I'm interested in interest theory (fwd)

glevy at acnet.pratt.edu glevy at acnet.pratt.edu
Wed Aug 9 12:24:26 MDT 1995

---------- Forwarded message ----------
Date: Wed, 9 Aug 1995 09:36:59 -0700
From: James Devine <JDevine at lmumail.lmu.edu>
To: glevy at acnet.pratt.edu
Subject: I'm interested in interest theory

Jerry --

I read your comment in the Marxism list archive about Marx's
theory of interest. Here's my comment. Could you please forward
it to the list? Thanks ahead of time.

On Tue, 8 Aug 1995, Jerry Levy (glevy at acnet.pratt.edu) wrote that
>>There is no question that interest rates have not been
explained adequately in Marxist economic theory. The relationship
of the determinants of the interest rate to changes in the
general rate of profit is an important unresolved theoretical
issue that we need to address to better understand the dynamics
of capitalism.<<

I beg to differ (though I think the idea of dealing with
unfinished issues in Marxist political economy is good).

Marx's theory of interest is very simple (and I'll hold back from
citing chapter and verse: it's mostly in volume III of CAPITAL).
There is no "natural interest rate," which for him (unlike modern
economists, who follow Wicksell) means that there is no price of
production for the activity of loaning and enforcing loan
repayment. That activity has no value; it is unproductive labor.
However, like many things without a value (Marx points to
unimproved land and an individual's conscience), there is a
market price for loans. It is determined on the level of
competition, by the supply and demand for loanable money
capital (what is generally called loanable funds by economists).
The rate of interest helps determine the distribution of the
surplus-value produced between banking capitalists and industrial
capitalists (and commercial capitalists and landowners). Bankers
can claim part of the social surplus-value produced even though
they do not directly contribute to its production. That is
because they play the role of "financial intermediation," getting
funds from depositors and loaning them to lenders, which most
capitalists see as a valuable function.

The behavior of the financial sector, in other words, is not
determined exactly by the law of value. However, it is not
entirely independent, but is instead relatively autonomous. The
interest rate cannot go so low (and stay that way) that it drives
out the bankers, who facilitate capitalist accumulation. It also
cannot be so high (and stay that way) that the industrial
capitalists are driven out.

I think that since Marx's theory of interest is on the level of
competition, sophisticated mainstream theories of interest-rate
determination (such as those of the post-Keynesians) can be used
to fill out Marx's somewhat sketchy treatment in his
posthumously-published manuscripts. (We can go beyond supply and
demand, to talk about issues such as Minsky's financial
instability hypothesis.) However, Marx's theory is not consistent
with the neoclassical treatment (including that of Roemer) that
sees interest as essentially equivalent to industrial profit and
tries to explain all questions of distribution by technology,
ownership rights, and scarcity, with at most cavalier treatment
of production. Whereas Marx did not reject supply and demand
(since they determine market prices) he did reject the
neoclassical tendency to reduce all issues to matters of supply
and demand.

for socialism from below,

Jim Devine      jdevine at lmumail.lmu.edu
Los Angeles, CA (the city of your future: the modern home of slavery)

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