The Rate of Interest

F. The Rate of Interest

Interest-bearing capital is represented by Marx as “the most complete fetish” of all fetishistic forms, referring to the apologetic or na¨ıve attributions of rent to “land,” profit to “capital,” and wages to “labour” (MECW 32: 449–50). And to the uninitiated only the “pure fetish form” was visible, for “capital appears as a mere thing; the whole result of the capitalist production and circulation process appears

20 Marx adds that “the influence of foreign trade is expounded in an entirely one-sided way” by Ricardo, who neglected the market-expanding dimension: “The development of the product

into a commodity is fundamental to capitalist production and this is intrinsically bound up with the expansion of the market, the creation of the world market, and therefore foreign trade” (MECW 32: 58). 21 For the technical validity of Marx’s case, see Chapter 1, p. 41.

313 as a property inherent in a thing, and it depends on the owner of money, i.e. of the

F. The Rate of Interest

commodity in its constantly exchangeable form, whether he expends it as money or rents it out as capital” (452). It is, in brief, “interest, not profit, which appears to

be the creation of value arising from capital as such and therefore from the mere ownership of capital; consequently it is regarded as the specific revenue created by capital” (458). 22 To focus on the objectionable “incomprehensible superficial” or “mystified” form was an error common to apologists and critics of the capitalist system – to “vulgar economists” and “vulgar socialists” alike (463).

We attend first to the objectionable bourgeois perspective. While money used as capital appears as an independent source of value “separated from the capitalist process” (457), 23 industrial profit is represented as a return to managerial labor: “[Interest seems to be] a specific kind of surplus value the generation of which is due to the mere ownership of capital and therefore to an intrinsic characteristic of capital; whereas on the contrary, industrial profit appears to be a mere addition which the borrower obtains by employing capital productively, that is, by exploiting the workers with the help of the capital borrowed. . . . The industrial capitalist, by really taking part in the production process, appears in fact as an active agent in production, as a worker, in contrast to the idle, inactive money-lender whose function of property owner is separate from and outside the production process” (458). If then “one part of surplus value, i.e. interest, is completely separated from the process of exploitation, then the other part, that is, industrial profit, emerges as its direct opposite, not as appropriation of other people’s labour, but as the creation of value by one’s own labour” (495).

The true “origin” of interest for Marx is, of course, surplus value in the sense of unpaid labor (469). Accordingly, for interest to exist at all presupposed surplus value and thus capitalist production, Marx mocking those “vulgar economists” who argued that “if the industrial capitalist did not get any profit in addition to interest, he would lend his capital out for interest and become a rentier, so that all capitalists would stop producing and all capital would cease operating as capital, but nevertheless it would still be possible to live on the interest” (476). But Turgot – who had “already said that if the capitalist received no interest, he would buy land (capitalised rent) and live off rent [1844: Sections 73, 85]” – he excused, for in his case “the interest would still be derived from surplus value, since for the Physiocrats rent represents the real surplus value.”

22 On capital appearing “as a selfactor – value as possessing in itself the quality of self-increase in consequence of qualitates occultae of some kind,” see also MECW 33: 74.

23 This formulation turns out to be too forcefully phrased since in fact the “surplus value due to capital as capital” – always from a bourgeois perspective – is later said to be “derived by capital

from the production process,” or more specifically that though “due to capital as such inde- pendently of the production process . . . it is only realised in the production process” (MECW

32: 474). At one point Marx asserts that “The Economist, like all English economists, of course [considers that] profit = the whole surplus value minus rent; interest is merely part of it” (MECW 33: 348). If this is so, his case against orthodoxy is surely much diluted.

1861–1863 I: Surplus Value – Profit, Rent, and Interest Marx allowed that “[i]interest-bearing capital functions as such only in so far as

the money lent is really converted into capital and produces a surplus of which inter- est constitutes a part” (488). Money might be lent for a variety of non-productive purposes, and the existence of non-industrial loans contributed towards obscuring the source of interest on loans to the capitalist sector in surplus value. For example, interest on consumption loans was “a mere transfer” (487). Loans to accommodate “the circulation process” might or might not contribute towards the generation of surplus value depending on circumstances. Thus “a loan on temporarily not vendible commodities . . . can be associated with the circulation process of capital, the necessary conversion of commodity capital into money capital” and “[i]n so far as the acceleration of this conversion process – such acceleration is a general feature of credit – speeds up reproduction, and therefore the production of sur- plus value, the money lent is capital.” But “in so far as it only serves to pay debts without accelerating the reproduction process, perhaps even limiting it or making it impossible, it is a mere means of payment, only money for the borrower, and for the lender it is, in fact, capital independent of the process of capital.”

The fetishistic trap was particularly dangerous considering that the true source of surplus value is in any event obscure, an allusion to the Transformation: “because of the divergence of profit from surplus value and the uniform profit yielded by all capitals . . . capital becomes very much obscured, something dark and mysterious” (451). If the source of profit in surplus value – exploitation of labor – is obscure, this is a fortiori the case of interest which is one remove away from the true source (456). Also contributing to obscurity was the fact that the interest rate is quoted as

a “fixed price” on an undifferentiated sum – not fixed literally but fluctuating “in the same measure for all borrowers and therefore confront[ing] them as something fixed, given” (461) – unlike the continually fluctuating profit rate in the various spheres of activity. 24

An amplification of the impediments to a true understanding of the source of the global return to capital in surplus value further clarifies the issue. This account once again involves the fluctuating rate of profit or rather of the differential rates of profit, but is now coupled with various forms of “profit upon expropriation” or “alienation” – an implicit allusion to commercial capital – all contrasting with the standardized rate of interest quoted on the market (475). It is once again pointed out that whereas the “moneyed capitalist” appears divorced from the production or labor process, the active industrial capitalist to the contrary is perceived as an active member of the workforce, or as “better-paid wage workers.” The outcome of the misconception was a total distortion of what is at play: “The nature of surplus value (and therefore of capital) is not only obliterated in this final division of profit into interest and industrial profit, but it is definitely presented as something quite

24 Cf. J. S. Mill: “That portion of profit which is properly interest . . . is strictly the same, at the same time and place whatever its employment. . . . [T]he market rate of interest is at all times

a known and definite thing” (Mill 1963–91 [1848]: 406).

315 different” (493). What is merely a “quantitative division” of surplus value between

F. The Rate of Interest

industrial profit and interest “is turned into a qualitative division which transforms both parts in such a way that not even a trace of their original essence seems to remain.”

The contractual form itself further camouflaged the reality, considering that the agreement between borrower and lender precedes the outcome of the production process (456). Interest should in fact be seen as a claim on future surplus labor: “since the profit only arises from the production process, is only its result and has first to be produced, interest is in fact merely a claim on part of the surplus labour which has yet to be performed, a title to future labour . . . ” (508). But the circumstance that “capital is bought (that is, it is lent at interest) before it is paid for” hides the reality that the terms of the loan contract are in fact governed by the “production process,” and conveys the contrary impression that interest does not emerge as part of the surplus generated in production. 25

Moreover, in reality, “[e]ach component of the price of a commodity, in so far as it appears as an advance – as an already existing commodity price which enters into the production price – ceases to represent surplus value as far as the industrial capitalist is concerned ” (509; emphasis added). Interest as cost for the individual capitalist is particularly emphasized: “it is part of his outlay, part of the expenses

he has incurred in order to produce the commodities” (476; also 273–4). What is true of interest is true also of rent. Both are paid from surplus value, though not appearing as such to the uninitiated but rather as the “prices” of capital and land; that they are included in cost price is, however, not open to doubt:

They seem here no longer to represent unpaid surplus labour, but paid surplus labour, that is, surplus labour for which an equivalent is paid during the production process, although not to the worker whose surplus labour it is, but to other people, i.e. the owners of capital and of land. . . . Interest and rent therefore appear not as surplus, and still less as surplus labour, but as prices of the commodities “capital” and “land”. . . . That part of the value of the commodity which represents interest, therefore, appears as reproduction of the price paid for capital, and that part which represents rent appears as reproduction of the price paid for the land. These prices therefore become constituent parts of the total price (511–12).

Now it is not only in appearance but in fact that interest enters along with rent into the industrial capitalists’ outlays, their magnitudes governed by market con- ditions in a circular fashion “disavowing” their true origin: “This does not merely appear to be the case to the industrial capitalist; for him interest and rent really

25 The precise division between interest and industrial profit is left in abeyance: “A general rate of interest corresponds naturally to the general rate of profit. It is not our intention to discuss

this further here, since the analysis of interest-bearing capital does not belong to this general section but to that dealing with credit” (MECW 32: 458). An inverse relation is noted but left unanalyzed: “It is not intended to investigate here how this ratio is determined. This belongs to the analysis of the real movement of capital, i.e. of capitals, while we are concerned here with the general forms of capital” (469; also 451).

1861–1863 I: Surplus Value – Profit, Rent, and Interest

constitute part of his outlay, and whereas, on the one hand, they are determined by the market price of his commodity . . . on the other hand, the market price is determined by them. . . . Since parts of surplus value, i.e. interest and rent, enter into the production process as the prices of commodities – of the commodity land and the commodity capital – they exist in forms which not only conceal, but which disavow their real origin” (512).

Those engaged in capitalist production “live in a bewitched world” and it was the task of the science of political economy “to rediscover the hidden connection,” for “[e]verything enters into competition in this last, most externalised form. The market price, for example, appears to be the dominant factor here, just as the rate of interest, rent, wages, industrial profit appear to be the constituents of value, and the price of land and the price of capital appear as given items with which one operates” (514). Again: “What value is for the genuine economists the market price is for the practical capitalist, that is, in each case the primary factor of the whole movement” (518).

A summary statement adopts the same critical perspective, in terms close to those found in Capital 3 under the designation “The Trinity Formula” (see Chapter 1, p. 17). Here again Marx takes for granted the validity of the circular-flow process to which is in part attributed the erroneous perspective:

Capital – as an entity – appears . . . as an independent source of value; as something which creates value in the same way as land [produces] rent, and labour wages (partly wages in the proper sense, and partly industrial profit). Although it is still the price of the commodity which has to pay for wages, interest and rent, it pays for them because the land which enters into the commodity produces the rent, the capital which enters into it produces the interest, and the labour which enters into it produces the wages, [in other words these elements] produce the portions of value which accrue to their respective owners or representatives – the landowner, the capitalist, and the worker (wage worker and industrialist). From this standpoint therefore, the fact that, on the one hand, the price of commodities determines wages, rent and interest and, on the other hand, the price of interest, rent and wages determines the price of commodities, is by no means a contradiction contained in the theory, or if it is, it is a contradiction,

a cercle vicieux, which exists in the real movement (498). It is of course the “industrial capitalist” who makes the calculations relating to

relative profitability that govern his allocative decisions, and the foregoing formu- lations imply that in doing so he excludes contractual rent and interest although they are in fact part of surplus value. This feature has been touched on earlier (above, pp. 296–7) where we found that the profit-rate uniformity mechanism turns on the reallocation of part only of the surplus value between sectors. But how this is to

be reconciled with the fact that the trend path of the profit rate – as we have seen (above, p. 307) – apparently entails an inclusive definition of “profit,” taking for granted the prior achievement of uniformity, remains troublesome.

Also troublesome is Marx’s forceful denial that industrial profit relates to some kind of labor and insistence that it reflects exploitation or the “appropriation of

317 other people’s labour” (above, p. 313), when in fact he allowed some truth to this

F. The Rate of Interest

“apologetic” view in discussing the function of “superintendence” including that undertaken by the capitalist qua capitalist (496–8). 26

Marx’s disdain for the “vulgar” socialists (above, p. 313) with respect to their perspective on interest emerges quite as strongly as that for the apologists. His objection is that “superficial criticism . . . turns its wisdom and reforming zeal against interest-bearing capital without touching upon real capitalist production, but merely attacking one of its consequences” (452–3). The socialist attack on interest, by touching only on the division of surplus value, was consistent with justification of “capitalist production” itself; and it could even be envisaged as a case, “disguised as socialization,” for “the development of bourgeois credit” refer- ring to proposals to force down the interest rate, proposals that “assume quite startling forms such as that of ‘cr´edit gratuit’ for example. The same applies to Saint-Simonism with its glorification of banking” (464).

This is what Marx had in mind in describing “Proudhon’s polemic against Bastiat on the question of interest” as “characteristic both of the manner in which the vulgarian defends the categories of political economy and of the way in which superficial socialism (Proudhon’s polemic hardly deserves the name) attacks them” (526). Interest on loan capital – Marx obviously here sets aside consumption loans – represents part of surplus value paid in the course of a money transaction; but Proudhon focused on the form of the loan contract neglecting that “what money in the hands of the lender does not do, it does in the hands of the borrower who really employs it as capital” in the exploitation of wage labor (527). And it followed from Proudhon’s misconceived focus on the money transaction that were “lending in this form abolished . . . the surplus would disappear,” when in fact “only the division of the surplus between two sets of capitalists would disappear” (528).

We come now to a striking contrast drawn between rent and interest, each with its source in surplus value, leading Marx to repeat his charge against “the petty- bourgeois Utopians,” doubtless with Proudhon again in mind (471). Whereas pri- vate ownership in land – and with it rent payments – might be abolished by land nationalization it is inconceivable to do the same with interest without abolishing the “capitalist production” system. The difference reflects the nature of interest- bearing capital (a matter touched on above, pp. 312–3): “There are not two differ- ent kinds of capital – interest-bearing and profit-yielding – but the selfsame capital which operates in the process as capital, produces a profit which is divided between two different capitalist – one standing outside the process, and, as owner, repre- senting capital in itself and the other representing operating capital, capital which takes part in the process.” This the “Utopians” failed to appreciate, leading them

26 This issue will be elaborated in Chapter 14.C. We there also consider what other active con- tributions are undertaken by the capitalist for which “profit” might be considered a genuine

return.

1861–1863 I: Surplus Value – Profit, Rent, and Interest

(as we have seen) to propose the abolition of interest while – an impossible feat – retaining industrial profit.