Capital Volume II: Class 6

Reading: Capital III, ch. 21-26

For Marx, interest-bearing capital is a special form of capital. It has the peculiar quality, much like labor-power, that the consumption of its use-value is productive of surplus-value. This is the basis of interest in the capitalist system. Interest is simply the price paid for capital that can produce surplus-value. The interest paid to the owner of the lent capital is a distribution from the surplus-value appropriated by the industrial capitalist from his workers.

Marx’s argument about how interest rates are determined is more complex than it seems at first. He makes several forthright statements that interest rates are not determined by some underlying law like the labor-theory of value. He writes, “It is different, though, with interest on money capital. Here competition does not determine divergences from the law, for there is no law of distribution other than that dictated by competition; as we shall go on to see, there is no ‘natural’ rate of interest. What is called the natural rate of interest simply means the rate established by free competition.” (478) Supply and demand determine price: a large supply of capital and low demand will cause interest rates to fall and vice versa. It is competition between money capitalists and industrial capitalists that determines the interest rate.

However, the interest rate is still tied to the general rate of profit because it is a distribution therefrom. This leads to the following statement: “The value of money or commodities as capital is not determined by their value as money or commodities but rather by the quantity of surplus-value that they produce for their possessor.” (477) There are upper and lower bounds for the level of interest that can be collected. If the industrial capitalist does not borrow capital, he owes zero. On the other hand, money lenders cannot collect more interest than what is made in profit.

But how does the quantity of surplus-value produced by interest-bearing capital determine its value? It is unclear what he means by “value” here because he has emphatically rejected the notion that there is a true value to capital outside of supply and demand. Perhaps he means that the degree to which capital can generate surplus-value is indicated by the interest rate. So while there is no measurable quantity that goes into creating value, like socially necessary labor time, if we look at the composition of capital and the general rate of profit, the value of capital can be found. If $10 million capital can produce $2 million of surplus-value, the interest rate will be higher than if it only produces $1 million. More research and analysis would be helpful here. How exactly do supply and demand factor in?

As is the case in these and the preceding chapters, Marx moves back and forth between the circulation of capital and the capitalists who do the circulation. We can find a germ of the early twentieth century development of the concept of finance capital by Hilferding et al in bits and pieces. Marx writes, “On top of this, with the development of large-scale industry money capital emerges more and more, in so far as it appears on the market, as not represented by the individual capitalist, the proprietor of this or that fraction of the mass of capital on the market, but rather as a concentrated and organized mass, placed under the control of the bankers as representatives of the social capital in a quite different manner to real production. The result is that, as far as the form of demand goes, capital for loan is faced with the entire weight of a class, while, as far as supply goes, it itself appears en masse as loan capital.” (491) Later, he continues this point: “A bank represents on the one hand the centralization of money capital, of the lenders, and on the other hand the centralization of the borrowers.” (528)

These points, along with his points at the end of Volume I regarding the centralization and concentration of industrial capital may serve as the basis for Hilferding’s theory of how these two monopolistic blocks of capital compete and eventually agglomerate to form finance capital. How does this unfold historically?

But Marx also returns to his commodity fetish concept from Volume I, arguing that interest-bearing capital expresses the commodity fetish in its full-blown form: “While interest is simply one part of the profit, i.e. the surplus-value, extorted from the worker by the functioning capitalist, it now appears conversely as if interest is the specific fruit of capital, the original thing, while profit, now transformed into the form of profit of enterprise appears as a mere accessory and trimming added in the reproduction process. The fetish character of capital and the representation of this capital fetish is now complete. In M-M’ we have the irrational form of capital, the misrepresentation and objectification of the relations of production, in its highest power: the interest-bearing form, the simple form of capital, in which it is taken as logically anterior to its own reproduction process; the ability of money or a commodity to valorize its own value independent of reproduction—the capital mystification in the most flagrant form.” (516)

Why is this important? Because Marx is always trying to tie his analysis of circulation back to production. There is no circulation of value if there is no value produced and there is no value produced if there is no labor. Ultimately all the fictitious capital that bankers create relies on the existence of labor. Again, there is a sort of dual quality to this analysis. On the one hand, he says that the value of interest-bearing capital is determined by the amount of surplus-value it can create. On the other, he is quite adamant that it actually does not create anything, but becomes enamored with the notion that it is the source of all value. We are in a moment like that now: speculation is rampant and value is scarce.