Monday, 23 December 2019

Theories of Surplus Value, Part III, Addenda - Part 13

Marx sets out the difference between the average rate of profit and the average rate of interest, as also described in Capital III. The rate of interest is, at any time, a definite figure. It moves up and down, every day, and even every hour or minute. For example, if you are taking out a mortgage, the banks and building societies set out the rate of interest you will have to pay. These rates remain the same for weeks, months and even years, and competition between the banks means they charge pretty much the same rate for each type of mortgage. The same is true if you want to take out a loan from the bank to buy a car etc. Moreover, everyone who is able to access such a loan pays the same rate of interest. When the government uses bonds to borrow money, it does so by indicating the interest (coupon) it will pay. This remains the same, the yield on the bond, however, fluctuating by the minute as the bonds are traded on secondary markets, so that the actual prices of the bonds move up and down according to demand for them. 

So, although there are, in reality, a multitude of interest rates, for different kinds of debt instrument, and for the duration of each of them, the actual current rate of interest, for each, is a definite figure. But, for the average rate of profit, that is not the case. You can watch the yield for the US 10 Year Treasury move up and down every few seconds on the Stock Exchange boards, as the bonds are traded, but no such indication of the average rate of profit is available. That is so for many reasons. Firstly, the average rate of profit is really an idealisation. There is, in reality, no such thing as as an average rate of profit, because the rates of profit are themselves constantly changing. The average rate of profit only exists as something to which the movement of capital is tending towards, but never achieving. 

“True, the rate of interest fluctuates continuously. [It may be] 2 per cent today (on the money market for the industrial capitalist—and this is all we are discussing), 3 per cent tomorrow, and 5 per cent the day after. But it is 2 per cent, 3 per cent, 5 per cent for all borrowers. It is a general condition that every sum of money of £100 yields 2 per cent, 3 per cent or 5 per cent, while the same value in its real function as capital yields very different amounts of real profit in the different spheres of production. The real profit deviates from the ideal average level, which is established only by a continuous process, a reaction, and this only takes place during long periods of circulation of capital. The rate of profit is in certain spheres higher in some years, while it is lower in succeeding years. Taking the years together, or taking a series of such evolutions, one will in general obtain the average profit. Thus it never appears as something directly given, but only as the average result of contradictory oscillations.” (p 462-3) 

The industrial capitalist who needs to borrow money-capital to buy additional means of production can take the rate of interest as a definite figure. If they borrow £1,000 for five years from the bank at a fixed rate of 5% p.a. they know that this is a known cost of £50 p.a. they must account for in their calculations, but they can make no such calculation with the average rate of profit. They can estimate, on the basis of their knowledge and experience that they might expect to have a 10% rate of profit on their capital, making it worthwhile to borrow the £1,000, but they have no way of knowing whether the rate of profit elsewhere might rise or fall, leading to capital moving out of or into their sphere of production, with a consequent effect on the price at which they can sell their output and so the actual profit they will make on it. 

“The average rate of profit exists indeed only as an ideal average figure, insofar as it serves to estimate the real profit; it exists only as an average figure, as an abstraction, insofar as it is established as something which is in itself complete, definite, given. In reality, however, it exists only as the determining tendency in the movement of equalisation of the real, different rates of profit, whether of individual capitals in the same sphere or of different capitals in the different spheres of production.” (p 463) 

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