Brexit Britain's Bridge To Nowhere - Part 23 of 27

So, what, then caused the rise in interest rates, in the late 90's, that brought about the Asian Currency Crisis, Rouble Crisis, 2000 Tech Wreck, and, then, the 2008 Global Financial Crisis? The answer resides in Marx's analysis that the demand for money-capital does not consist only in a demand to finance real capital accumulation. As he sets out in Theories of Surplus Value, all money is imminently and potentially money-capital. So, when they sell this money-capital as a commodity (i.e. lend it to borrowers for a specific period) they do so, as with any other commodity, without any regard to the purpose of the buyer (borrower) of this money-capital. The fact that the buyer (borrower) of this money-capital only intends to use it to pay their bills, to fund their consumption (including of unproductive assets such as houses, cars etc.) or to finance their gambling addiction, does not change the basis upon which the owner of this money-capital sells its use-value, i.e. its ability to produce the average rate of profit.

In fact, as Marx sets out, in Capital III, the rate of interest reaches its peak, not when the demand for this money-capital to finance real capital accumulation, is at its maximum, but when firms find themselves needing to borrow money, simply to pay their bills, so as to stay in business.

“It reaches its maximum again as soon as the new crisis sets in. Credit suddenly stops then, payments are suspended, the reproduction process is paralysed, and with the previously mentioned exceptions, a superabundance of idle industrial capital appears side by side with an almost absolute absence of loan capital.”

It is a sort of return, temporarily, to the conditions of usury.   In fact, during this period, usury also, returns openly, in the form of the pay day lenders charging 4000% rates of interest.  But, it is not only businesses that borrow money-capital. All households, and the state itself, borrows money, not to fund real capital accumulation, but to finance consumption, over and above their current revenues. Earlier, it was noted that, under Reagan, in the 1980's, the implementation of Voodoo (supply-side) Economics, and big tax cuts, created a huge and growing budget deficit, and turned the US from being the world's largest creditor to its largest debtor. Unlike the money that flowed into the Asian economies, to finance real capital accumulation (investment), the money that, now, flowed into the US – and a similar thing happened, in Britain, under Thatcher, at the same time, was used to finance consumption, including the money that went into the various forms of gambling in search of capital gains on financial and property assets.

As I set out in my book, part of it was also required to compensate for the fall in household incomes, as wages stagnated, or even fell. Money-capital, borrowed to finance investment, i.e. the accumulation of real industrial capital (as against what has come to be termed “investment”, but which is just “speculation/gambling”, the purchase of inflated paper assets – fictitious capital), may have the effect of raising the demand for that money-capital, but, simultaneously, the accumulated industrial capital, also, produces additional surplus value, and realised profits, and so, the supply of additional money-capital. The consequence is, then, that the rate of interest does not rise, or rises only moderately, as Marx sets out in the earlier quote.

But, money borrowed simply to fund unproductive consumption, or financial and property speculation, and indeed, any other form of gambling, and speculation on assets, creates no new value, and, consequently, no additional surplus value/realised profits, and so no supply of additional money-capital, thereby, it does cause interest rates to rise. The spark for the 1987 global financial crash, when financial markets fell 25%, in a day, was this large rise in US demand for money-capital to fund its unproductive consumption, including the state spending that was no longer covered by its tax revenues, resulting form Reagan's large tax cuts for the rich. In other words, the same Voodoo Economics used by Truss, in 2022, and by Trump, today.

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