From: paul bullock (paulbullock@EBMS-LTD.CO.UK)
Date: Fri May 18 2007 - 07:04:41 EDT
Re: [OPE-L] The Financialization of Capitalismover 30 years ago we noted that:
Throughout the industrial cycle the characteristic movement of the money-capital interest rate is as follows:
'.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'. (Marx vol 3)
It is necessary to grasp the origin of the general movements in the interest rate, in the course of the productive process- the changing demand for money-capital.
The decline in the rate of profit is the expression of an intensification of the contradiction of capitalist production. The drive to expand capital, given inadequate profit rates, is continued on the basis of extended credit. However the issue of bankers' credit and their willingness to discount paper securities is reduced as bankers see too many such securities and not enough money deposited, whilst the demand for money-capital forces up interest. Credit, though expensive, is still given however. In this system, where the entire continuity of the reproduction process rests on credit, and where the relative costliness of credit is rising whilst the rate of profit declines -a crisis must soon occur. The general difficulty in expanding the real process of production will sooner or later result in a chain reaction of an inability to clear paper securities among capitalists connected through commercial credit. It is this failure which mediates the outbreak of a crisis. A tremendous rush for the means of payment follows, as the repayment of debt is demanded and credit is extremely difficult to obtain. With the collapse of sales in a crisis, the rate of discount for bankers' credit is highest. Now, generally, only cash payments have validity. At first glance, this may create the impression of a credit and money crisis only, the lack of real returns being unrecognised in this paper world.
..... The dominance of credit can conceal the increasing difficulty capitalists face in realising their commodities at prices which enable them to maintain their rate of profit. Rapid and apparently reliable returns always keep up for a period after they are really over , precisely because of the existence of credit. Credit takes the place of real returns. A relatively high rate of real interest for loans must be paid alongside a slow increase in the mass of profit. The maturity period of loans is prolonged while capitalists strive to pay interest rates which rise relatively to the rate of profit. Interest will even be paid for out of additional borrowed capital - and this is done in part during times of speculation - staving off creditors with increasing indebtedness.
As the collapse begins, everyone is borrowing in order to pay. Money is required as a means of payment and nothing else.
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[1] Capital Vol III op cit p438.
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[1] Ibid pp477, 353-54.
----- Original Message -----
From: Rakesh Bhandari
To: OPE-L@SUS.CSUCHICO.EDU
Sent: Wednesday, May 16, 2007 4:41 PM
Subject: Re: [OPE-L] The Financialization of Capitalism
It has been argued [10][1,2,3,12,7,11] that the real rate of return on capital tends to decline over the course of capitalist development. If the rate of interest does not fall at a corresponding rate then the level of voluntary fundraising by firms will decline, since a diminishing portion of firms will be making enough profits to cover the rate of interest. However, the level of savings will not necessarilly decline at a corresponding rate.
Paul, this does not seem to me to follow, for even if the rate of interest does fall at a corresponding rate, the real rate of return on capital still may have still declined to such a point that fresh borrowings are not made.
Here are some quotes from Mattick's Marx and Keynes; by the way there is a brilliant piece by John Milios in the most recent Science and Society on Tugan Baronwsky which ends with discussion of Mattick.
"But no generalization regarding the behavior and importance of the rate of interest can be passed on this possibility [of positively affecting investments]. High interest rates are not incompatible with high rates of profit. When all is well in the sphere of profit production, a relatively high rate of interest will not hamper capital formation. It may even quicken its place, if productivity develops fast enough to satsify both loan capital and productive captial".
" A decade of falling interest rates after 1929 did not affect investment decisions seriously. Interest-rate manipulation ceased to be regarded as a main instrument for the control of business activities, an 'in the academic view it seems that the importance of the rate of interest was very much exaggerated in traditional theory, and that Marx was after all not much at fault in ignoring it altogether.'(quoting Joan Robinson)
Quoting Keynes "'the collapse in the marginal efficiency of capital may be so complete that no practical reduction in the rate of interest will be enough" to stimulate investments. 'With markets organized and influenced as they are,' he wrote, 'the market estimation of the marginal efficiency of capital may suffer from such enormous fluctuations that it cannot be sufficiently offset by corresponding fluctuations in the rate of interest.'"
As the demand for funds within the industrial and commercial sector dries up in the face of high interest rates, lending comes to be directed increasingly towards the funding of the state debt and consumer credit.
Why would not states and consumers be limited as to their borrowings by high interest rates as well? What guarantee that they'll be able to absorb the surplus stock of liquid money capital? Which you seem to believe on theoretical grounds will rise in the course of accumulation, though (now in reply to Allin) it may now show up in the M2 numbers as you also seem to be suggesting
Rakesh
With a growing portion of capital depending on interest rather than industrial profit, there grows an increased political pressure to maintain high interest rates. This baneful effect of the rentier interest which was already lambasted by Hobson[4] and Keynes[5][6] , for its role in consuming capital and hindering investment, looks set to grow. Early 20th century critics of the rentier class like Hobson, Keynes Veblen and even Lenin, identified another trait - its predatory charcter. To this trait they attributed the disaster of the Great War, and the deferred disaster that was the Versailles treaty.
The rentier interest stood ultimately on moral grounds quite alien to those of natural right. Speaking of the absentee ownership of natural resources, Veblen said "The owners own them not by virtue of having produced or earned them, . These owners own them because they own them, .. title is traceable to an act of seizure, legalized by statue or confirmed by long undisturbed possession."[15] This trait is best exemplified in Russian rentiers like Abramovich, whose billions derive from an undisguised seizure of natural resources within living memory.
References
[1]
Gérard Duménil. The profit rate: Where and how much did it fall? did it recover? (usa 1948-2000). Review of Radical Political Economy, 34:437-461, 2002.
[2]
R Edvinsson. A tendancy for the rate of profit to fall. In Paper presented at the economic-historical meeting in Lund, October 2003.
[3]
R Edvinsson. Growth, Accumulation, Crisis: With New Macroeconomic Data for Sweden 1800-2000. PhD thesis, Stockholm University, 2005.
[4]
J.A. Hobson. Imperialism: a study. Unwin Hyman, 1902.
[5]
J M Keynes. The economic consequences of Mr Churchill. Hogarth Press, 1925.
[6]
J. M. Keynes. The General Theory of Employment Interest and Money. Macmillan, London, 1936.
[7]
M.A. Lebowitz. Marx's Falling Rate of Profit: A Dialectical View. The Canadian Journal of Economics, 9(2):232-254, 1976.
[8]
M. Levy and S. Solomon. Of wealth power and law: the origin of scaling in economics. citeseer.nj.nec.com/63648.html.
[9]
Moshe Levy and Sorin Solomon. New evidence for the power-law distribution of wealth. Physica A, 242:90-94, 1997.
[10]
Karl Marx. Capital, volume 3. Progress Publishers, Moscow, 1971.
[11]
G. Michaelson, W. P. Cockshott, and A. F. Cottrell. Testing marx: some new results from uk data. Capital and Class, pages 103-129, 1995.
[12]
F. Moseley. The Decline of the Rate of Profit in the Postwar U. S. Economy: An Alternative Marxian Explanation. Review of Radical Political Economics, 22(2-3):17, 1990.
[13]
William J. Reed. The pareto law of incomes - an explanation and an extension, 2000.
[14]
William J. Reed. The pareto, zipf and other power laws. Economics Letters, 74:15-19, 2001.
[15] Veblen, Thorstein, Absentee Ownership, Allen and Unwin, London 1923.
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On 21 Nov 2006, 14:43.
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