[PEN-L:8207] RE: Marx on interest rates

[DICKENS, EDWIN (201)-408-3024]

Doug Henwood writes:

>Well, Tom, what do you think Marx's theory of interest rate
>determination was?

I think there is a good reason why Marx did not have a complete
theory of the interest rate--namely, Marx's initial results
prompted him to postpone further consideration of the issue
until he got to his planned book on the state.

Marx initially believed that the interest rate would link the
dialectical movement underlying the contradictions of the
commodity, money and capital to their concrete manifestation
in financial crises.  But when he applied his dialectical
method to the interest rate, Marx discovered that he could
only determine the maximum, not the average, interest rate.
Many commentators have read a lot into this discovery,
e.g., arguing that it implies that the rate of profit
determines the rate of interest.  But the fact that the
rate of interest cannot exceed the rate of profit in the long
run is a commonplace in finance textbooks with little 
theoretical or practical import.  It can't even distinguish
Marx's theory from talk around the watercooler on Wall Street.

After abandoning his initial efforts at determining the interest
rate, Marx looked for its determinates in the factors mentioned by
Trevor Evans, and eventually came upon the closed doors of the
Bank of England.  As soon as the trail led to the state, the 
research project fell down Marx's list of priorities.  For Marx
understood his book on the state to come at the end, and be
the capstone, of his economic studies.

Jim Devine writes:

>Trevor's reading makes sense here: X would be determined
>by (a) the amount of surplus-value extracted by industrial
>capital that is available to be distributed between industrial
>and banking capitalists and (b) the (conjunctural)
>institutional balance of power between these two fractions of
>capital.  Then deviation (i) would be determined by day-to-day or
>month-to-month changes in the demand for and supply of money
>capital.  When "supply = demand," (a) and (b) determine the
>interest rate.

I've addressed (a) above.  And I've got problems with Jim's
reading of Marx concerning (b) as well.  We can determine the
price of production of, say, shoes independently of 
fluctuations in the demand for and the supply of shoes.  Therefore,
it makes sense to say that the interaction of demand and supply
cause the price of shoes to fluctuate around their price of
production.  But this is not true in the case of money capital.
For example, one of Doug Henwood's pet peeves at the moment
is how the state strengthens financial capitalists, by
running budget deficits and thus increasing the demand for 
money capital, rather than taxing them.  Take the cases of
a rising average interest rate in the early 1980s and a 
falling average interest rate in the early 1990s.  If Jim
Devine's rendition of Marx's theory is correct, we must
conclude that financial capital was growing in strength 
relative to industrial capital in the early 1980s, and vice
versa in the early 1990s.  I'm skeptical, but open to 
anyone who wants to try and resolve the issue by constructing
an index of the relative strengths of financial and
industrial capital.

Edwin Dickens