[OPE-L:7359] [OPE-L:889] Re: r & i

Gerald Levy (glevy@pratt.edu)
Tue, 13 Apr 1999 20:46:36 -0400 (EDT)

Paul C wrote in [OPE-L:887]:

> 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.

The Central Bank can raise or lower the [discount] rate as they
wish. Their decisions, though, are either validated or invalidated by
market forces. For example, if they raise the discount rate too much, then
private banks can obtain reserves through other ways (e.g. selling
securities) or a "black market" can develop (e.g. lending at lower rates
of interest can be done by "loansharks").

I wonder, though, whether the real source of disagreement between us here
is over the question of whether the forces of the private capitalist
economy set limits to what state (fiscal and) monetary policies can

> 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.

I think, rather, that we should be clear about the way in which the rate
of accumulation (and with it, shifts in aggregate demand) can influence
the rate(s) of interest *before* we consider the role of the state in
modifying the rate(s) of interest through monetary policy.

(Digression: In presenting the dynamics of capitalism before considering
the state-form, Marx was following the practice of classical political
economy. Since, after all, _Capital_ was intended to be a critique of
political economy, this ordering seems justified. It can also be
justified in terms of a systematic dialectical ordering of the categories
and forms associated with comprehending capitalism in thought. [Mike W and
Geert have followed this line of thought]. In addition -- to add my 2
cents to the reasonS -- I think that developing what Marx believed would
be the "economic law of motion of modern society" independently of an
analysis of the state-form would be a powerful critique of the anarchists
-- who, after all, Marx was engaged in a theoretical and political dispute
with before, during, and after the writing of _Capital_. I will admit,
though, that as reasonable as I think this sounds, it is nonetheless
speculation and I do not have any evidence from Marx's letters to support
this contention).

> 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.

Hold on ... There is something missing in your argument. If the loss of
jobs in one sector leads to a depression of wages in that sector, then
doesn't the increase in investment in the other sector (and with it, the
increase in the bargaining power of workers in that sector) lead to
increasing wages there, c.p.? Also, whether there would be decreasing
average wages in the overall system will depend, in part, on whether the
laying off of workers in one sector will be more than offset by an
increasing demand for labor and the level of wages in the other
sector(s). Thus, simply because workers are displaced from one branch of
production, or sector, does not by itself mean that the size of the
industrial reserve army and competition among workers for jobs will
grow. Is that not so?

In solidarity, Jerry