but as an actual magnitude. An average rate of profit has ^* For instance, J. G. Opdyke, in his " Treatise on Political Economy " (New York, 1851) makes a very unsuccessful attempt to explain the general extension of a rate of interest of 5% by eternal laws. Still more naively proceeds Mr. Karl Arnd in " Die naturgemasse V olkszvirthschaft gegeniiber dem Monopoliengeist und dem Kommunismus, etc., Hanau, 1845." There we may read: "In the natural course of the production of goods there is only one phenomenon, which, in the fully settled countries, seems to be destined to regulate in some measure the rate of interest; this is the proportion, in which the quantities of wood of the European forests increase through their annual new growth. This new growth takes place, quite independently of their exchange value, at the rate of 3 or 4 to 100." (How queer that the trees should arrange for their new growth independently of their exchange value!) "According to this a fall of the rate of interest below its pres- ent level in the richest countries cannot be expected." Page 124. (He means, be- cause the new growth of the trees is independent of their exchange value, even though their exchange value may depend on their new growth.) This deserves to be called " the primordial rate of forest interest." Its discoverer has made further meritorious contributions in this work to " our science " as the " philosopher of the dog tax."
*' The Bank of England raises and lowers the rate of its discount, always, of course, with due consideration of the rate prevailing in the open market, according to the imports and exports of gold. " By which gambling in discounts, by antici- pation of the alterations in the bank rate, has now become half the trade of the great heads of the money centre" — that is, of the London money market. {The Theory of the Exchanges, etc., p. 113.)
428 Capitalist Production.
to be assumed as a legal rate even in many law disputes, in which interest has to be calculated. IS^ow, if we press the in- quiry, why the limits of an average rate of interest cannot be deduced from general laws, we find the answer simply in the nature of interest. It is merely a portion of the average profit. The same capital appears in two roles, as a loanable capital in the hands of the lender, and as an industrial capi- tal, or commercial capital, in the hands of the investing cap- italist. But it jDerforms its function as capital only once, and produces profit only once. In the process of production it- self, the loanable nature of this capital does not play any role. To what extent the two parties divide the profit, in Avhich they both share, is in itself as much a purely empirical fact belonging to the realm of accident as the division of the shares of common profit of some corporative business among different share holders by percentages. In the division be- tween surplus-value and wages, on wdiich the determination of the rate of profit essentially rests, the decision is made by two very different elements, labor-power and capital; these are functions of two independent variables, which limit one another; and their qualitative difference is the source of the quantitative division of the produced value. We shall see later that the same takes place in the division of surplus-value between rent and profit. But nothing of the kind occurs in the case of interest. In this case the qualitative differentia- tion^ as we shall see immediately, proceeds rather from the purely quantitative division of the same lot of surplus-value. From what has gone before it follows that there is no such thing as a " natural " rate of interest. But while, in distinc- tion from the general rate of profit, there is on one side no general law, by which the limits of the average interest, or average rate of interest, may be determined and differentiated from the continually fluctuating market rates of interest, be- cause it is merely a question of dividing the gross profit be- tween two possessors of capital under different titles, there is on the other side the fact that the rate of interest, whether it be the average or the prevalent market rate, appears as a uni- Rate of Interest. 429 form, definite and tangible magnitude in a very different way from the general rate of profit/" The rate of interest holds a similar relation to the rate of profit as the market price of a commodity does to its value. To the extent that the rate of interest is determined by the rate of profit, it is so always by the general rate of profit, not by any specific rates of j)rofit, which may prevail in some particular lines of industry, and still less by any extra profit, which some individual capitalist may make in some particular line of business. ^^ It is a fact, then, that the general rate of profit re-appears as an emj^irical, given, reality in the average rate of interest, although the latter is not a pure or reliable expression of the former.
It is true, that the rate of interest itself differs according to the different classes of securities offered by the borrowers and according to the length of time for which the money is borrowed; but it is uniform within every one of these classes at a given moment. This distinction, then, does not militate against a fixed and uniform shape of the rate of interest.^^ 70 " ' ji^g price of commodities fluctuates ' continually; they are all made for difTerent uses; the money serves for all purposes. The commodities, even those of the same kind, differ according to quality; cash money is always of the same value, or at least is assumed to be so. Thus it happens that the price of money, which we designate by the term interest, has a greater stability and uniformity than that of any other thing." (J. Steuart, Principles of Political Economy, French translation, "1 " This rule of dividing profits is not, however, to be applied particularly to every lender and borrower, but to lenders and borrowers in general...re- markably great and small gains are the reward of skill and the want of under- standing, which lenders have nothing at all to do with; for as they will not suffer by the one, they ought not to benefit by the other. What has been said of par- ticular men in the same business is applicable to particular sorts of business; if the merchants and tradesmen employed in any one branch of trade get more by what they borrow than the common profits made by other merchants and tradesmen of the same country, the extraordinary gain is theirs, though it re- quired only common skill and understanding to get it; and not the lenders,' who supplied them with money...for the lenders would not have lent their money to carry on any business or trade upon lower terms than would admit of paying so much as the common rate of interest; and therefore they ought not to receive more than that, whatever advantage may be made by their money."
'- [Bank rate 5%. Market rate of discount 60 days' drafts, 5J^%. The same for.3 months' drafts 3i/^%. The same for 6 months' drafts 3 5/16%. Loans to bill brokers, day to day, 1 to 2%. The same for one week 3%. Last rate for fortnightly loans to stockholders 4J4 to 5%. Deposit allowance (banks) 3>^%. The 430 Capitalist Production.
The average rate of interest appears in every country for long epochs as a constant magnitude, because the general rate of profit — in spite of the continual variation of the partic- ular rates of profit, in which a variation in one sphere is offset by an opposite variation in another sphere — varies only in long intervals. Its relative constancy is revealed in this more or less constant nature of the average rate, or common rate, of interest.
As concerns the continually fluctuating market rate of in- terest, if exists at any moment as a fixed magnitude, the same as the market price of commodities, because all the loanable capital as an aggregate mass is continually facing the invested capital, so that the relation between the supply of loanable capital on one side, and the demand for it on the other, de- cide at any time the market level of interest. This is so much more the case, the more the development and simul- taneous concentration of the credit system impregnates the loanable capital with a general social character, and throws it all at one time on the market. On the other hand, the gen- eral rate of profit always exists as a mere tendency, as a move- ment to compensate specific rates of profit. The competition between capitalists — ^ which is itself this movement toward an equilibrium — consists in this case in their activity of gradually withdrawing capital from spheres, in which the profit stays for a long time below the average, and in the same way taking capital into spheres, in which the profit is above the average. Or it may also consist in their distribut- ing additional capital gradually and in varying proportions between tliese spheres. It is always a matter of a continual variation between supply and demand of capital with refer- ence to different spheres, never a simultaneous mass effect, as it is in the determination of the rate of interest.
We have seen that interest-bearing capital, although a cate- gory absolutely different from a commodity, becomes a pe- culiar commodity, so that interest becomes its price, which same (discount houses') 3 to 3%%. How large this difference may be for one and the same day is shown by the preceding figures of the rate of interest of the London money market on December 9th, 1889, taken from the city article of the Daily News of December XOth. The minimum is 1%, the maximum 5%. F. £.]
Rate of Interest. 431 is fixed at anj" time by supply and demand, just as the market price of an ordinary commodity is fixed. The market rate of interest, while continually oscillating, ap- pears therefore at any moment just as constantly fixed and uniform as the prevailing market price of commodities. The money-capitalists offer this commodity, and the invest- ing capitalists buy it and make a demand for it. This does not take place in the equalisation of profits toward a gen- eral rate of profit. If the prices of commodities in a certain sphere are below or above the price of production (leaving aside any oscillations, which are found in every business and are due to fluctuations of the industrial cycles), a balance is effected by an expansion or restriction of production. This signifies an expansion or restriction of the quantities of com- modities thrown on the market by industrial capitalists, by means of immigration or emigration of capital to and from particular spheres. It is by such a compensation of the aver- age market prices of commodities to prices of production that the deviations of specific rates of profit from the general, or average, rate of profit are corrected. This process does not, and cannot, at any time assume the appearance as though the industrial or mercantile capital as such were commodities seeking a buyer, but it does in the case of interest-bearing capital. To the extent that this process is perceptible, it is so only in the oscillations and compensations of the market prices of commodities to prices of production, not in any di- rect fixation of the average profit. The general rate of profit is actually determined, 1), by the surplus-value produced by the capital; 2), by the proportion of this surplus-value to the value of the total capital; and, 3), by competition, but only to the extent that this is a movement, by which capitals in- vested in particular spheres seek to draw equal dividends out of this surplus-value in proportion to their relative magni- tudes. The general rate of profit, then, derives its determina- tion actually from causes, which are quite different and far more profound than those of the market rate of interest, which is directly and immediately determined by the proportion be- tween supply and demand. It is, therefore, not such a tan- 432 Capitalist Production.
gible and obvious fact as the rate of interest. The particu- lar rates of interest in the different spheres of production are themselves more or less unsettled; but so far as they are per- ceptible, it is not their uniformity, but their differences, which appear. The general rate of profit itself appears only as the minimum limit of profit, not as the empirical and directly visible shape of the actual rate of profit.
In emphasizing this difference between the rate of inter- est and the rate of profit, we still leave out of consideration the following two circumstances, which favor the consolida- tion of the rate of interest: 1), The historical pre-existence of interest-bearing capital and the existence of a traditionally sanctioned general rate of interest; 2), the far greater direct influence exerted by the world market on the fixation of the rate of interest, independently of the economic conditions of a certain country, compared to its influence on the rate of profit.
The average profit does not appear as a directly existing fact, but merely as a final result of the compensation of oppo- site fluctuations, to be ascertained by analysis. Not so the rate of interest. It is, at least in its local validity, a daily fixed thing, a fact which serves even to industrial and mercan- tile capitals as a prerequisite and figure in their calculations. It becomes a general faculty of every sum of money of 100 pounds sterling to yield 2, 3, 4, 5%. Meteorological reports do not register the stand of the barometer and thermometer more accurately than the reports of the Bourse do the stand of the rate of interest, not for this or that capital, but for the money-capital on the market, for the available loanable capi- tal in general.
On the money market only lenders and borrowers face one another. The commodity has the same form, money. All specific forms of capital according to its investment. in par- ticular spheres of production or circulation are here blotted out. It exists here in the undifferentiated, homogenous, form of independent value, money. The competition of the indi- vidual spheres ceases here. They are all thrown together as borrowers of money, and capital likewise faces all of them in Rate of Interest. 433 \ a form, in which it is as yet indifferent to its definite invest- ment in this or that specific manner. The character worn bj industrial capital only in its movement and competition be- tween individual spheres, the character of a common capital of a class comes into evidence here in full force by the de- mand and supply of capital. On the other hand, money-cap- ital on the money market has actually that form, in which it may be distributed as a common element among the capital- ists in the various spheres, regardless of its specific employ- ment, as the requirements of production in each individual sphere may dictate. Add to this that with the development of large scale industry money-capital, so far as it appears on the market, is not represented by some individual capitalist, not by the owner of this or that fraction of the capital on the market, but assumes more and more the character of an or- ganised mass, which is far more directly subject to the con- trol of the representatives of social capital, the bankers, than actual production is. Under these circumstances, not only the demand for loanable capital is expressed with the full force of a class, but also its supply appears as loanable capi- tal in masses.
These are some of the reasons, why the general rate of profit appears as a vanishing shape of mist compared to the definite rate of interest, which, while fluctuating in its magni- tude, yet faces all borrowers as a fixed fact, because it varies uniformly for all of them. In like manner the variations in the value of money do not prevent it from having the same value for all commodities. In like manner the market prices of commodities fluctuate daily, yet this does not prevent them from being reported daily. In like manner, the rate of in- terest is regularly reported as " the price of money." It is so for the reason that capital itself is here offered in the form of money as a commodity. The fixation of its price is thus a fixation of its market price, as it is with all other com- modities. Thus the rate of interest always appears as the general rate of interest, as so much for so much money, as a definite quantity. Not so the rate of profit. It may vary even witliin the same sphere for commodities with the same 2B 434 Capitalist Production.
price, according to the different conditions under which dif- ferent capitals produce the same commodity. For the rate of profit of the individual capital is determined, not by the market price of a commodity, hut by the difference between the market-price and the cost-price. And these different rates of profit, first within the same sphere and then between different spheres themselves, can be balanced only by contin- ual fluctuations.
(Note for later elaboration): A specific form of credit. It is known that when money serves as a means of payment instead of as a means of purchase, the commodity is trans- ferred, but its value is not realised until later. If payment is not made until after the commodity has again been sold, then this sale does not seem to be the result of the purchase, but it is by this sale that the purchase is realised. In other words, the sale becomes a means of purchase. — Secondly; Titles to debts, bills of exchange, etc., become means of pay- ment for the creditor. — ■ Thirdly: The compensation of ti- tles to debts replaces the money.
CHAPTEE XXIII.
INTEREST AND PROFIT OF ENTERPRISE,.
Interest, as we have seen in the two preceding chapters, seems to be originally, is originally, and remains in fact merely a portion of profit, of surplus-value, which the invest- ing capitalist, whether industrial or commercial, has to pay over to the owner and lender of money-capital whenever he uses loan capital instead of his own. If he employs only his own capital, no such division of profit takes place; it is all his. In fact, to the extent that the owners of capital employ it themselves in the process of reproduction, they do not com- pete in the determination of the rate of interest. This alone shows that the category of interest, an impossibility without a determination of the rate of interest, is alien to the move- ments of industrial capital itself.
Interest and Profit. 435 " The rate of interest may be defined to be that propor- tional sum which the lender is content to receive, and the borrower to pay, for a year or for any longer or shorter pe- riod for the use of a certain amount of moneyed capital when the owner of capital employs it actively in re- production, he does not come under the head of those cap- italists, the proportion of whom, to the number of borrowers, determines the rate of interest." (Th. Tooke, History of Prices, ISTewmarch ed. London, 1857, II, p. 355.) It is in- deed only the separation of capitalists into money-capitalists and industrial capitalists, which transforms a portion of the profit into interest, which creates the category of interest at all; and it is only the competition between these two kinds of capitalists which creates the rate of interest.
So long as capital serves in the process of reproduction — even assuming that it belongs to the industrial capitalist him- self, so that he has no need of paying it back to some lender. — just so long the capitalist has at his disposal as a private in- dividual, not this capital itself, but only the profit, which he may spend as revenue. So long as his capital performs the functions of capital, it belongs to the process of reproduction, it is tied up in that process. He is indeed its owner, but this ownership does not enable him to dispose of it in some other way, so long as he uses it as capital for the exploitation of labor. It is the same with the money-capitalist. So long as his capital is loaned out and serves as money-capital, it brings him as interest a portion of the profit, but he cannot dispose of the principal. This becomes evident, whenever he loans his capital, say, for one year, or longer, and receives interest at certain stipulated times without recovering his principal. But even the return of the principal does not make any difference here. If he gets it back, then he must always loan it out again, so long as he expects it to produce the effects of capital, in this case of money-capital, for him.
While he is keeping it in his own hands, it collects no interest, it does not act in the capacity of capital; and so long as it gathers interest and serves as capital, it is not in his hands. This accounts for the possibility to loan capital for all eter- 436 Capitalist Production.
nity. The following remarks of Tooke against Bosanqiiel are, therefore, entirely wrong. He quotes Bosanquet (Metallic, Paper, and Credit Currency, p. 73): "If the rate of interest were depressed to 1%, then borrowed capital would be al- most on a par with owner's capital." Tooke makes the fol- lowing comment on this: " That a capital borrowed at this, or even at a lower rate, should be considered as being almost on a par with one's own capital is such a strange contention, that it would hardly deserve any serious consideration, did it not come from so intelligent a writer, who is so well in- formed on particular points of his subject. Has he over- looked the fact, or does he hold it to be so unimportant, that his assumption implies the condition of return payment 'I " (Th. Tooke, An Inquiry into the Currency Principle, 2nd. edition, London, 1844, p. 80.) If interest were equal to zero, then the industrial capitalist working with a borrowed capital would be on a par with a capitalist working with his own capital. Both of them would pocket the same average profit, and capital, whether borrowed or the owner's, serves as capital only to the extent that it produces profit. The condi- tion of return payment would not alter this in the least. The more the rate of interest approaches zero, falling, for in- stance, to 1%, the more borrowed capital is jjlaced on a par with owner's capital. So long as money-capital is expected to act in the capacity of money-capital, it must always be loaned out again and again, and this must take place at the prevailing rate of interest, say 1%, and always to the same class of industrial and commercial capitalists. So long as these perform the functions of capitalists, the only difference between one working with a borrowed and one working with his own capital is that the one has to pay interest and the other has not; that the one pockets the whole profit p, and the other only p — i, profit minus interest. To the extent that the interest approaches zero, p — z becomes equal to p, and to the same extent do both capitals stand on a par. The one must pay back the capital and boiTow it again; but the other, so long as his capital is expected to perform its function, must likewise advance it again and again to the process of produo Interest and Profit. 437 tion and cannot dispose of it freely without any dependence upon this jDrocess. The only remaining difference between the two is the obvious one that the one is the owner of his cap- ital and the other is not.
The question which arises here is this: How is it that this purely quantitative division of profit into net profit and in- terest turns into a qualitative one? In other words, how is it that even the capitalist who employs only his own capital, and not a borrowed one, ranges a portion of his gross profit under the specific category of interest and calculates it sepa- rately as such? And furthermore, why is all capital, whether borrowed or not, differentiated in itself as interest-bearing capital from net profit producing capital?
It is understood that not every accidental quantitative di- vision of profit turns in this manner into a qualitative one. For instance, some industrial capitalists associate for some business and divide the profits among themselves according to some legal agreement. Others carry on their business, each by himself, without any associate. These last do not calcu- late their profit under two heads, one part as individual profit, the other as profits of the company for associates who do not exist. In this case the quantitative division does not turn into a qualitative one. It takes place, when the ownership is vested accidentally in several juridical personalities. It does not take place, when this is not the case.
In order to answer this question, we must dwell a little longer on the actual point of departure of the formation of interest; that is, we must take our departure from the as- sumption, that the money-capitalist and the industrial capi- talist really face one another, not merely as legally different persons, but as persons playing entirely different roles in the process of reproduction, or as persons in whose hands the same capital really passes through a twofold and wholly dif- ferent movement. The one merely loans it, the other em- ploys it productively.
For the productive capitalist, who works with a borrowed capital, the gross profit falls into two parts, namely into the interest to be paid by the lender and the surplus over the in- 438 Capitalist Production.