Michael Roberts, The Rate of Interest and Booms and Slumps - Part 5 of 12 - Yield, The Rate of Interest and Inflation

Yield, The Rate of Interest and Inflation

But, that reduction in yields on these assets is not the same as a fall in market rates of interest. As Marx says,

“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.”

(Capital III, Chapter 36)

Still less should we take the yields on the highly manipulated, revenue producing assets as representing the rate of interest.

If market rates of interest, defined as above, are low, it is because the supply of money-capital is high relative to the demand for it, and that is because rates of profit are high, compared to capital accumulation. Both are consequences of real capital accumulation being held back, as a result of austerity, and because of the diversion of potential money-capital into financial and property speculation, i.e. the deliberate manipulation of asset prices, by the state.

Roberts repeats an argument he has, now, put forward several times. He says,

“The primary flaw in the Austrian view of the central bank has been most obvious since quantitative easing started in 2008. Austrian economists came out at the time saying that the increase in reserves in the banking system was the equivalent of ‘money printing’ and that this would ‘devalue the dollar’, crash T-bonds and cause hyperinflation. None of this came about.”

But that isn't true. Marx notes,

“The idea of converting all the capital into money-capital, without there being people who buy and put to use means of production, which make up the total capital outside of a relatively small portion of it existing in money, is, of course, sheer nonsense. It would be still more absurd to presume that capital would yield interest on the basis of capitalist production without performing any productive function, i.e., without creating surplus-value, of which interest is just a part; that the capitalist mode of production would run its course without capitalist production. If an untowardly large section of capitalists were to convert their capital into money-capital, the result would be a frightful depreciation of money-capital and a frightful fall in the rate of interest; many would at once face the impossibility of living on their interest, and would hence be compelled to reconvert into industrial capitalists.”

(Capital III, Chapter 23)

What we have seen is precisely such a “frightful depreciation of money-capital” in relation to asset prices! Money-capital necessarily takes the form of money/tokens/credit, and $100 of money-capital today, buys only a 40th of the shares it did in 1980, precisely because that frightful depreciation of money-capital has taken the form of a hyper inflation of asset prices! Roberts wants to ignore this hyper-inflation of asset prices, and define inflation only in terms of commodity prices.

In fact, even in terms of commodity prices, it means, for example, that the price of houses, required for shelter, has risen astronomically, with a consequent effect also on rents, though this is not reflected in indices of inflation. Similarly, the cost of pension provision has risen astronomically, though wages and pension contributions have not risen correspondingly, witnessed by the huge black holes in company pension funds. The reason that the money printing has not manifested itself in commodity price inflation, is because a) large parts of the cost of living are not included in those indices, and b) the imposition of austerity alongside other measures by states have held back economic growth, and diverted potential money-capital instead into that gambling on asset price inflation, and c) the unit values of commodities fell massively as social productivity rose.

In fact, as the last few months have demonstrated, as soon as conditions emerge in which the real economy begins to grow, and all of that liquidity begins to wash out into it, inflation rises sharply. 2008 was a stark illustration of what happens when that hyper-inflation of asset prices reaches a point when the bubble bursts, and so when the prices of government bonds, and other financial assets, as well as property, crash. That Roberts argues against the Austrians' prediction of that is odd, because he, like me, believes that such a further such crash is inevitable, and is probably imminent!

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