What are "interest rates"?

[Questionable]

I'm having some serious difficulty grasping this concept. It seems like every definition I find of an "interest rate" is wildly different from the last one.

What exactly is "interest" from a Marxist perspective and how does it function within the context of capitalism?

[Comrade #138672]

Really? Are there so many definitions? I thought it was pretty straightforward.


An interest rate is the rate at which interest is paid by borrowers for the use of money that they borrow from a lender. Specifically, the interest rate (I/m) is a percent of principal (P) paid at some rate (m).Source: http://en.wikipedia.org/wiki/Interest_rate

What is wrong with this definition?

It has to do with banking. Capitalists are allowed to borrow capital from each other, so that Capitalism can develop more quickly. Without this, there would be much idle capital.

What exactly do you want to know?

I think this article offers a very good explanation: Tsunao Inomata, 1932 - Credit and Credit Money (http://www.marxists.org/subject/japan/inomata/credit_creditmoney.htm). I have learned a lot from it.

[Questionable]

I think this article offers a very good explanation: http://www.marxists.org/subject/japa...reditmoney.htm (http://www.marxists.org/subject/japan/inomata/credit_creditmoney.htm)

I'll give this a look, thank you.


Press F3 and type in "interest rates".

Is this really a good example? This guy appears to be trying to rebuke Marx, not explain him. And his complaints about Marx's supposedly unclear definition of "profits" is stupid and wrong, which makes me doubt the rest of what he's saying.

[Comrade #138672]

I'll give this a look, thank you.



Is this really a good example? This guy appears to be trying to rebuke Marx, not explain him. And his complaints about Marx's supposedly unclear definition of "profits" is stupid and wrong, which makes me doubt the rest of what he's saying.Where? As far as I'm aware, he does not try to rebuke Marx, but explain him.

[Questionable]

Where? As far as I'm aware, he does not try to rebuke Marx, but explain him.

No, CaptainAhab posted an article from a guy analyzing Das Kapital who was trying to debunk Marx based on erroneous interpretations of the book, but the post vanished.

[Captain Ahab]

"profits" is stupid and wrong, which makes me doubt the rest of what he's saying.
I gave the wrong link. It was supposed to be Ch. 26 of Kapital but I stupidly got the google link up top. I deleted the post for that reason.

[Questionable]

The reason I'm asking this question is because I was reading about Austrian Economics and how their solution to every economic crisis is to insure that the market rate of interest and the "natural rate" of interest are in equilibrium. Without a Marxian definition, I cannot be sure what they are implying.

[Clarion]

The Austrians are talking about the setting of base interest rates by governments or central banks. These are the interest rates at which commercial banks can borrow from the central bank and it's important because it's directly related to the supply of money.

If the base rate is set high then it can have an inflationary effect, set low it has a deflationary effect. Policy makers tend to set the base rate low as a way of combating high inflation. The natural base interest rate is the rate of interest which is neutral in regard to prices and has neither an inflationary or deflationary effect.

[Dave B]

I think it is good enough question.

I think the Austrian School would say that the rate of interest or the ‘price/cost’ of renting money is set by the supply of ‘saved money’ and the demand for it, to invest in new capital or business opportunities etc.

Just like most things for them prices are set ‘only’ by supply and demand, and prices, like interests rates, fluctuate as supply and demand attempts to restore ‘an’ equilibrium.

[Karl accepted that by the way.]

However what happens when supply and demand is in equilibrium?

Well the ‘Austrians’, following Adam Smith up to this point, have a sort of answer; when supply is equilibrated with demand for anything then at that point its price is its ‘natural price’ or “prix necessaire”.

Thus, as it goes for the Austrians re the ‘natural rate of interest’, when supply of ‘saved money’ and the demand to borrow it to invest in new capital or business opportunities reaches equilibrium then the price or cost of borrowing money arrives at its ‘natural price’ or in other words a ‘natural rate of interest.’

But that begs the question; what determines the ‘natural price’ or “prix necessaire” of anything be it a commodity or loaning money.

Ignoring interest rates and the special ‘natural price’ of borrowing money ie interest rates for a while.

Adam Smith I think would say the ‘natural price’ of a commodity, in a supply-demand equilibrium, would be its labour time value plus and acceptable or average rate of profit on stock (capital).

Karl said that the ‘natural price’ of a commodity was its labour time value plus surplus value/value (profit).

Adam Smith didn’t have ‘much’ of a concrete or materialist idea where profit came from or what determined the rate of profit at any particular time or epoch.

Karl said that profit or surplus value/labour originates from the physical and material reality of people being able produce more than they consume.

So what is it that potentially enables people to produce more (surplus) than they presently consume?

Machines and technology etc, as it has always been.

Who gets or benefits from the surplus or profit?

The owners of the machines.

What do owners of the machines do with the surplus value after it returns as profit in the buying and selling system of exchange on the ‘market’ ?

Buy more machines that enables people to produce yet more (surplus) than they presently consume.

And so on.

In the past a ‘money capitalist’ would loan money to a ‘profiteer of enterprise’ who would buy machines to exploit workers, the surplus value as money returning to the money capitalist as interest to repeat the cycle.

Thus the rate of interest, when in equilibrium and at its ‘natural price’, was dependent on and a reflection of its origin the rate of exploitation and surplus value.

In the nineteenth century when the money capitalists got spooked they refused to relend their interest and money back preferring to sit on it and hoard it instead.

That, in the supply and demand paradigm, raised the rate of interest on real gold money screwing ‘functioning capitalists’ who needed to ‘roll over’ loans, as the ‘market rate’ of interest exceeded the current ‘realisable’ rate of profit and exploitation .

And ‘going capitalist concerns folded’, defaulted on loans, spooking the money capitalists even more, and so on.

But now we can print and supply unreal money reducing its unnatural price to borrow it to zero or even less, for the capitalist class anyway.

It works up to a point I suppose for some.

I work for a really big international corporation with a AAA credit rating, they are just soaking up the free money from Japan to buy better productivity enhancing stuff.

[Clarion]

Why the large font?