Gil [PEN-L 853]has started a very interesting train of discus- sion and I hope it continues. Having chipped in an initial ten cents worth, I hope I'll be excused for leveraging it with another five cents. I'll stick with the view that the reason this discussion is interesting is that a concept of value is more evidently necessary when talking about interest and loan-capital than when talking about wages. In other words, marxism is on stronger grounds when debating money. That's why I think it is a pity so many standard versions of Marx don't leave room for money. If they did, they could have a proper debate with the political currents that are doing the most obvious damage. They might even make some allies. Following Edwin Dickens [PEN-L 922] post I reread CIII chapters 29-32 which deal with fictitious capital. I found that Marx noted a difference in the political economy of the banking school and the political economy of the industrial interest. This difference is with us today because - when you think about it - currents of economic thought represent material interests now just as much as then. The point of view which Ricardo, Marx and Smith call the 'moneyed interest' needs a theory in which financial capital contributes value to the gross product. In the UK this current is politically expressed by Thatcherism. I don't know enough about the nuances of US rightwing theories but I'm sure it has an equivalent over there. Chapter and verse on this would be interesting for us over here. The view is that *everything* which increases an individual's wealth increases society's wealth. Getting rich is good for you and good for everyone. The archetypal Smith; enlightened self-interest rules. Instead of property is theft, we have theft is property. However, not all sections of the bourgeoisie accept this. There is not the same united brotherhood of thieves as one finds in support of the view that (for some reason that you need an economics degree to understand) society will be better off if everyone with a salary below a CEO's works longer and gets paid less. There is a chink in the armour; it has dawned on the 'enlightened' industrial bourgeoisie that if all profits are frittered away on banking, nothing will actually get produced and, more to the point, a nation that chooses this specialisation will gradually but inexorably lose its competitive status, just as Britain started doing at the turn of the century and the US has been doing since the early sixties. The argument is muddied because you can get away with specialising in finance if either you are a small tax haven or if you run the world. In the first case you launder for the mob, in the second you are the mob. It's the guys in between Luxemburg and the USA who have the problems. The moneyed interest has to maintain that loan capital constitutes real value, and that the interest payments create yet more value. This was the argument that, IMHO, Gil put it into Marx's mouth: but if you just take his first post as a statement of a possible viewpoint (not, I suspect, his own but I'm open to correction) then it says in essence 'loan capital is an input to production just like any other; therefore, since accumulation generally results in an increased demand for all inputs, and since loan capital is an input to production, regulated like all other inputs by the laws of supply and demand, therefore accumulation brings forth a demand for more and more loans.' Then he produced the (possible) argument that, drawing an analogy not with constant capital but variable capital, capitalists might be expected to react to a shortage of loan capital in the same way as a shortage of labour, by creating a reserve army of loans capital. I hope this is a reasonably accurate restatement of the original train of thought. Several posts have responded to my suggested refutation of this argument. However, I was left feeling they didn't quite get to the heart of the matter. Fortunately no-one has taken the plunge and claimed that financiers make value. So there seems to be agreement that the financial sector (and I would argue, its workers) is unproductive of value and in fact acts as a drain on value. Paul [PEN-L 939] put this succinctly. How is it then possible, others argue, that: (a) the credit system as Marx attests definitely speeds up accumulation at certain points in the cycle and in history [Dickens PEN-L 922, Henwood PEN-L 934]? (b) accumulation at certain points of the cycle generates an increased demand for loan capital [Devine, PEN-L 865]? I don't think this is much of a mystery. The police speed up accumulation at certain points in the cycle and in history, and there is an increased demand for their services at certain points in the cycle; but this doesn't make their labour productive of value. Loan capital and credit are essential as a general condition of accumulation (which may be why [posting lost] Marx said that the abolition of interest was tantamount to the abolition of capitalism) but that doesn't make them a component of the gross product. No-one seemed to pick up on what is for me decisive and which Marx particularly stresses in his debate with the banking school, namely there is one point in the cycle where the rate of interest *definitely* runs counter to the pace of accumulation, which is the credit crunch that comes just before the slump when it shoots up just as the economy is slowing down. If it was a traditional input like any other, this has no explanation. As Gil says, Marx did say that the 'price' of loan capital was regulated 'by the laws of supply and demand' though I also see Paul's [Cockshott PEN-L 916] point that supply and demand analysis is 'beside the point' (the two are not contradictory statements). I propose the question should be put this way: are these the *same* laws of supply and demand as for either constant or variable capital? More generally, what *are* the laws of supply and demand for loan capital? I argue that (a) the supply of loan capital is ultimately limited by the quantity of commodity capital in the economy. Loan capital can only be created by creating additional titles to what already exists. To the extent that loans are not secured or as Marx puts it 'pure swindle' they are an inflationary fantasy. There's a lot of this about, but I raised the distinction betwen 'real' and 'nominal' interest rates [Dickens PEN-L 922] because I think things are easier to understand abstracting initially from inflation of the 'pure swindle' type, which includes printing money. In a more complete account the 'real' interest rate would come into play - the nominal interest rate less the rate of inflation properly defined (the rate of decrease in the value of money in hours per dollar). A further sophistication is the conversion of completely idle money balances into loan capital which Paul discusses. This comes under the same general heading however, since this money has a commodity base. (b) the demand for loan capital is more complex but I suggest Marx distinguishes three primary components of demand; I should have added a fourth which I have not found in Marx. The four are: (I) the demand for credit 'within the circuit of production itself' (to purchase inputs when the monetary means are not to hand). This rises with the pace of accumulation, and I missed it out of my account. Nevertheless, empirically a surprisingly large proportion of large-scale accumulation is internally financed these days. (II) the demand for credit to move capital from one sector to another [Henwood PEN-L 934]. This, I think is determined primarily not by the pace of accumulation but by the pace of technical change. In balanced growth, for example, this demand would not exist. (III) at the crunch point before the boom, by demand for means of payment. [Cockshott PEN-L 939] (IV) I tend to think Marx's own analysis has been amplified by Lenin's analysis of imperialism. There is a distinct formation at loose in the world, the military-financial- technical state, which can use its financial and military superiority to appropriate the labour of the rest of the world, a possibility Marx did not, I think, analyse systematically although nothing in his writings rules it out and Engels was aware of it. Maybe others can think of more; the list is not exhaustive. The decisive thing to get across, particularly in debates with the moneyed interest, is that the supply and demand for loan capital follows *different* rules from genuine inputs because the creation of loans does not create extra capital, and the payment of interest is not an extra component of profits. The point is also that this hundred-and-fifty-year old analysis of Marx's is streets ahead of anything coming from modern economics. I think the Post-Keynesians, whose views I respect, would greatly benefit from studying it carefully and with open minds. Fictitious capital [Dickens], is I agree very important. Chapter 29 of CIII is very clear about this I think and I only touched on it. The starting point is this: when a loan is created it *seems* as if the capital in the economy has doubled. If a factory cost me $10m and I float loans of $10m secured on it (eg equities), there appears to be $20m in the economy. But there isn't. There's just the factory and a title to it that has become detached from it, and enters the market as an independent saleable object in its own right. The centre of my argument, which I think is also Marx's, is that there is always only $10m value in the economy. The shares are simply a title to a share of the income from that $10m. Apparently unsecured loans such as fixed-interest securities have the same character; they are a claim on the future surplus value which the factory will milk from the workers. The only difference is that if the factory closes, the bonds sink to nothing at all but the equities sink to the scrap value of what is left idle. The point I did not deal with before is: what governs the price of securities? As financial specialists know, and as Marx worked out quite carefully (he spent a lot of time getting the maths of it right, contrary to popular superstition), they are governed by the capitalised value (present net value) of the expected income stream. Marx is worth quoting on this because it could almost come straight from a textbook; it's the punchline that's different. Marx supposes a moneyed person to have a state security of face value 100 yielding an income stream of 5 per year (5%): "The creditor can sell this promissory note of L100 at his discretion to some other person. If the rate of interest is 5% and the security given by the state is good, the owner A can sell this promissory note, as a rule, to B for L100; for it is the same to B whether he lends L100 at 5% annually, or whether he secures for himself by the payment of L100 and annual tribute from the state amounting to L5. But in all these cases the capital, as whose offshoot (interest) state payments are considered, is illusory, fictitious capital. Not only that the amount loaned to the state no longer exists, but it was never intended that it could be expended as capital, and only by investment as capital could it have been transformed into a self-preserving value" (CIII ch29 p464, Lawrence and Wishart edition) An entire section of the nation's 'capital' comes into being which represents no extra productive capacity (has no value and is therefore not constant capital, creates no value and is therefore not variable capital) and yet has a price. This is the 'irrational form' of price Marx refers to. It is doubly illusory. The original face value of L100 is illusory because it is merely a title to an existing capital (and if the accounts are done properly so that it appears as a liability in the accounts of the borrower, and an asset in the accounts of the lender, then the two balance out and this can be seen to be true). But over and above this, its selling price parts company with the face value fluctuates depending, not on the income stream it represents, but the rate of interest on the basis of which it is capitalised. When the interest rate rises, ceteris paribus its price falls; when the interest rate falls, its price rises [I am therefore slightly uncertain about Paul's conclusion [PEN-L 939] that a lower interest rate calls forth a larger supply of loanable capital. To the extent that it attracts liquid cash out of the general pools that form in circulation this is true. But it also cuts the face value of existing financial instruments, so the analysis needs to be mediated]. Added to this is the speculative trading in securities. Once this happens not even scrupulous double-entry bookkeeping can bring things down to earth. On the basis of *pure* price measures it becomes impossible to distinguish, if one merely adds up the loan capital and the productive capital of society, what is real value and what is not. That is precisely why a concept of value is necessary. If you don't have one, you have to conclude that the dealers create real productive resources. If you accept the traded price of securities as a measure of the real productive capacity of the economy you get into a complete mess. The financial markets and their spokespeople really believe this. They really believe that in a bull market the value in the economy is levitating through the miracle of leverage. This is Gecko capitalism, which even normal honest neoclassicals like Galbraith can shoot full of holes. Why 'marxists' have to have any truck with it, God alone knows. I think the question, 'does fictitious capital play a 'real' role?' is a subtle one that it's quite easy to trip on so I'll walk in before the angels get there. Yes, of course it does. Surely this is one of the clearest illustrations that appearance is *part of* reality. Appearance in Marx is *not* the opposite of real. One cannot separate out the value side and say 'that's real ' and the price side and say 'that's notl'. The concrete thing that is capitalism is the combination of essence and appearance, not a detached Kantian essence. The bank really charges me 18.9% to borrow at consumer interest rates. Stock market prices really rise and fall with the interest rate. The forms through which value presents itself to consciousness are a part of reality. The illusion is the idea that when the stock market goes up by $10m, the boys in braces and funny coloured jackets have somehow created $10m of productive assets. These fictitious forms are not the *same* part of reality as a capital which can reproduce its own value by harnessing living, productive labour to create a genuinely saleable product, they are not governed by the same laws of supply and demand. And the need for the distinction is a burning and practical issue of our age. Alan Freeman 16 October 1995
