>Randy Steindorf wrote:
>
>>>pms wrote:
>>>
>>>>So slower growth makes money tighter?
>>>
>>>No, tighter money makes growth slower. But the effect of a higher
>>>currency is very similar to that of higher interest rates - a
>>>financial factor dragging down the real sector.
>>>
>>>Doug
>>
>>I read Marx as saying the opposite, especially in Volume III, where he
>>discussed the rise and fall of rate of interest as being unrelated to the
>>rise and fall in the rate of profit. If money is a commodity which acts
>>as intermediary in the exchange of other commodities, the supply of money
>>is roughly dependent on the supply of commodities needed to be exchanged.
>>If the amount of commodities drops due to slower production caused by
>>excess supply, then less money-commodity is needed, and interest rates
>>rise to slow down growth in money supply. Slower growth forces the
>>central bank to tighten money-supply to accommodate the fewer commodities
>>being exchanged.
>>
>>Similarly, inflation if not too much money chasing too few goods, but
>>depreciation of money is faster then the fall in value of commodities,
>>resulting in a rise of their prices, because more depreciated
>>money-commodity is needed to purchase them.
>>
>>The vulgar economists at the central banks have everything bass-akwards.
>>They have no insight into the basics of their profession, because they
>>don't understand the distinction between constant and variable capital and
>>how surplus value of produced. But then it is their self-interest to
>>remain blind to the real relations.
>
>For a bunch of hacks who don't know what they're doing, the central bankers
>have done fairly well at regulating capitalism. They may not understand the
>algebra of value, but they understand the class war, and prosecute it
>skillfully. When Greenspan talked about the dwindling pool of available
>workers, he didn't have to cite Kalecki - he just lived it.
>
>Spontaneous movements in interest rates are unrelated to fluctuations in
>profit rates over the short to medium term. But if central bankers push up
>rates and drive an economy into recession, the profit rate will fall; if
>that recession disarms the working class, it helps make possible a
>subsequent rise in the rate of profit.
>
>Doug
I didn't mean to imply that central bankers were hacks. They have been proficient at what they do--namely putting out fires. But I wouldn't call that good at regulating capitalism. Regulation implies operating according to a worked out plan. They are good at working out plans for ameliorating the next currency crisis or recession, but they can't prevent the crisis. Each crisis puts the whole system in danger. Why would a local currency crisis in Indonesia put the world currency regime in danger if the world system was being well regulated? In relation to this, in Volume III, while discussing the foundations of the credit system, Marx makes the comment that "money in the form of precious metal remains the foundation from which the credit system can never break free, by the very nature of the case." Doesn't this point to a fundamental reason for the series of crisis in the credit based currencies regime of floating exchange rates since 1971-73. "By the nature of the case", central bankers can only manage the crisis, but they can't eliminate them. The regime of floating exchange rates is an attempt to break free of "money in the form of precious metals," resulting in a series of currency crises. The gold boards under Reagan and Bush I, and politicians like Ron Paul would seem to have a better instinct about the fundamental weakness of current system of floating exchange rates than central bankers, who claim to be its guardians.
In Chapter 22 of Vol III, "Division of Profit. Rate of Interest. 'Natural Rate of Profit'" Marx makes numerous comment like the following: "In this sense one can say that interest is governed by profit, and more precisely by the general rate of profit."; "The general rate of profit, in fact, reappears in the average rate of interest as an empirical, given fact, even though the latter is not a pure or reliable expression of the former." The chapter is only a draft discussion and there are many qualifications, but it seems to point to the fact that Marx considered the rate of interest to be subsidiary to the rate of profit, if only in a lawless, irrational way. Central bankers, as good vulgar economists, consider the rate of interest to be qualitatively distinct from the rate of profit, while it is only quantitative distinction, according to Marx. Interest rates are raised or lowered by central banks post festum. They are lowered in order to get out of stagnating economy, and raised in order to slow an economy down to avoid inflation (depreciation of currency in relation to devaluation of commodities.) Yes, they could make miscalculations, as Volcker did in 1979-83. But over the business cycle interest rates are regulated by the state of production, not the other way around.
Marx also states that "low interest can also be accompanied by stagnation, and moderatge rise in interest by growing animation." In fact, if low interest rates rejuvenated a stagnant economy, how can Japan have a "zero" interest rate policy of ten years, essentially, free capital, and still have a stagnant productive economy.
grs
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