The demand for capital rises when the economy is expanding, but, during that time, the amount of money profits – the main source of supply of additional money-capital – also rises. As Marx describes, in Capital III, therefore, the initial period of economic expansion sees no significant rise in interest rates. It is in the subsequent period of more rapid expansion that the demand for capital grows faster than the supply, causing interest rates to rise. In the next period, when capital accumulates faster than the social working-day, leading to rising wage share/relative wages, and a squeeze on profits, interest rates rise higher still, and, as this squeeze on profits results in crises of overproduction of capital, as in the late 1970's, interest rates hit their peak, as firms borrow to pay their bills and stay afloat.
Capital, then, is a social relation, and the value of capital, as opposed to the value of the physical use-values that comprise it, and that must be replaced on a like for like basis (Capital III, Chapter 49) is determined by that social relation, i.e. by the average rate of profit.
“Capital does not consist in accumulated labour serving living labour as means for new production. It consists in living labour serving accumulated labour as a means for maintaining and multiplying the exchange-value of the latter.” (p 30)
What does this relation consist of? The worker sells labour-power to capital. In exchange, capital pays wages to the worker. The worker must use these wages to consume, and, thereby, live and reproduce their labour-power. Assume that the economy consists of one single, large enterprise. Collectively, the workers are supplied by capital with all of the constant capital, in the form of buildings, machines, and materials, in its possession, and which have been produced in previous years. The capitalist, also, supplies the workers with the wage goods produced in previous years, and held in their store room. Before the Truck Acts, this was literally the case, as employers paid workers in tokens that could only be exchanged for rent and goods bought in the company store.
During the year, as the stock of materials is consumed, in production, their value preserved and transferred to that production – along with the wear and tear of fixed capital, these physical use-values must themselves be replaced from current production, in the same way that a farmer replaces their seed out of this year's production of grain. This production, like the farmer's seed, never enters the calculation of total output, and is not included in GDP/National Income, because it does not constitute new value/revenues, only the transfer of existing value. The only element that enters the calculation of GDP/National Income is the new value created by labour, during the year, i.e. the value added.
During the year, therefore, the workers physically replace the consumed fixed capital (wear and tear) and materials, and they also physically replace the wage goods they have consumed. But, the total output of the workers is greater than that, and, if it wasn't, capital would not employ them. If we look at the total value added by the workers, during the year, by their labour, it amounts to, say, a million hours, or £1 million, and this value comprises a part of the value of final output/GDP of £2 million. That means that capital appropriated £1 million as profit, which it uses to fund its own personal consumption and new capital accumulation.
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