Commentary on Political Economy

Wednesday 14 September 2011

The 'Risk-Free Rate' and the Crisis of Capitalism

Before we launch on a full-blown attack on bourgeois notions of the interest rate, let us take a brief look at the so-called "risk-free" rate of interest on which all the calculations on financial assets by capitalist investors are based. The idea behind a "risk-free" rate of interest is itself very "interesting". Every investment is "risky" in the sense that a capitalist has to employ the social resources that he controls (commands) in order to get "living labour" (workers) to pro-duce goods and services that will then have to be "sold" to realise a "profit" that will allow the capitalist to command even more social resources than before the process of pro-duction started. The ultimate aim, of course - the ultimate meaning of "profit" - is command over living labour: and that always involves political "risks" because workers are not "objects" that can be commanded at will.

Ultimately, therefore, the real "risk" involved in investment is political. It stands to reason then that the lowest possible risk (the "risk-free rate") in a capitalist society is the risk that that society might collapse politically and economically - because if that happened there would be no other avenue for "safe investment" at all! That is why we all put "health" foremost among the things we wish for because without good health everything else in the world does not matter that much!

The same reasoning applies to capitalist nation-states: they and their "survival" are the ultimate guarantees of the capitalist system: that is why the interest rate demanded by nation-states on their bonds is "risk-free", relatively speaking. We say "relatively speaking" because in regimes of free capital flows between nation-states, it is possible for capitalists to arbitrage the various "risks" involved with the stability of entire governments and countries - which right now seem to be run as much by bandits and gangsters as they were at the time of the Congress of Vienna!

Once the "profitability" of capital begins to fall inter-nationally, the question then arises of where exactly capital is most "risk-lessly" invested. That, of course, has to be the USA. And yet the possibility arose recently over the "debt ceiling" diatribe in the US that Uncle Sam may actually "default" on its "debt". For a crazy moment it appeared as if the cost of insuring US Government debt was higher than that of insuring "corporate debt"!! This is a little like saying that you can entrust your capital to the Sicilian Mafia because it is safer than leaving it in the hands of the Italian State!

Now, we are hearing more and more frequently of "failed states" - Mexico is one, but there are many others in the Middle East and Africa and possibly several in the Eurozone! - but it is obvious that it is a crazy paradox for there to be "capital" without a "collective capitalist" to ensure that "private property" has any meaning at all!!

You can see what we are getting at: the more the antagonism between worlers and capital grows, the more the categories applied to "understanding capital" (interest rates, profit, debt, public and private) begin to break down. And not just the "economic categories" - but also and above all the POLITICAL FOUNDATION of those categories - such as.... "the risk-free rate of interest", which suddenly does not have a "risk-free foundation" at all!! It is a little bit like Hamlet questioning the worth of existence!

Finally, then, we may begin to talk about THE EXISTENTIAL CRISIS OF CAPITAL!!

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