[OPE-L:7353] [OPE-L:883] Re: r & i

Gerald Levy (glevy@pratt.edu)
Tue, 13 Apr 1999 12:12:58 -0400 (EDT)

Paul C wrote in [OPE-L:880]:

> In modern capitalist societies the rate of interest is set
> by the central bank.

I would say, rather, that the rate of interest charged by the central bank
for loans of reserves to private banks (in the US, the discount rate) has
a strong *influence* on the rates (note plural) of interest charged by
private banks on loans to business firms (e.g. the prime rate) and
consumers (e.g. the rate of interest charged on mortgage loans). The
central bank, though, can not "set" the "rate of interest" any more than
they can "set" the rate of profit or the rate of accumulation. I.e. they
can only "set" a rate of interest within (relatively narrow?) limits
established by the private capitalist economy.

In what way does the supply and demand for loanable funds establish the
interest rate(s) -- independently of state monetary policy?

> This is part of the state apparattus
> and its policies are determined in the end by the balance
> of class forces.

This could be said for just about all state economic policies,
including monetary policy.

> The current move in Europe and the UK
> for instance to have independent central banks determining
> interest rates on purely 'monetary' criteria is a reflection
> of the dominance of the right in the late 80s early 90s
> when the policy was formulated


> , and has as its aim the
> use of the central bank to set a floor to the rate of
> exploitation.

How is a floor to the rate of exploitation set by the rate of

In solidarity, Jerry