This is the backdrop to the conditions we have, today. The ruling-class of rentiers/coupon-clippers have become, over the last 40 years, not only parasitic on the very capitalist system that brought them into existence, but have become a fetter on its further development, just as previously, the monopoly ownership of private industrial capital, became a fetter on the expansion of industrial capital, and was burst asunder, in the latter half of the 19th century, as the monopoly owners of that private industrial capital were expropriated by, large-scale, socialised industrial capital (the expropriation of the expropriators, as Marx and Engels described it).
That ruling-class of rentiers, now, represents a fetter for two reasons. Firstly, as Marx describes, in Capital III, the interests of interest-bearings capital, are antagonistic to those of industrial capital. The former seeks to maximise the amount of interest/dividends it can extract from profits, whilst the latter seeks to minimise that interest/dividends, and to maximise the profit of enterprise/retained profit so as to maximise capital accumulation. That was, always the case, but, as Marx describes, it is objectively limited, because, the rate of interest is determined by the interaction of the supply of money capital, as against the demand for it. The owners of loanable money-capital, will not lend it for nothing, whereas the demand for it, is limited by the average rate of profit, which sets a ceiling on how much industrial capitalists will pay to borrow it.
As Marx puts it, capital itself – i.e. the social relation, as opposed to the physical elements of capital – becomes a commodity sold on the market, and its "value" is determined by this social relation, by the average rate of profit. The functioning capitalist, does not own capital themselves, and so must “buy” it, i.e. borrow it from those that do. If, the average rate of profit is 30% p.a., then the “value” of £1,000 of capital is £1,300. In other words, £1,000, used as capital, to buy machines, material and labour-power, at the end of the year, turns into £1,300. The use-value of “capital”, as Marx sets out, is this capacity to produce the average rate of profit. There is no reason, therefore, why industrial capitalists, which, in the era of imperialist capital, means socialised capital, would pay a 30% rate of interest to borrow money-capital, in the above example, because it would consume all of their profit.
In Capital III, Part V, Marx and Engels explore these relations between what were then the two antagonistic classes of capitalist, the owners of interesting-bearing capital, and the owners of industrial capital, and how this antagonistic and contradictory relation determines, firstly the coming into existence of the category of interest, and how it determines the rate of interest in different phases of the economic cycle. This analysis by Marx and Engels sets out the true relation, and can be contrasted with the arguments put by bourgeois economists, who view the world and the relation through the lens of the owners of interest-bearing capital. Indeed, as Marx and Engels describe, they see “only” this loanable-money-capital as capital, and interest as being some kind of natural fruit produced by it.
Profit, by contrast, is seen as not deriving from capital, but from entrepreneurship, by the cunning and skill of the entrepreneur, in buying low and selling high, in bringing the factors of production together efficiently, and so on. In other words, the entrepreneur or “functioning capitalist”, is characterised not by their ownership of “capital”, but by their functional role in production, and profit is, then, reduced to being just a special kind of “wages” for their labour-power. The only real capital, is, then, portrayed as interest-bearing capital, and the only real capitalists are the owners of this interest-bearing capital, whose epitome, and agent becomes the bankers, and large financial institutions, stock markets and so on, that provide this capital that makes production possible.
In the 18th and early 19th century, in the era of the monopoly of private industrial capital, Marx and Engels' analysis shows that it is the laws of capital, of competition and capital accumulation, played out over the long-wave cycle that determines the demand for and supply of loanable money-capital, and so the rate of interest. A key factor, both in the supply of loanable money-capital, and the demand for it, as they set out, in Capital III, Part V, is the rate of profit. The supply of loanable money-capital is comprised of two main sources. Firstly, realised money profits, and secondly accumulated savings. In respect, of the latter, it is why they note that older bourgeois societies, tend to have lower rates of interest, because they have greater levels of accumulated savings.
Those savings can also take the form of various money reserves, i.e. money destined to be used to buy commodities, but which has not, yet, been so used, for example firms amortisation funds, or the money received by workers, and capitalists they will use to buy the necessities required for their personal consumption, but which they have not yet spent. Marx notes that the development of banking, so that small amounts of savings by workers and the middle-class can be aggregated into large sums, facilitates that. Today, we have huge amounts of workers pension savings both in their private pensions, and those accumulated by the state directly in taxes.
But, the largest source of additional loanable money-capital is from realised money profits. Profit is the money form of the surplus product. If the amount of the surplus product/profit going to unproductive personal consumption remains the same, then the amount available as loanable money-capital rises, when the mass of profit rises. If the demand for that money-capital does not rise, then, interest rates must fall. But, the demand for that loanable money-capital is also a function of the amount and rate of profit, as Marx and Engels set out.
“On the whole, then, the movement of loan capital, as expressed in the rate of interest, is in the opposite direction to that of industrial capital. The phase wherein a low rate of interest, but above the minimum, coincides with the "improvement" and growing confidence after a crisis, and particularly the phase wherein the rate of interest reaches its average level, exactly midway between its minimum and maximum, are the only two periods during which an abundance of loan capital is available simultaneously with a great expansion of industrial capital. But at the beginning of the industrial cycle, a low rate of interest coincides with a contraction, and at the end of the industrial cycle, a high rate of interest coincides with a superabundance of industrial capital. The low rate of interest that accompanies the "improvement" shows that the commercial credit requires bank credit only to a slight extent because it is still self-supporting.”
It is, industrial capital, and its cycle that determines the supply and demand for loanable money-capital, and so the rate of interest. But, for orthodox, bourgeois economics, it is only interest-bearing capital that constitutes capital, and it is its supply, which somehow manifests out of the ether, into the hands of money lenders, which determines the state of the economy. So, orthodox bourgeois theory sees the rate of interest as being the regulator, along with its concept of a natural, or neutral rate of interest, with rates below it causing economic expansion and the potential for overheating and inflation, and above it, contraction and the potential for recession and deflation. I have set out, elsewhere, why this is nonsense.
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