Marx on Geometric Change (2. Interest-Bearing Capital)

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The Good Doctor

The second area in which we find Marx raising questions around geometrical growth occurs in the course of his analysis of interest-bearing capital. Just as the discussions of geometrical growth with respect to mechanization appeared in primarily in the Grundrisse and the three volumes of Capital (namely, the first and third volumes), it is in these same places that we return.

In a subsection of the Grundrisse titled “Dr. Price. Innate Power of Capital”, Marx undertakes a fragmentary critique of the British moral philosopher and political economist Richard Price, whose 1772 essay An Appeal to the Public on the Subject of National Debt had held significant influence on a sizable handful of economists, intellectuals and public figures. Marx, however, has nothing but scorn to heap upon Price’s head, finding him not simply an ideologue for the capitalist order, but somebody who raises political economy to the height of an all-too-empty mysticism. The locus of this critique centers on the following passage from Price’s Appeal:

Money bearing compound interest increases at first slowly. But, the rate of increase being continually accelerated, it becomes in some time so rapid, as to mock all the powers of the imagination. One penny, put out at our savior’s birth to 5% compound interest, would, before this time, have increased to a greater sum than would be obtained in a 150 million of Earths, all solid gold. But if put out to a simple interest, it would, at the same time, have amounted to no more than 7 shillings 4 1/2d. Our government has hitherto chosen to improve money in the last, rather than the first of these ways.

Turning then to Price’s Observations on Revisionary Payments, published the same year as the Appeal, Marx notes that the economist “flies even higher”:

A shilling put out to 6% compound interest at our Saviour’s birth would… have increased to a greater sum than the whole solar system could hold, supposing it a sphere equal in diameter to to the diameter of Saturn’s orbit.

“The good Price”, Marx continues, “was simply dazzled by the enormous quantities resulting from the geometric progression of numbers”. Price’s concern was setting an adequate governmental policy governing the accumulation of capital via interest, and it would be, via the influence he bore on William Pitt, give rise to the idea of the “sinking fund”: a pool set aside for the future repayment of debts or for some unforeseen economic circumstance. Price’s drive was fueled by this creeping paranoia at what he perceived as the uncontrollable momentum of capital. In the proper circumstances, he suggested, compound interest would tend towards an upward exponential curve, a rupture cascading to literally cosmological levels.

So much mystification: Marx charges Price with “regard[ing] capital as a self-acting thing, without any regard to the conditions of [the] reproduction of labor, as a mere self-increasing number”. As outlined previously, Marx wasn’t intrinsically opposed to the possibilities of geometrical progression taking place in the capitalist system. Likewise, he would himself regard capital as something like a ‘self-acting thing’, having in Capital Volume 1 taken his ‘general formula of capital’—M-C-M’—as the basis for describing capital as a “self-moving substance” (a positioning, Moishe Postone argues, that depicts capital as the historical subject). But in this depiction of capital, labor and its reproduction stand central, with the continual destabilization of labor through the endless revolutionizing of production shooting the capitalist system through with contradictions that undermine itself. It’s worth noting, then, that the geometric progression that Marx affirms (or at least halfway affirms) is bound up precisely with this ongoing revolution.

The Grundrisse fragment on Price doesn’t go much further than it, but it’s in Capital Volume 3—the twenty-fourth chapter, “Externalization of the Relations of Capital in the Form of Interest-Bearing Capital”—that the picture is further elaborated. Much of the chapter is reiterated word-for-word from the Grundrisse, with a few added barbs thrown at Price for good measure (“the fabulous fancies of Dr. Price, which outdo by the fantasies of the alchemists”). There’s also a bit of a historical elaboration, in which Marx tracks this belief of the possibility of infinite expansion to a state made by Martin Luther in 1540 that, left unchecked, “usury [would] devour the world in a few years”. Luther thus lays down what Price would pick up: “[t]he conception of capital as a self-reproducing and self-expanding value, lasting and growing eternally by virtue of its innate properties”.

Elsewhere in the chapter he likens this notion to an understanding of capital as a “self-regulating automaton… a mere number that increases itself” not unlike the geometrical progression of the population that Malthus suggested—an argument that Marx spent so much time attacking. It’s also interesting to note this use of the word, automaton, because elsewhere in Marx’s work he affirms the usage of this term to describe other sides of capitalist dynamics. In the infamous ‘Fragment on Machines’ in the Grundrisse, for example, he takes up Andrew Ure‘s description of the industrial system tending towards an “automatic system of machinery”, and describes the factory as being “set in motion by an automaton, a moving power that moves itself”. Just as the understanding of capital as a “self-moving subject” is relocated from the sort of surface-level dynamics of capital being assessed by the likes of Price to its basis in labor, here the automaton too refers to the direct conditions of labor and the progressive revolution of machinery.

Returning to the Rate of Profit

The argument presented in Capital Volume 3 goes much further, however. The distinct historico-intellectual line that perceives the movement of interest-bearing capital as a self-moving, exponentiating process—Luther, Price and Pitt being the foremost examples—is not simply a case of poor analysis; it emerges as a mystification that emerges on the basis of capital’s historical development itself. Indeed, interest-bearing capital is presented as an “automatic fetish”, harkening back to the discussion at the outset of Volume 1 concerning the character of commodity fetishism. Fetishism denotes the obscuring of the human social relations by what appears as the relation between things; while in Volume 1 this is analyzed at the level of the physical commodity, what is revealed in Volume 3 is that interest-bearing capital is fetishism raised to the highest power. It is “self-expanding value, money generating money… [interest-bearing capital] no longer bears the birthmark of its origin—that is, labor.

As mentioned above, the general formula of capital is M-C-M’. This formula not only illustrates capital as the “self-moving substance”—it diagrams the unity of production and consumption, the path through which surplus value is produced and realized. Interest-bearing capital short-circuits the general formula, compressing M-C-M’ into M-M’. The unity that M-C-M’ reveals is revoked, effectively obscuring further the social relations that constituted through it. In the situation of interest-bearing capital, Marx writes, the realization of surplus value appears as having taken place “unassisted by the process of production and circulation”. If Price seizes upon interest-bearing capital as an automaton, it is this apparent evaporation of production and circulation gives rise to an image of “[c]apital… as a mysterious and self-creating source of interest—the source of its own increase. The thing (money, commodity, value) is now capital as mere thing, and capital appears as a mere thing”. Marx continues:

While interest is only a portion of the profit, i.e., of the surplus-value, which the functioning capitalist squeezes out of the labourer, it appears now, on the contrary, as though interest were the typical product of capital, the primary matter, and profit, in the shape of profit of enterprise, were a mere accessory and by-product of the process of reproduction. Thus we get the fetish form of capital and the conception of fetish capital. In M — M’ we have the meaningless form of capital, the perversion and objectification of production relations in their highest degree, the interest-bearing form, the simple form of capital, in which it antecedes its own process of reproduction. It is the capacity of money, or of a commodity, to expand its own value independently of reproduction — which is a mystification of capital in its most flagrant form.

Against this picture, Marx poses several problems. He notes that the mystified image of (compound) interest poses this mechanism as identifiable with the accumulation of capital as such, a problem that hearkens back to the vicious debates in the field of political economy—that debate between Bastiat and Proudhon coming immediately to my mind—over the nature of interest as such, as to whether or not one can produce a rigorous distinction between interest and profit. For Marx, these debates are problematized by two factors. In the first instance, there is the problem of depreciation of existing capital: Marx suggests that as the productivity of labor rises, all values undergo a decline. This is because value is reflective of the current costs of reproduction. As the amount of value modulates through each reproduction, commodity values in total adjusts to reflect this, as opposed to maintaining their historical costs. This problematizes the autonomy of compound interest, because it recontexualizes the short-circuit of M-M’ on the basis of the productive processes that it obscures.

[For a good discussion of the relationship between values and depreciation in the production process, check out Fred Moseley’s “The Determination of Constant Capital”]

The second problem proceeds organically from this. The expanded accumulation of capital, capitalist reproduction, and the progressive development of productive forces leads to the tendency of the rate of profit to fall. By contrast, Marx notes, “[t]he idea that the rate of profit does not shrink is… the basis of Price’s progression and in general the basis of ‘all-engrossing capital with compound interest'”. The rate of profit, then, is the primary, and the rate of interest the secondary. There’s an interesting historical dimension to this relation that Marx notes in the Grundrisse by way of a citation from and elaboration of James William Gilbart’s The History and Principles of Banking:

‘That a man who borrows money with the intention of making a profit on it, should give a portion to the lender, is a self-evident principle of natural justice. A man makes a profit usually by means of traffic. But in the Middle Ages the population was purely agricultural. And there, like under the feudal government government, there can only be little traffic and hence little profit… Hence the usury laws in the Middle Ages justified… Furthermore: in an agricultural country a person seldom wants to borrow money except he be reduced to poverty or distress by misery.’ Henry VIII limited interest to 10%, James I to 8, Charles II to 6, Anne to 5. In those days, the lenders were, if not legal, still actual monopolists, and thus it was necessary to place the under restraint like other monopolists. In our time the rate of profit governs the rate of interest; in those days the rate of interest governed the rate of profit.  [my emphasis]

The implications of this are further elaborated in the twenty-second chapter of Volume 3. Here, Marx takes up the rate of interest directly, arguing that if it is subordinated to the rate of profit, then the rate of profit is, in itself, the upper limit of the rate of interest. It is, however, an impossible limit: if the rate of interest was equalized with the rate of profit, then the profit realized by the “productive capitalist” would be precisely zero. Now, this doesn’t mean that it cannot happen in the case of an individual capitalist’s or firm’s rate of profit: a productive enterprise operating on the basis of borrowed capital can, in fact, realize profit at a level low enough to be consumed entirely by what is dictated by the rate of interest. But at the high level—that is, when we move from the level of competition to the level of capital in general—this is a marked impossibility in the longer run. The delirious exultation and paranoia of the exponentiating climb of compound interest collides with the machinery of production itself.


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