The rise in profit share, but relatively slower rate of growth of real capital/capital accumulation, during such periods is what creates a rise in the supply of money-capital, relative to the demand for it, and so leads to a fall in the rate of interest. The fall in the rate of interest leads to rising asset prices, which, leads to encouragement of speculation/gambling on stock, bond and property markets.
As Marx points out, in Capital III, Chapter 27, by the latter half of the 19th century, the social function of the private capitalist had ended, as the monopoly of private capital was replaced by the development of socialised capital in the form of the cooperative and joint stock company, and the replacement of the private capitalist by the functioning capitalist, who owns no capital, but undertakes the role of professional manager, in organising production. The private capitalists – as indeed was the case with Engels – retire from production to become mere money-lending capitalists, coupon clippers living off the interest from their capital.
In such periods, speculation and gambling by the ruling-class is just one form of the increase in their unproductive consumption, made possible by the increased share of profits. Such gambling in financial and property markets, rather like gambling in a casino, or on the race track, simply means that the winners, are matched by the losers, apart from the house, which is always a winner. In so far as increases in such asset prices are simply an expression of a speculative bubble, rather than arising from an increase in profits, they are inevitably cancelled by subsequent crashes. The nature of inflation as a monetary phenomenon, is, however, manifest again, here, in looking at the way serial bubbles in asset prices have been created, since the 1980's, because each time, a bubble has burst, central banks stepped in to print additional money tokens/credit, thereby, devaluing the currency, and subsequently causing a new inflation of those asset prices, including by the central bank directly buying those assets itself (QE).
Such gambling had always occurred, as manifest in the Tulipmania, the South Sea Bubble, John Law's Mississippi Scheme, and the Railwaymania, but in 1855, the passing of the Limited Liabilities Act, made its extension into the stock market much greater. The Act limited the financial liability of shareholders to only the money they spent to buy shares in a company, no matter what level of debts the company itself might incur. That would be fine, if the shareholders were treated, as they should be, as merely creditors of the company, but, company law treats them as though they are the owners of the company itself, enabling them to control its capital, rather than just their shares.
But, the inflation of asset prices does not lead to an inflation of commodity prices. On the contrary, as I have described in many previous posts, by sucking liquidity out of the real economy, it leads to, if anything, a deflation of commodity prices.
The other form of unproductive consumption in such periods, as Marx sets out, is the employment of domestic servants. The relative surplus population, leading to lower wages, combined with increased profits at a time of slower capital accumulation, leaves increased disposable incomes for capitalists to use to employ such domestic servants. But, the demand for such workers does not lead to higher prices/wages either, precisely because labour is, then in excess supply.
Capitalists and landlords can also increase their luxury consumption, and as the opposite to the argument in relation to rising wages, this does not lead to an excess of aggregate demand over aggregate supply, because, now, the reduced wage share reduces demand for wage goods. Moreover, in such periods, an increasing portion of this luxury consumption goes into demand for new types of commodity that the technological revolution makes available. The demand for these new types of commodity is relatively limited, and, in fact, to the extent that additional demand for these commodities spurs additional production and supply, this larger-scale production then rapidly brings economies of scale, which acts to reduce, rather than increase the prices of these commodities, some of which, then, become cheap enough for workers to buy, as the long wave moves into its later phases.
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