Re: [OPE-L] The Financialization of Capitalism

From: Rakesh Bhandari (bhandari@BERKELEY.EDU)
Date: Wed May 16 2007 - 11:41:27 EDT

>It has been argued [10][1,2,3,12,7,11] that the 
>real rate of return on capital tends to decline 
>over the course of capitalist development. If 
>the rate of interest does not fall at a 
>corresponding rate then the level of voluntary 
>fundraising by firms will decline, since a 
>diminishing portion of firms will be making 
>enough profits to cover the rate of interest. 
>However, the level of savings will not 
>necessarilly decline at a corresponding rate.

Paul, this does not seem to me to follow, for 
even if the rate of interest does fall at a 
corresponding rate, the real rate of return on 
capital still may have still declined to such a 
point that fresh borrowings are not made.

Here are some quotes from Mattick's Marx and 
Keynes; by the way there is a brilliant piece by 
John Milios in the most recent Science and 
Society on Tugan Baronwsky which ends with 
discussion of Mattick.

"But no generalization regarding the behavior and 
importance of the rate of interest can be passed 
on this possibility [of positively affecting 
investments].  High interest rates are not 
incompatible with high rates of profit.  When all 
is well in the sphere of profit production, a 
relatively high rate of interest will not hamper 
capital formation.  It may even quicken its 
place, if productivity develops fast enough to 
satsify both loan capital and productive captial".
" A decade of falling interest rates after 1929 
did not affect investment decisions seriously. 
Interest-rate manipulation ceased to be regarded 
as a main instrument for the control of business 
activities, an 'in the academic view it seems 
that the importance of the rate of interest was 
very much exaggerated in traditional theory, and 
that Marx was after all not much at fault in 
ignoring it altogether.'(quoting Joan Robinson)
Quoting Keynes "'the collapse in the marginal 
efficiency of capital may be so complete that no 
practical reduction in the rate of interest will 
be enough" to stimulate investments. 'With 
markets organized and influenced as they are,' he 
wrote, 'the market estimation of the marginal 
efficiency of capital may suffer from such 
enormous fluctuations that it cannot be 
sufficiently offset by corresponding fluctuations 
in the rate of interest.'"

>As the demand for funds within the industrial 
>and commercial sector dries up in the face of 
>high interest rates, lending comes to be 
>directed increasingly towards the funding of the 
>state debt and consumer credit.

Why would not states and consumers be limited as 
to their borrowings by high interest rates as 
well? What guarantee that they'll be able to 
absorb the surplus stock of liquid money capital? 
Which you seem to believe on theoretical grounds 
will rise in the course of accumulation, though 
(now in reply to Allin) it may now show up in the 
M2 numbers as you also seem to be suggesting


>With a growing portion of capital depending on 
>interest rather than industrial profit, there 
>grows an increased political pressure to 
>maintain high interest rates. This baneful 
>effect of the rentier interest which was already 
>lambasted by Hobson[4] and Keynes[5][6] , for 
>its role in consuming capital and hindering 
>investment, looks set to grow. Early 20th 
>century critics  of the rentier class like 
>Hobson, Keynes Veblen and even Lenin, identified 
>another trait – its predatory charcter. To this 
>trait they attributed the disaster of the Great 
>War, and the deferred disaster that was the 
>Versailles treaty.
>The rentier interest stood ultimately on moral 
>grounds quite alien to those of natural right. 
>Speaking of the absentee ownership of natural 
>resources, Veblen said “The owners own them not 
>by virtue of having produced or earned them, … 
>These owners own them because they own them, .. 
>title is traceable to an act of seizure, 
>legalized by statue or confirmed by long 
>undisturbed possession.”[15]  This trait  is 
>best exemplified in Russian rentiers like 
>Abramovich, whose billions derive from an 
>undisguised  seizure of natural resources within 
>living memory.
>Gérard Duménil. The profit rate: Where and how 
>much did it fall? did it recover? (usa 
>1948-2000). Review of Radical Political Economy, 
>34:437-461, 2002.
>R Edvinsson. A tendancy for the rate of profit 
>to fall. In Paper presented at the 
>economic-historical meeting in Lund, October 
>R Edvinsson. Growth, Accumulation, Crisis: With 
>New Macroeconomic Data for Sweden 1800-2000. PhD 
>thesis, Stockholm University, 2005.
>J.A. Hobson. Imperialism: a study. Unwin Hyman, 1902.
>J M Keynes. The economic consequences of Mr Churchill. Hogarth Press, 1925.
>J. M. Keynes. The General Theory of Employment 
>Interest and Money. Macmillan, London, 1936.
>M.A. Lebowitz. Marx's Falling Rate of Profit: A 
>Dialectical View. The Canadian Journal of 
>Economics, 9(2):232-254, 1976.
>M. Levy and S. Solomon. Of wealth power and law: 
>the origin of scaling in economics. 
>Moshe Levy and Sorin Solomon. New evidence for 
>the power-law distribution of wealth. Physica A, 
>242:90-94, 1997.
>Karl Marx. Capital, volume 3. Progress Publishers, Moscow, 1971.
>G. Michaelson, W. P. Cockshott, and A. F. 
>Cottrell. Testing marx: some new results from uk 
>data. Capital and Class, pages 103-129, 1995.
>F. Moseley. The Decline of the Rate of Profit in 
>the Postwar U. S. Economy: An Alternative 
>Marxian Explanation. Review of Radical Political 
>Economics, 22(2-3):17, 1990.
>William J. Reed. The pareto law of incomes - an 
>explanation and an extension, 2000.
>William J. Reed. The pareto, zipf and other 
>power laws. Economics Letters, 74:15-19, 2001.
>[15]     Veblen, Thorstein, Absentee Ownership, Allen and Unwin, London 1923.
>File translated from TEX by TTH, version 3.00.
>On 21 Nov 2006, 14:43.

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