Theories of Surplus Value, Part I, Addenda - Part 11

Hume does not comprehend the true nature of capital, however, and what he describes here is a demand and supply of commodities not capital. So, he explains a high rate of interest, in a less developed economy, where the gentry dominate, by the fact that, in such a society, the production of commodities is limited, but the demand for commodities, by this gentry, is high, and they seek to borrow to obtain them. By contrast, in a capitalist economy, the production of commodities is higher, whilst the capitalists and merchants are frugal. Yet, as Marx discusses, in Capital III, this would be an explanation of why, such conditions of demand and supply, for commodities, would cause high or low commodity prices, not interest rates.

The capitalist or merchant may be frugal in respect of their own consumption, but only to be avaricious in their productive consumption, and so their overall demand for commodities, and for money-capital, so as to acquire them, may exceed greatly the demand of the “landed gentry”.

Hume recognises the role of commerce in producing profits, and thereby of loanable money-capital, which reduces interest rates, but does not recognise that it also, thereby created an increased demand for that money-capital. Essentially, that is because he does not understand capital, and does not distinguish between a demand for capital, and a demand for commodities.

“This consideration obliges many to keep their stock in trade, and rather be content with low profits than dispose of their money at an under value. On the other hand, when commerce has become extensive, and employs large stocks, there must arise rivalships among the merchants, which diminish the profits of trade, at the same time that they encrease the trade itself. The low profits of merchandise induce the merchants to accept more willingly of a low interest, when they leave off business, and begin to indulge themselves in ease and indolence. It is needless, therefore, to enquire which of these circumstances, to wit, low interest or low profits, is the cause, and which the effect. They both arise from an extensive commerce, and mutually forward each other… An extensive commerce, by producing large stocks, diminishes both interest and profits; and is always assisted, in its diminution of the one, by the proportional sinking of the other. I may add, that, as low profits arise from the encrease of commerce and industry, they serve in their turn to its farther encrease, by rendering the commodities cheaper, encouraging the consumption, and heightening the industry. And thus… interest is the barometer of the State, and its lowness is a sign almost infallible of the flourishing of a people” (l.c., pp. 334-36).” (p 374-5) 

There is a further important point made by Hume here, which was picked up by Marx in Capital III, and by Engels, which is the point about the capitalists who retire from business to live off their money-capital. Marx makes the point that, in older societies, the rate of interest tends to be lower, precisely because of this stock of loanable money-capital.

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