Abstract
This contribution summarises the critical notes on the theory of interest provided by Marx in Volume III of his Theories of Surplus Value and, subsequently, in Volume III of Capital. The discussion in Theories of Surplus Value established industrial capitalist finance as distinct from the usury of mercantile capitalism, with industrial finance organised around interest-bearing capital. Volume III of Capital reveals that Marx also absorbed from Mill and Tooke some criticism of the classical, Ricardian, theory of interest, according to which the rate of interest is determined by the rate of profit. This led him to conclude that the average or long-term rate of interest is more important for modern capitalism than any current money rate of interest, and that monetary innovation leads to growing concentration of money capital, producing downward pressure on the rate of interest. Finally, Marx emphasised the two aspects of the capitalist as owner of money and as a ‘functioning’ capitalist producing goods. This suggests a purely monetary circulation of interest among capitalists, marking the final emancipation of interest from real factors such as the rate of profit.
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Notes
- 1.
In the twentieth century, Keynes and Kalecki argued that this long-term rate of interest was relevant to business investment.
- 2.
Neglecting the distinction between capitalist credit and debt and pre-capitalist debt, and the income and balance sheet implications of that distinction, confuses long-term (econometric) studies of debt, such as Reinhart and Rogoff (2008).
- 3.
‘We have spoken of bankers and financiers as the makers of credit. But we have also recognized that the chief financial material out of which they make it is the stocks and shares and other certificates of value which represents the capital created by the saving and investing classes. It is thus the growth of the forms of saving which take these financial shapes that enables the increased credit to emerge from the financial factories. All such modern saving can furnish material for the creation of more credit ’ (Hobson 1924, p. 89).
- 4.
‘The rate of interest paid on deposits is always somewhat lower than the rate charged by banks on loans. The difference between these two rates remunerates the bank’ (Wicksell 1899, p. 139).
- 5.
The theory may be summarised as follows: in a closed economy with no government, in a given period total income (Y) is equal to the sum of profits plus wages (W + P), which in turn is equal to Consumption plus Investment (C + I). Y – C = I = Saving. Saving may be divided into the saving of workers (Sw) and the saving of capitalists (Sc). Similarly, Consumption may be divided into the consumption of workers (Cw) and the consumption of capitalists (Cc).
Profits are therefore equal to Sc + Cc. Sc is equal to total Saving or Investment minus Sw (I – Sw). Total Profits (Sc + Cc) are therefore equal to I + Cc – Sw. See Kalecki (1942). It is easy to show that, in the more complicated situation where banks earn money from intermediary household or workers’ deposits and loans, bank profits have no impact on aggregate profits.
- 6.
Kiyotaki and Moore (1997) present a model of credit cycles in which the only collateral is real or productive capital. Such a credit cycle, of course, then follows the investment cycle. The much more convenient and widespread use of financial assets as collateral extends the range and possibilities of the credit cycle far beyond the less financialised investment cycle.
- 7.
The process by which this happens in described in Toporowski (2015). Wicksell , who concedes that capitalists hold bank deposits (Wicksell 1899, pp. 138–139), does not draw the logical conclusion that those capitalists also receive interest on those deposits in addition to their income from production and trade.
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Acknowledgement
This chapter emerged out of discussions with Anwar Shaikh and Riccardo Bellofiore, neither of whom are responsible for any remaining errors contained within.
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Toporowski, J. (2018). Marx’s Critical Notes on the Classical Theory of Interest. In: Dellheim, J., Wolf, F. (eds) The Unfinished System of Karl Marx. Luxemburg International Studies in Political Economy. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-70347-3_8
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