[OPE-L:2353] Re: interest

Duncan K Foley (dkf2@columbia.edu)
Fri, 24 May 1996 10:59:54 -0700

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On Fri, 24 May 1996, Chai-on Lee wrote:

> Duncan wrote in [2330] in responce to Paul;
> >On Wed, 22 May 1996, Paul Cockshott wrote:
> >(among other things)
> > This is certainly a factor, but since a considerable part of debt
> > is state rather than commercial, bargains between financiers and the
> > state should be equally relevant. Marx, does not, admitedly, go into
> > much detail on this, since he is in vol 3 presenting interest as
> > a category internal to capitalist economic relations and thus
> > largely abstracting from the state. But I see nothing in his approach
> > which would prohibit one from taking state monetary policy into
> > account as a determinant of the rate of interest.
> These are extremely important questions for macroeconomics and the understanding of monetary policy. It seems to me that there is a
> division between Marx's essentially "loanable funds" theory of the
> interest rate, and Keynes' "liquidity preference" theory. Marx sees
> the interest rate as linked more to the profit rate (though his remarks
> about the theoretical indeterminacy of the interest rate leave room for
> liquidity factors to influence the gap between the interest rate and the
> profit rate. Perhaps here it is important to distinguish between
> short-term interest rates, which seem to be influenced more by
> monetary policy, and long-term interest rates, which seem to be
> influenced more by speculation.
> Duncan
> Chai-on:
> --------
> I wonder why long-term interest rates is influenced more by
> speculation. IMO, speculation is also influential in the determination of
> the short-term interest. Maybe you miswrote. I would read it as
> long-term interest rates, which seem to be influenced more by "profit
> rate" (not speculation). If I am wrong, could you please explain it more?
> Yours
> Chai-on

Long-term bonds have a much bigger risk of price change as the result of
future interest rate changes, which is why I think of their prices as
subject to speculation. I suppose in theory long-term interest rates could
be closely linked to profit rates (for example, Smith seems to have
thought this), but I don't see much relation in the data I know about.