Re: [OPE-L] the rate of interest

From: Jerry Levy (Gerald_A_Levy@MSN.COM)
Date: Thu Dec 15 2005 - 10:45:28 EST

The following is a musing on my part that relates, at least in some
ways, to the discussions about causes that we have been having
recently (an outgrowth of the "Derrida's ghosts" thread) and the
discussion (with Jurriaan about) aggregates.

Consider the rate of interest.

Well, hold on ... someone might say.  There is no one,
unique rate of interest -- instead there are an array of
rates of interest.    For instance, there is the discount rate,
the prime rate,  an array of rates offered by private banks
 for those with demand deposit accounts and those who wish
to borrow from those banks,  interest rates charged  by credit
card companies, etc.  Often these rates differ from one bank
to another for the same type of account or loan. In practice,
there is never an occasion  (is there?) when all of these rates

In that sense, the 'rate of interest' could be thought of as
being a concept which doesn't correspond well to the
complexity experienced in actual capitalist economies,
i.e. could be thought of as an aggregate and a simplification.

Suppose now that we are trying to comprehend this
complexity.  How do we go about doing it?  Here are
several ways (maybe you can think of others?):

1) Since all of the separate rates are real  and a part of
the system, one might claim that all should be considered
together and that none should be ranked (as being any
more or less primary than others).  The problem with this
is that some rates of interest _are_ more important to
the economy than some other rates of interest and a theory
should have some way of  specifying that, imo.

2)  One might assert that, as a matter of empirical
observation,  while all of these rates are different, they
all tend to move in the same direction.  One might then
ask whether there is one rate which influences the
direction of the other rates.  And, of course, there is:
the discount rate.  I.e. when the discount rate is raised
or lowered, then the other rates of interest tend to follow
and change in the same direction.  If one was to pursue this
line of reasoning, then one might claim that central banks
and state policy then determine rates of interest!  Indeed,
one might claim in the US that rates of interest are determined
by the Board of Governors of the Federal Reserve System!
This, however, is merely an illusion, i.e. while the Fed can
_influence_ interest rates, it does not _determine_ them.
(This might be seen as part of a wider spread illusion:  once
the state implements macroeconomic policy, then the illusion
is created that the state now controls and determines a
capitalist economy.)

3) In the course of  developing and presenting a theory of
capitalism, one uses the process of abstraction to layer
causes.  If one were to do that, then it would be evident that
an abstract theory of the determination of the interest rate
(as simple unity) needs to be developed before one can go
on to consider more concrete complexities like the determination
of the discount rate which presumes an understanding of the
state.  If one takes this tack, then one could certainly concede
the point made above that there are indeed an array of interest
rates, but that one has to examine the (sub-) subject of  the
interest rate _as if_ it were a single rate before one then goes
on to consider the diversity of rates and how they in practice
relate to each other.  [One could as part of that theory also
bring forward _historical_ arguments as to why, for instance, the
rate of  interest as a subject needs to be developed before
the discount rate.]

I think the clear way to go is 3), but there may be other
possibilities or arguments that I haven't considered.  What
do others think about this?

In solidarity, Jerry

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