Do people want me to keep forwarding these PEN-L posts to OPE-L? If so,
please ask me to do so. Also, if OPEers want their posts from other lists
posted on OPE-L, please forward said posts. -- Jerry
---------- Forwarded message ----------
Date: Sun, 15 Oct 1995 13:59:13 -0700
From: Paul Cockshott <wpc@clyder.gn.apc.org>
To: Multiple recipients of list <pen-l@anthrax.ecst.csuchico.edu>
Subject: [PEN-L:939] Re: Re (PEN-L:853) The strange case of the reserve
Edwin
------
end of his message. Also, Alan suggests that accumulation would "go
faster" if there was no credit system because, then, "less of the
accumulation fund would be gobbled up by injudicious idlers." But
I thought Marx was very clear that the credit system increases
accumulation, by creating fictitious capital. That is to say, the
credit system does not just take (quoting Alan) "resources away from
other capitals, who lend out their capital instead of using it
themselves." The credit system also creates (fictitious) capital,
which has real affects. Although I agree with Alan's summary of
Paul
----
The question arises as to why industrial capital is in debt to the
idlers in the first place. This affects ones judgement as
to whether interest payments are injurious to accumulation.
Broadly there are two mechanisms by which industrial capital
can become indebted to the banks:
1) Voluntary borrowing to finance expansion
2) The involuntary running up of overdrafts when sales fail
to meet their expected level
If we consider a system in which we have industrial capitalists
directly owning the means of production, then borrowing of
type 1 is likely to be slight within a closed system since
under these circumstances investment is, from the standpoint
of the class as a whole, self financing. This follows directly
from the reproduction equations.
1) O{1} = C{1} + V{1} + S{1}
2) O{2} = C{2} + V{2} + S{2}
Where O{i} is the realised value of output of sector i
and sector 1 is means of production and sector 2 is consumption
goods.
We have the demand equations:
3) O{2} = V + CapCons
4) O{1} = C + Accumulation
Where V is the sum of the V{i}s etc.
Thus
5) S = A + CapCons
and dS/dA = 1, ie, surplus value in the form of profit
rises exactly enough to compensate for additional expenditure
on accumulation.
This would appear to rule out the industrial capitalists
ever getting into debt. However, if we consider industrial
capital as being made up of 4 sub populations as follows:
a) A population whose rate of profit exceeds the rate of
interest and which has a low level of borrowing.
b) A population whose rate of profit falls below the rate
of interest and has a low level of borrowing.
c) A population whose rate of profit is below the rate of
interest but has a high debt to the banks
d) A population whose rate of profit is above the rate of
interest and has a high level of borrowing
Capitalists in population (a) will engage in voluntary
borrowing to expand production, and in the process will
move into population (d).
Capitalists in population (b), have a low level of borrowing,
and thus include those with net positive balances with
the banks. These capitalists will find it profitable to
stop accumulating industrial capital and deposit their
profits with the banks. They will tend to build up positive
asset balances with the banking system.
Capitalists in group (c) will be unable to meet interest
payments, and will tend to move deeper into debt, these
constitute the group undertaking involuntary borrowing.
Thus we automatically have a polarisation taking place,
firms in group (b) built up positive balances, whilst
others build up debt. The capitalists in group (b) transmogrify
into rentiers, and, vis-a-vis this group, all of the
others become increasingly indebted.
Note that this process occurs irrespective of whether
a distinct rentier class initially exists, and is the
fundamental mechanism by which that class is precipitated.
Now let us consider the effect of an interest rate rise.
More firms now find themselves earning less on their industrial
investments than they
a) could obtain from the same sum of capital deposited
with the banks
or
b) than they are currently paying as interest on the capital
that they borrowed to finance their industrial investment
The effect is to shift firms in groups (a) and (d) into
groups (b) and (c) respectively. This both accentuates
the polarisation of capital, reduces industrial accumulation
and, increases the mass of debt. If we take a simple model
of the credit system, wherein all loans go through the banks,
the apparent effect of a rise in interest rates will be
to increase the level of debt, which, appearing as it will
as a mass of bank deposits will appear to bourgeois economics
as an increase in the money supply.
Let us assume a simple system in which there is no state
money and the reserves of the banks are in gold. The rise
in their deposits will, unless there is an increase in the
gold stock, make their risk position worse, since a lower
proportion of these assets will be backed by gold relative
to the proportion backed by insecure loans to industrial
capital. They thus respond to the decline in their reserve
ratios by increasing interest rates, which of course
accentuates the polarisation process.
The end result is a further squeezing of industrial investment,
until the polarisation process causes a fraction of the industrial
firms to go insolvent. The accumulation of bad debts would
then cause a portion of the banks to fail, reducing the aggregate
mass of deposits allowing a new financial cycle to start.
Thus the effect of a high rate of interest is:
a) to choke off investment
b) to accelerate the formation of a rentier class
c) to cause the mass of deposits to rise, thus making it look
as if a higher interest rate has called forth a larger
'supply of loanable funds', but this is just one of the
many cases where the quotidien bourgeois perception is
the inverse of the real determination.