the accumulation of capital is the rate of profit.

The mass of surplus value, within an economy, is the money equivalent of the surplus product, and the physical accumulation of capital, is limited by this physical surplus product, which is constituted of the machines and other fixed capital, the materials, and the means of consumption, without which no accumulation can occur. As Marx describes in Capital I, it is only possible to accumulate capital in the shape of additional machines, if those additional machines physically exist, as part of the commodity-capital of society, and the same applies to the accumulation of materials, of labour-power, and of the means of consumption required by those additional workers.

But, as Marx describes in Capital II and III, the individual capitals that undertake such accumulation at any one time, are not the ones that necessarily have the necessary money-capital to metamorphose into productive-capital. Similarly, some capitals will have reserves of money-capital, which for various reasons they will not seek to utilise to metamorphose into productive-capital. Individual capitals will have reserves and hoards of money-capital that is the equivalent of the value of wear and tear of fixed capital realised in the sale of commodities, but which is not currently required, because the fixed capital itself is still not worn out, and ready to be replaced. 

In addition, individual capitals will have reserves and hoards of money-capital, because of realised profits, which cannot yet be utilised for accumulation. As Marx described in Capital I, capital can only be physically accumulated in given proportions, determined by the technical composition of capital. Consequently, individual firms can only accumulate capital from their own resources, when they have built up sufficient money-capital to transform into physical capital in these minimum proportions.

Because, capital always seeks to be active for as much of the time as possible so as to create a return, these various hoards and reserves of money-capital are then thrown into the money market to be loaned out to other capitals that seek to accumulate, but which have insufficient money-capital to do so. The return to this money-capital is interest, and Marx describes the basis for determining the rate of interest, as being the interaction of the demand and supply for this money-capital. But, as with the demand for labour-power, the demand and supply of money-capital, is also a function of the rate of profit.

As was described earlier, the rate of profit is a function of the value of labour-power, but the phenomenal form of the value of labour-power, its market price, wages, is also a function of the demand and supply for labour-power, which, in turn, is a function of the rate of profit. In other words, when the rate of profit is high, there will be a higher propensity for capital to accumulate, but this higher level of accumulation will increase the demand for labour-power, and as the demand for labour-power rises, so wages will rise, and as wages rise, the rate of profit will fall. 

Similarly, when the rate of profit is high, that same higher propensity for capital to accumulate will cause the demand for money-capital to rise. That will tend to cause the rate of interest to rise. However, the same rise in the rate of profit means that the amount of realised profits also rises, and these realised profits take the form of money-capital, or at least potential money-capital. So, the supply of money-capital also, thereby rises. Whether, the price of money-capital, the rate of interest, rises, falls, or remains constant will depend upon, which of these two effects is greater.

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