[OPE-L:7356] [OPE-L:887] Re: Re: r & i

Paul Cockshott (clyder@gn.apc.org)
Tue, 13 Apr 1999 23:06:08 +0100 (BST)

At 12:12 13/04/99 -0400, ope-l@galaxy.csuchico.edu wrote:
>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.
I disagree strongly, the state can if circumstances demand it, lower
real interest rates to below zero, or raise them above the mean
rate of profit.
>In what way does the supply and demand for loanable funds establish the
>interest rate(s) -- independently of state monetary policy?

The the whole idea of a supply and demand for loanable funds
is a confusion that arises from not analysing the structure of
financial flows in the economy as a whole. Supply and demand
are quite inappropriate concepts to the subject matter in question.
>> 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.
That is true.
>> 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
If the rate of interest is raised above the mean rate of profit,
new investment will only occur in those industries with a particularly
high rate of profit. In other industries there will be contraction
and the laying off of workers. Competition among workers will then
hold down real wages and raise the rate of exploitation.

Paul Cockshott (clyder@gn.apc.org)