RE: [OPE] Did Marx have a loanable funds theory of the interest rate?

From: Paul Cockshott <>
Date: Thu Jan 28 2010 - 06:11:33 EST

I take it that Marx thought that a key factor was the ratio between gold and total extended credit, since
in a crisis only gold acts as payment of last resort. That of course is all 19th century stuff, but state
money plays a similar role now. Hence the only way to control interest rates recently has been
to expand the stock of state money.

I think one must rigourously distinguish the ultimate monetary base whatever that is from
privately created credit when dealing with funds.

The idea of loanable funds is misleading one. What we need is a total equation of state
giving the rate of change of total outstanding credit. One can then derive the interest
rate as an increasing function of the ratio total credit/ gold reserves.

Total credit is going to be something like 0.5 x time integral of the dispersion of financial flows pdf
By the dispersion of financial flows pdf I mean the probability that a given capitalist is a net
borrower or a net depositor with the financial system.
For 19th century capitalism I believe one could derive the latter pdf as a product distribution
of two underlying distributions
1. the dispersion of the rate of profit
2. the dispersion of the gearing ratio

The relative importance of the two dispersions in the final product distribution will itself be
a function of the rate of interest since firms with a negative gearing ratio will have a higher
probability of being in net financial surplus than those with a positive gearing ratio, and this
weighting becomes more important the higher the rate of interest.
From: [] On Behalf Of Ian Wright []
Sent: Wednesday, January 27, 2010 1:30 AM
To: Outline on Political Economy mailing list
Subject: [OPE] Did Marx have a loanable funds theory of the interest rate?

I've been re-reading Vol. 3, and it seems to me that Marx had a
loanable funds theory of the interest rate in the following sense:
 - The interest rate is determined by the supply and demand of
loanable money-capital.
 - Unlike other commodities money-capital does not have a natural
price, since it does not have a real cost of reproduction, hence there
is no "natural" rate of interest: the interest rate is entirely
determined by the (accidental) laws of competition between financial
and industrial capital.

Would anyone disagree with this reading, or wish to add any qualifications?

Any help appreciated,
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Received on Thu Jan 28 06:13:25 2010

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