Three Books on Marxist Political Economy (Pt 10)

History of interest rates

A chart showing the history of interest rates over the last few centuries shows an interesting pattern — low hills and valleys with a generally downward tendency. During and immediately after World War I, interest rates form what looks like a low mountain range. Then with the arrival of the Great Depression of the 1930s, rates sink into a deep valley. Unlike during World War I, interest rates remain near Depression lows during World War II but start to rise slowly with some wiggles through the end of the 1960s.

But during the 1970s, interest rates suddenly spike upward, without precedent in the history of capitalist production. It is as though after riding through gently rolling country for several hundred years of capitalist history, you suddenly run into the Himalaya mountain range. Then, beginning in the early 1980s, interest rates start to fall into a deep valley, reaching all-time lows in the wake of the 2007-09 Great Recession. Clearly something dramatic occurred in the last half of the 20th century.

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One thought on “Three Books on Marxist Political Economy (Pt 10)

  1. “…it is only through a growing global gold hoard that the global money supply can be expanded in real—purchasing power—terms.”

    I think you have by now substantiated this thesis beyond all shadow of a doubt, and I look forward to this line of thought finally being addressed by Shaikh, Heinrich, Moseley, Kliman, and the rest of the academic Marxist community.

    However, I also want to draw a further radical implication out of this statement—one that would greatly simplify the whole complicated debate about how to calculate the world average rate of profit at any given time.

    Recall that commodities must prove their “socially-necessary” nature by being sold. Before sale, they are mere use-values with so much concrete labor put into them.

    To show that all of the concrete labor put into them gets to count as abstract, socially-necessary labor, the commodities must sell at their prices of production and fetch an average rate of profit. Market prices below production prices is a symptom that some of the concrete labor invested in those commodities was not socially-necessary. (Likewise, market prices above production prices is a symptom that society demands more concrete labor to be invested in that line of production and is willing to count even more concrete labor as abstract, socially-necessary labor).

    What this all means is that a capitalist has not yet made a profit if all he has is a mass of as-yet unsold use-values “said to be worth x amount of dollars (or even x ounces of gold)”. The circuit is M –> C –> P –> C’ –> M’. Eventually, to really prove that a profit has been made, a capitalist must acquire a certain additional amount of money.

    Therefore, in aggregate there must be continual production of new money in order to allow a positive average rate of profit to exist in aggregate. If no new money was created, then capitalists could very easily amass greater and greater stockpiles of use-values, but these use-values would be useless to them. And any attempt to sell the use-values off and increase one’s money-holdings compared to before would require that another capitalist reduce his money-holdings compared to before. In terms of “use-value profits” it would not be a zero-sum game, but in terms of *money profits* (which is what really matters under capitalism) it would be a zero-sum game.

    Therefore, the extent to which the aggregate money stock expands is precisely the extent to which there can be a positive average rate of profit. (Of course, some capitalists will be lucky and/or clever and take an above-average rate of profit, while others will be unlucky and/or inept and take a below-average or even negative rate of profit. But in aggregate, it will even out to the average rate of profit).

    Therefore, a blindingly-simple way to calculate the world average rate of profit is simply to calculate the rate of expansion of money material. Therefore, IF dollars were money, then the Federal Reserve would not just control the rate of expansion of the dollar money supply, but also the average rate of profit, as they would essentially be the same thing. The fact that the Federal Reserve does not just routinely increase the dollar money supply by trillions of percent is evidence that dollars are not the most fundamental layer of money. Because if dollars really COULD stand on their own as money, then why WOULDN’T they want as high an average rate of profit as possible?

    Since gold is actually the most fundamental layer of money, and not dollars, then calculating the world average rate of profit simply becomes an exercise in calculating the yearly rate of expansion in the world gold stockpile. If you calculate this for 2016, for example, you find that 3100 tons were added to a total stockpile of about 187200 tons, for a 1.7% rate of yearly increase.

    If we took the golden prices of commodities and tried to calculate an average rate of profit from that, we would probably find a higher result than 1.7%. Why? Because in reality many commodities are not being sold in exchange for gold (which would limit their prices to a lower level), but in exchange for promises of gold—for credit. Or, the commodities haven’t been able to be sold yet, but are still sitting as unsold inventory and being “counted before they hatch,” so to speak, as “being worth such-and-such amount of money.”

    The end result of this is that many of those commodities will never end up being sold at their purported prices, and some of those commodities that WERE sold, but were sold for promises of gold instead of gold itself, will end up counting as “unsold,” practically speaking, if the promise of payment in gold should fall through—which it must, eventually, if these promises of payment in gold are accumulating at a faster rate than actual gold production is itself.

    Therefore, if we were to calculate the average world rate of profit using the golden prices of commodities, we would find periods where the average rate of profit appeared to be higher than the rate of gold production (upswings in the Kondratiev cycle, when credit and accumulation of commodity inventories is juicing the data) and periods where the average rate of profit appeared to be lower than the rate of gold production or even negative (downturns in the Kondratiev cycle). However, over the long-term, we can expect the average rate of profit, after taking into account occasional write-offs of fictitious capital that ends up not panning out, to orbit the rate of increase in the world gold stockpile.

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