Brexit Britain's Bridge To Nowhere - Part 26 of 27

The main accumulation of real industrial capital, in the period 1980 to 2000 occurred, not in the developed economies, but in the newly industrialising economies of Asia, Latin America and so on, and, when global interest rates rose, it was they that were hit in their currencies, whereas it was the astronomically inflated financial markets that crashed, in the developed economies. Moreover, as I have set out elsewhere, the actions of central banks, by inflating the currency supply and credit, to raise asset prices, caused yields on those assets to fall correspondingly, but those yields, as Marx describes, as well as the policy rates of central banks, bear no necessary resemblance to the real rate of interest in the market. Marx notes,

“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.)

What was seen was that, although there was, in the period after 1980, a 50% rise in the size of the petty-bourgeoisie, the ability to obtain bank finance by it shrank. Whilst large capitals issued bonds totalling billions of Dollars, the funds from which they used to buy back shares, or make direct transfers to shareholders, and so on, rather than invest in capital accumulation, the petty-bourgeoisie was reduced to using personal credit, mortgaging their homes and so on to obtain the money-capital required. Meanwhile, banks, as well as using the liquidity provided by central banks to buy up government and corporate bonds, where they did make loans, they did so, not to finance real capital accumulation, but almost exclusively to finance property speculation.

A few years ago, Michael Roberts provided the following information.

“as of August 2013, loans outstanding to UK residents from banks were £2.4tn (160% of GDP). Of this, 34% went to financial institutions, 42.7% went to households, secured on dwellings, and another 10.1% went to real estate and construction. Manufacturing received just 1.4% of the total! UK banking’s principal activity is just leveraging up existing property assets. I identified the same point in work done for the pamphlet for the Fire Brigades Union on the need for public ownership of the banks and found that the big five banks in the UK hold £6trn in assets. This is equivalent to the amount that more than 60 million British people produce in four years. Yet the banks have earmarked just £200bn of this to investment in industry in the UK, a measly 3% of the total.”

The rates of interest paid by the petty-bourgeoisie to finance real, capital accumulation, even on a dwarfish scale, when they could obtain any such finance, far exceeded the yields on financial assets, particularly when the measures of QE and so on, resulted in the surreal conditions of negative yields on $20 trillion of global bonds, just prior to the recent rise in global interest rates, in 2022. What is more, during that same period, we saw the massive growth of pay day lenders charging interest rates of 4000% p.a., as well as a growth of all sorts of other such businesses, including pawnshops, and so on. That is without considering all of the unregistered loan sharks. In an era of increasing online gambling, large amounts of these loans went straight to finance gambling addictions and desperation.

Consequently, as I have set out, elsewhere, the rate of interest required to bring about any considerable reduction in economic growth, so called R*, is much higher than the rate of interest required to bring about a crash in asset prices, or R**. In the current period, as labour shortages have begun to bring about first a rise in household incomes, as more workers are employed, on longer hours, and begin to, also, then, cause hourly wages themselves to rise, a process seen in the period of the 1950's, and early 60's, that is even more the case. Household, current consumption is mostly financed by wages, and so higher interest rates do not impact that. In fact, to the extent that banks have to pay higher savings rates, households benefit from the additional interest paid to them. Higher interest rates causing mortgage rates to rise, impact house buyers, but the effect of that, is also to cause house prices to fall, at the same time that rising interest rates cause all asset prices to fall, via the process of capitalisation. If anything, in the medium to longer-term, higher interest rates, causing house prices and land prices to fall, makes an expansion of housebuilding, and consequent economic activity possible.

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