During such times, when businesses seek to stay afloat at any cost, not only do money lenders ramp up the rate of interest charged, but business may also have to sell any bonds or other securities they hold, at knock down prices, to the banks.
“This is also the period during which moneyed interest enriches itself at the cost of industrial interest.” (p 496)
As a result, as bond prices fall, interest rates rise, and along with it, share prices fall. But, this financial crisis itself is not the same as the crisis in the real economy. A fall in the price of shares or other securities, in itself, has no bearing on the economy's ability to produce commodities, value or surplus value. These financial assets are merely fictitious capital. In fact, the fall in the value of these assets is ultimately beneficial for the real economy.
“As regards the fall in the purely nominal capital, State bonds, shares etc.—in so far as it does not lead to the bankruptcy of the state or of the share company, or to the complete stoppage of reproduction through undermining the credit of the industrial capitalists who hold such securities—it amounts only to the transfer of wealth from one hand to another and will, on the whole, act favourably upon reproduction, since the parvenus into whose hands these stocks or shares fall cheaply, are mostly more enterprising than their former owners.” (p 496)
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| During the period of rapid capital accumulation of the post-war boom, between 1949-74, the Dow Jones fell in inflation adjusted terms, after the early 1960's, when interest rates began to rise. In nominal terms, between 1950 and 1980, US GDP rose by 848%, whereas the Dow rose by only 312%. But, during the period of slower growth of the 1980's, and 90's, it rose spectacularly. In fact, in nominal terms, the Dow rose by 1300% between 1980 and 2000, whereas US GDP rose by only 250%, during that same period. |
Moreover, as I have set out elsewhere, in the modern economy, where workers' pensions are dependent upon accumulating a large number of shares and bonds, in their pension funds, to generate the future revenues to cover their future pension income, the lower the prices of those bonds and shares, the more of them the workers' can buy with a given monthly contribution. In other words, the lower the prices of shares and bonds, the lower the cost of providing for workers' pensions. As pensions are only deferred wages, the lower the cost of providing pensions, therefore, the lower the value of labour-power, and the greater the potential for increasing the rate of surplus value and profit. Similarly, inflated property prices make it more expensive for workers to buy houses, and also cause house rents to rise. That causes the cost of shelter to rise, which increases the value of labour-power, and thereby reduces the rate of surplus value and profit. Any collapse in property prices acts to lower the cost of shelter, and thereby to raise the rate of surplus value, and profit.
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