I'm interested in interest theory (fwd)

glevy at acnet.pratt.edu glevy at acnet.pratt.edu
Thu Aug 10 12:09:48 MDT 1995

Jim D's post appears below. I've got to catch a train. Talk to you all in
2 weeks. -- Jerry

---------- Forwarded message ----------
Date: Thu, 10 Aug 1995 10:56:12 -0700
From: James Devine <JDevine at lmumail.lmu.edu>
To: glevy at acnet.pratt.edu
Cc: michael at ecst.csuchico.edu, gskillman at mail.wesleyan.edu
Subject: Re[2]: I'm interested in interest theory (fwd)

Steve Keen writes: >>... Marx's arguments in Capital III
alluded to by Jim concern the impossibility of treating
credit like other commodities when it comes to determining
its exchange-value. Instead, Marx comes to the conclusion
that the price of loaned capital is set by its use-value.<<

I don't see how this can be true. There's also a supply
side, so the use-value to the borrower isn't the whole
story. If one calculated the rate of return to the
capitalist of investing in loaning and then corrected it
for relative risk, etc., that rate of return should be tend
toward equality with the rate of return on other capitalist
activities. Also, the use-value of loans is not simply
subjective. I think one of the points of Marx's obscure
discussion in vol. II is that the demand for loans is to a
large extent socially determined.

>>Though he doesn't develop the concept, this must
introduce the concept of expectations, since the use-value
of borrowed money depends upon the borrower's subjective
expectations of the prospective profit from the projects in
which the money will be invested.<<

I don't see how subjective expectations contradict Marx's
theory at all. It seems to me that since the future sis
unknown, expectations would be relatively autonomous of
objective conditions (and in some cases, would actually
determine objective conditions as when a credit crunch
leads to accumulation stalling) but in the end would be
limited and shaped by objective conditions. (People do
respond if their expectations turn out to be false.)

>>As Marx puts it: "What, now, is the use-value which the
money-capitalist gives up for the period of the loan and
relinquishes to the productive capitalist--the borrower? it is
the use-value which the money acquires by being capable of
becoming capital, of performing the functions of capital, and
creating a definite surplus-value... In the case of other
commodities the use-value is ultimately consumed. In contrast,
the commodity-capital is peculiar in that its value and
use-value not only remain intact, but also increase, through
consumption of its use-value...<<

This fits with the relative rate of return calculation above.
The use-value of M is that it can be used to garner some M'-M.
It's not use-value in the sense of providing physical or
intellectual pleasure.

>>"Money thus loaned has in this respect a certain similarity
with labour-power in its relation to the industrial capitalist.
With the difference that the latter pays for the value of
labour-power, whereas he simply pays back the value of the loaned
capital. The use-value of labour-power for the industrial
capitalist is that labour-power creates more value in its
consumption than it possesses itself, and than it costs. This
additional value is use-value for the industrial capitalist. And
in a like manner the use-value of loaned capital appears as its
faculty of begetting and increasing value...."

>>So Marx sees similarities between labor-power and credit, in
the sense that both appear to have the "faculty of begetting and
increasing value".<<

This is the way it appears to the individual capitalist (treated
in vol. III of CAPITAL). From a societal perspective (that of
vol. I of CAPITAL), loanable money-capital is very different from
labor-power. It does not create surplus-value. Instead, loaning
and the gathering of interest income involves a redistribution of

>>"What, now, does the industrial capitalist pay, and what is,
therefore, the price of the loaned capital?.. What the buyer of an
ordinary commodity, buys is its use-value; what he pays for is its
value. What the borrower of money buys is likewise its use-value as
capital; but what does he pay for? Surely not its price, or value,
as in the case of ordinary commodities."( p. 352.)

>>While Marx willingly countenances that [loanable] money
[capital]* has a use-value, he can't accept that it should also
have a price which is explained by its value:

*[for Marx, the money commodity (gold) has a value]

>>"It must always be borne in mind that here capital as capital
is a commodity... All the relations in evidence here would
therefore be irrational from the standpoint of an ordinary
commodity.... Similarly,... If we want to call interest the
price of money-capital, then it is an irrational form of price
quite at variance with the conception of price of commodities."
(p. 353.)

>>That leads to a problem; how can a product have a price
(value) which is not its value? [This again points to the
discussion Carrol initiated some time ago, on the
distinction between value and exchange-value; here the
issue apparently confuses Marx too, to some extent. What
he should have said was "how can a product have a price
(exchange-value) which is not its value?"]<<

No, I think Marx was right to say that loanable
money-capital has a price (the interest rate) without
having a value. It's like virgin land or an individual's
conscience: it can be sold without having been produced.

To ask "how can a product have a price (value) which is not its
value?" is absurd. First, loanable money capital is not a
"product"; loaning involves a redistribution of assets, with a
corresponding redistribution of debts. (At the time of the loan,
neither the borrower's nor the lender's net worth changes.)

Second, the parentheses suggests an equation of price with value
is confusing two of Marx's levels of abstraction (which he does
sometimes, sometimes as a simple error, sometimes as a first step
toward a more complete understanding). Values refer to the level
of abstraction of socially necessary abstract labor. How much
socially-necessary abstract labor does it take to produce
loanable money-capital? None, so its value is zero. Price is a
concept at the vol. III level of appearances, in which
differences amongst capitalists have been introduced, along with
their competition. But is loanable money-capital a scarce item
that has a positive price, once we introduce the role of
competition amongst capitalists? Yes.

>>"How, then, can a sum of value have a price besides its own
price... Price, after all, is the value of a commodity as
distinct from its use-value. A price which differs from value in
quality is an absurd contradiction." (p. 354.)

>>"Capital manifests itself as capital through self-expansion.
The degree of its self-expansion exxpresses the quantitative
degree in which it recognises itself as capital... its rate or
magnitude is measurable only by comparison with the value of the
advanced capital. The ... self-expansion of interest-bearing
capital is, therefore, likewise only measurable by comparing the
amount of interest ... with the value of thhe advanced capital.
If, therefore, price expresses the value of a commodity, then
interest expresses the self-expansion of money-capital and thus
appears as the price paid for it to the lender. This shows how
absurd it is from the very first to apply hereto the simple
relations of exchange... (p. 354-55.)<<

I think the last sentence indicates that Marx is applying a
reductio ad absurdum logic. He is concluding that
interest-bearing capital _is not_ like industrial capital, in
that the latter actually involves the creation of surplus-value.
Interest rates are not like the prices of goods & services.

>>Finally, Marx comes to a resolution of the paradox: the "value"
(properly, exchange-value) of money is set by the surplus-value
it can generate for the borrower--something Marx earlier
described as the use-value of money: "The value of money or of
commodities employed as capital does not depend on their value as
money or as commodities, but on the quantity of surplus-value
they produce for their owner." (p. 355.) Thus the measure of the
value [use-value? exchange value? price?] of [loanable] money
[capital] is not its own value, but the surplus-value it can
generate. <<

The "surplus-value it can generate" is of course the subjective
evaluation of the potential profit that the borrowed money can
create for the borrower (and not for society, which is another
issue). It's also should be "profit" here, since as Marx notes
elsewhere, when people make economic decisions, they do not take
value and value categories into account. (see p. 873 of vol. III,
International Publ. ed.) Instead, they use prices and price
categories; people base their decisions on appearances, not on
the underlying societal reality (revealed in vol. I).

>>While I agree with Paul that Jim's comments about competition
overstate the supply and demand component of Marx's
argument, nonetheless he does discuss supply and demand, and
the general "lawlessness" of credit vis-a-vis normal

good, we agree on that.

>>Having restated that when supply and demand balance, only
the natural price (value) of commodities rules, Marx says
that "But it is different with the interest on money-capital.
Competition does not, in this case, determine the deviations from
the rule. There is rather no law of division except that enforced
by competition, because as we shall see, no such thing as a
'natural' rate of interest exists... There are no 'natural' limits
for the rate of interest. Whenever competition does not merely
determine the deviations and fluctuations, whenever, therefore,
the neutralisation of opposing forces puts a stop to any and all
determination, the thing to be determined becomes something
arbitrary and lawless." (p. 356.)

>>However, the key distinction between applying supply and demand
analysis here and applying it to normal commodities is that,
in the latter at least, there are some grounds for seeing supply
and demand as independent (at a micro level; it is fallacious at
an economy-wide level). However, the supply of and demand for
credit are far from independent: the supply will be high when the
demand is high, and vice versa, because both are determined by
shared expectations of profit.<<

I don't see why using the concepts of supply and demand implies
that they are necessarily independent. In fact, provisionally
treating them as independent helps understand how they are not

>>Cheers, Captain Ahab<<

who's the white whale?

I'm going to abstain from this discussion after today. I'm trying
to get my other work done.

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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