Thursday, 10 August 2017

Theories of Surplus Value, Part I, Chapter 7 - Part 12

[(B) Hume. Fall of Profit and Interest Dependent on the Growth of Trade and Industry]

Marx quotes Hume.

““Every thing in the world is purchased by labour” ([David Hume, “Of Commerce”. In:] Essays, [and Treatises on several Subjects,] Vol. I, Part II, London, 1764, p. 289).” (p 373)

The rate of interest is determined by the relation of demand from borrowers and supply from lenders, but Hume says, after that, essentially on the level ofprofits arising from commerce” (l.c., p. 329).” (p 373)

Hume recognises the point made by Marx, in discussing the rate of interest, in Capital III, that although the rate of interest is seen as a return on a given sum of money, in reality, this is only because the calculation can only rationally be conducted in money terms. What is being loaned is the use of capital, and its ability to generate profit. In other words, the rate of interest is the price of the use value of capital, the use value of being self-expanding value.

So, Hume writes,

““The greater or less stock of labour and commodities must have a great influence” (upon interest); “since we really and in effect borrow these, when we take money upon interest” (l.c., p. 337). “No man will accept of low profits, where he can have high interest; and no man will accept of low interest, where he can have high profits” (l.c., p. 335).” 

High interest and high profit are both the expression “of the small advance of commerce and industry, not of the scarcity of gold and silver” (l.c., p.329). And “low interest” of the opposite.” (p 374)

A lot is said in these few words. Firstly, Hume sets out the point above that what is being lent and borrowed is not money but capital. He effectively expresses the point that if the demand for this capital is high, relative to the supply, then interest rates will be high and vice versa. This, therefore, has nothing whatsoever to do with the amount of money in circulation – currency – whether, as in his day, that currency takes the form of gold and silver, or as today, takes the form of bank notes or credit money. It is a point the proponents of QE do not understand.

But, Hume's point that no one will accept a low rate of profit, if they can obtain a high rate of interest, is also of relevance today. But, he should have said no one will accept a given rate of profit if they can obtain a higher rate of interest. In other words, even if the rate of profit is high, money may go into other activities than productive investment, if a higher yet return can thereby be obtained. Today, that higher return is not seen only in a high rate of interest, which may not apply, but in high levels of capital gains, derived from speculation in highly inflated prices of paper assets – fictitious capital.

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