Saturday, 12 August 2017

Theories of Surplus Value, Part I, Chapter 7 - Part 14

[(C) Massie. Interest as Part of Profit. The Level of Interest Explained by the Rate of Profit]


Marx quotes Massie's attack on Locke and Petty's argument that the rate of interest is determined by the demand and supply for money.

““It appears from these several Extracts, that Mr. Locke attributes the Government of the natural Rate of interest to the Proportion which the Quantity of Money in a Country bears to the Debts of its Inhabitants one amongst another, and to the Trade of it; and that Sir William Petty makes it depend on the Quantity of Money alone; so they only differ in regard to Debts” (pp. 14-15).” (p 375)

Massie says that the rich, instead of using their money themselves, in business, lend it out to others, who use it, and thereby, make a profit. Massie recognises that it is this profit that makes the payment of interest possible, and that interest is, therefore, a deduction from profit. But, it is only a small minority who can do this, because a lot of money-capital must be loaned, in order that the interest earned should be sufficient to sustain a family.

Massie also warns those who confuse the official interest rates, set by the state, with the market rates of interest.

““All Reasoning about natural Interest from the Rate which the Government pays for Money, is, and unavoidably must be fallacious; Experience has shown us, they neither have a agreed nor preserved a Correspondence with each other; and Reason tells us never can; for the one has its Foundation in Profit, and the other in Necessity; the former of which has Bounds, but the latter none: The Gentleman who borrows Money to improve his Land, and the Merchant or Tradesman who borrow to carry on Trade, have Limits, beyond which they will not go; if they can get 10 per cent by Money, they may give 5 per cent for it; but they will not give 10; whereas he who borrows through Necessity, has nothing else to determine by, and this admits of no Rule at all” (pp. 31-32).” (p 375-6)

But, Massie fails to recognise the point made by Marx, in this connection, in Capital III, that, in times of crisis, the capitalist also borrows money out of necessity, the necessity to keep the business afloat, and is thereby led to pay almost any rate of interest.

Massie does, however, make the important point, set out by Marx, that the rate of interest does not depend on the money borrowed actually making a profit for the borrower, but upon the fact that, as potential capital it is capable of doing so. If I borrow £1,000 as capital, it may be capable of producing an average rate of profit of 10%, and so I am able to pay, say, 3% interest on the loan. But, it does not mean that I will make 10% profit. I may make no profit at all. Yet, the lender is not concerned with this. They are only concerned with the fact that they loaned out capital with the potential to make 10% profit, and so will want their 3% cut either way.

““The Equitableness of taking Interest, depends not upon a Man’s making or not making Profit by what be borrows, but upon its” (the money borrowed) “being capable of producing Profit if rightly employed” (p. 49). “If that which Men pay as Interest for what they borrow, be apart of the profits it is capable of producing, this Interest must always be govern’d by those Profits” (p. 49).” (p 376)

And, by this Massie only means that the average rate of profit sets a limit to the average rate of interest, as Marx describes in Capital III. In other words, if the average rate of profit is 10%, capitalists, in aggregate, will not be prepared to pay 10% as an average rate of interest, because that would eliminate their profit. At rates approaching 10%, capitalists demand for money-capital would disappear, preventing rates rising higher.

“What has been said of particular Men in the same Business is applicable to particular Sorts of Business” (p. 50). 

“The natural Rate of Interest is governed by the Profits of Trade to Particulars” (p. 51).” (p 376)

Massie attributes the 4% rate of interest in England at that time, compared to the 8% interest rate of earlier times, to a lower rate of profit then compared to the earlier period. The lower rate of profit he attributed to an expansion of capital, bringing with it increased competition and lower prices. He makes the same comment in relation to varying international rates of interest.

However, its clear this cannot be the explanation for the reason Marx sets out in Capital III. That is that the growth of capital also implies a growth in the demand for capital, which would tend to cause rates to rise. In reality, higher rates and masses of profit, on the one hand, lead to an increased demand for capital, but, at the same time, create an increased supply of loanable money-capital.

[(D) Conclusion]


“Massie, even more definitely than Hume, presents interest as a mere part of profit; both attribute the fall in interest to the accumulation of capitals (Massie [speaks] especially of competition) and the fall in profits resulting from this. Both [say] equally little about the origin of the Profit of trade itself.” (p 377)

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