Anti-Duhring, Part II, Political Economy, X – From The Critical History - Part 12

The lifting of restrictions on the rate of interest, and on the ability to borrow and lend, was essential for an expansion of industrial capital, as happened in the Industrial revolution. Engels quotes Duhring further,

“Many businessmen thought the same” (as Locke) “on free play for the rate of interest, and the developing situation also produced the tendency to regard restrictions on interest as ineffective. At a period when a Dudley North could write his Discourses upon Trade in the direction of free trade, a great deal must already have been in the air, as it were, which made the theoretical opposition to restrictions on interest rates seem something not at all extraordinary”. (p 300-301)

In fact, the position put forward by Locke, in 1691, had already been elaborated by Petty, in 1662, in his Treatise on Taxes and Contributions, in which he contrasted the rent on land (ground-rent), and the rent on money (interest).

“In his Quantulumcunque (1682) he therefore declared that the legal regulation of the rate of interest was as stupid as the regulation of the export of precious metals or of the exchange rate. In the same work he made definitive statements on the “raising of money” (for example, the attempt to call sixpence a shilling by doubling the number of shillings coined from one ounce of silver).” (p 301)

As Marx sets out, in Capital III, the same is seen in attempts by central banks to fix the rate of interest. They cannot do so, because the rate of interest is a function of the demand for and supply of money-capital. Whilst a central bank can, like Law, or the Birmingham Little Shilling-Men, depreciate the currency, and throw more of it into circulation, they cannot, thereby, increase the supply of money-capital. The inflation of the currency supply causes prices to rise, so that the nominal level of demand for money-capital rises accordingly.

Central banks can reduce their policy rates, which basically means they increase the availability of credit to commercial banks, who can then increase the amount of bank credit in circulation, but this has the same effect as devaluing the currency and throwing more of it into circulation. As Marx says, in Capital III, the real measure of the rate of interest is not these manipulated central bank, short-term policy rates, or bond yields, but the rate that, for example, equipment lenders charge to other firms.

“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)

As Marx sets out, in Capital III, in fact, the laws relating to the rent on land (ground-rent), are not the same as those relating to the rent on money (interest). The rent on land is determined by surplus profits, i.e. profit over and above the average industrial rate of profit. But, interest is a deduction from the average profit.

Locke and North copied Petty's position, in respect of the idea that money could be raised by simply devaluing the currency and issuing more of it.

“With regard to interest, however, Locke followed Petty’s parallel between interest on money and rent of land, while North goes further and opposes interest as “rent of stock” to rent of land, and the stocklords to the landlords. While free play for the rate of interest as demanded by Petty is accepted by Locke, only with reservations, North accepts it unconditionally. (p 301)

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