Gil says
--- To which I now add that first, Paul's arguments for the irrationality of interest considered as a price having nothing whatsoever to with Marx's arguments for same. Paul advertises this himself when he says the irrationality he speaks of has nothing to do with the connection of prices to values. For Marx, as noted in the passages I referred to, it has *everything* to do with the connection of prices to values. So if Paul has a critique here, it's of Marx, not me.
Second, the following sense of interest as price surely remains: granting everything Paul says, an interest rate is a market entity (e.g., it characterizes "money markets") which establishes a *rate of exchange* between "dollars today" and "dollars tomorrow", in much the same way that a price *ratio* (note the difference from simple "price") establishes a rate of exchange between some good x and some other good y.
Paul ---- Marx was not wrong in saying that the formulation of interest as a price of money was irrational on grounds derived from the theory of value. But there are deeper grounds for the formulation being irrational.
In discussing this we are touching both upon a substantive issue that would have to be dealt with in any outline of political economy, and upon a more general issue of method. Gil says that an interest rate is a market entity that characterises money markets. But feels that he has to put the term money markets in quotation marks. This is revealing. The fact that something is called a market in the bourgeois common parlance does not mean that what goes on there is the same set of social relations as in commodity markets.
Political economy must distinguish the real social relations from their ideological understanding by their participants, if we fail to do this we will sink into vulgar economics. I have to act as a computer consultant to various banks and notice that bankers blythely talk of 'the banking industry' and of their 'products'. If we accept common parlance we end up with absurdities like this. I may be pedantic, but I feel that we have to be very precise in our use of language.
Is Gil right in saying that an interest rate establishes an exchange ratio between "dollars today" and "dollars tomorrow", in much the same way that a price *ratio* (note the difference from simple "price") establishes a rate of exchange between some good x and some other good y.
Even if we take his own formulation, it is not so, since an exchange ratio between x and y, is dimension y/x, whereas a rate of exchange between dollars today and dollars tommorow is a dimensionless number. But a second objection is that a rate of interest is not, as a I argued in a previous post, a ratio, but an exponential operator over time. As such it defines an infinity of such 'exchange ratios'.
To me this seems to indicate several things.
1. The formulation of the law of value as conservation law is useful in that it clearly allows us to distinguish a non-linear phenomenon like interest as being phenomena of a quite different order.
2. Since the rate of interest is dimensionally congruent to the rate of profit, this indicates that rather than treating it as a market exchange phenomenon one should treat it as being in some way associated with the non-market, non-exchange process of the production of surplus value.
3. That if we reject the notion of interest as the price of money, and reject the notion that there are money markets, then we must be very cautious about accepting the ideological associates of the idea of the market - supply and demand - as an explanation of the rate of interest.
Paul Cockshott