Of course, as Marx sets out, the demand for money-capital does not come just from industrial capital for capital accumulation. In times of crisis, firms demand it, not as money-capital, but as means of payment, to pay their bills and stay afloat. Its at those times that actually interest rates reach their highest level, because firms are prepared to pay almost any rate to stay in business. The state also demands money-capital, not for the purpose of capital accumulation, but to cover its budget deficits, and to fund infrastructure projects. Consumers demand it, again not for capital accumulation, but to cover household budget deficits, and to finance the purchase of durable goods such as houses or cars, and so on. The fact that the demand for all of this money-capital is not for the purpose of capital accumulation, does not change the fact that, for the owner of this money-capital, it remains precisely that, money-capital, and so, as this demand rises rapidly, relative to its supply from realised profits, or savings, the amount they are able to charge in interest rates rises sharply.
So, in a final return to the situation in respect of falling land and property prices, the way this results in liquidity flowing from assets into the real economy, can be summarised as follows. As the price of land falls, the amount of capital that farmers need to tie up to buy land to cultivate falls, and this release of capital means that they can buy additional machinery, employ more labour and so on.
Its true that the landlord may now obtain only £1 million, rather than £2 million (though that may not be the case if the farmer now buys twice as much land from them, to cultivate), but, in the previous conditions of rising asset prices, the landowner was likely to use the additional £1 million to speculate in the purchase of other assets (as this is the basis upon which the asset prices keep rising), whereas, now, they are more likely to use the £1 million (or possibly £2 million if twice the land is bought) to finance additional consumption, or else to use as capital themselves, or to throw into capital markets so that others may use it productively.
Marx noted that the old landed aristocracy built up debts to fund their conspicuous consumption, using land as collateral. This is another way that the sale of land provides money which is then used as means of payment, rather than means of circulation. Either way, this money then enters the sphere of the real economy, rather than continuing to circulate in the sphere of assets, simply inflating the prices of those existing assets.
At the same time, this increase in productive activity, sucking liquidity into the real economy leads to rising money prices of commodities as against falling prices of assets. That means rising money profits, even if underlying profits remain unchanged, or even fall slightly. That facilitates companies accumulating additional capital, in response to rising aggregate demand. Similarly, builders can now buy land cheaper, build more houses, and sell them at lower prices. Liquidity previously tied up in high land prices, is thus freed to purchase additional building materials, and labour-power.
They may have smaller profits per house, but the general mass of their profit rises, because more capital is employed, and more houses are sold. Because house prices are now much lower, house rents also fall, both because tenants can more easily buy instead, and because property landlords obtain much higher rental yields. In other words, if house rent is £1,000 per month, on a property that the owner has to pay £480,000 to buy, that is a yield of 2.5% p.a., but if the same property now only costs £240,000 to buy, a landlord would make 5% in rental yield. Competition between landlords for tenants, including new landlords drawn in by these higher yields from lower prices, would push the actual rent down, towards £500 per month as a result.
No comments:
Post a Comment