Commentary on Political Economy

Sunday 20 November 2016

Reply to a Reader on the Theoretical Link between "Natural Rate of Interest" and "Relative Overpopulation" in the Capitalist World Economy

Hi Dan,

Thanks for your comments which, with your kind indulgence, are as always  perspicacious in two senses, intelligent and far-sighted. The ideological kernel of "the natural rate of interest" is that it presents profit (or "the average rate of profit", which is its Marxian equivalent) as the result of a "natural" social order - which, as you point out, is infantile nonsense.
But the other, more serious and realistic aspect of this notion is that it may be possible for this "natural" rate to be un-naturally low - and thus for capitalist production to stagnate. This is a tendency that the neoclassical theory seems to discount - because it would be "un-natural" for the "natural" rate of interest to fall to zero - and yet simultaneously opens up as a possibility or threat to the "natural" order of society. Apart from his aphorism about "the long run" (....we're all dead), Keynes saw this intuitively ("money is a bridge between the present and the future", in the GT) and also sociologically - the General Theory is a treatise on the ultimate stagnation of capitalist industry as what he called "the marginal efficiency of capital" declined.
It is a known fact that people like Lawrence Summers and Paul Krugman and many other "bourgeois" economists are pointing to the ageing of the labour force as the main factor behind "secular stagnation". So clearly the Wicksellian theory of "the natural rate of interest" can lead to interesting "negative" conclusions about the future of capitalism even when all the while it seeks to hide the social and political violence behind "interest" or "profit".

The all-important point to which I am getting now through Marx's analysis in the Grundrisse (yet, importantly, not in Das Kapital) is that once we unmask the rate of interest as the average rate of profit, with all the sociological and political consequences of this debunking, we can then tie our theory of the average rate of profit to "relative overpopulation" - precisely because "money is a bridge between present and future" in the sense that "money" (read "capital" and therefore "profit") involves a "hypothecation" - a "deposit" - not just on the "present" labour force, but also on the future and potential labour force!

The implications of this - which, I will argue, not even Marx himself could quite foresee, not in the Grundrisse and certainly not in Das Kapital - are immensely (and frighteningly) far-reaching because of what this "relative overpopulation" means in terms of social conflict internationally due to "the world market" or "globalisation" - but above all else in terms of the future of planet Earth, that is, in environmental terms! It is here, I think, that there is a serious confluence between the environmental threat that capitalism poses to the planet - to our very survival on earth - in terms of environmental devastation through "relative overpopulation", on one hand, and the declining average rate of profit as prognosticated by Marx, on the other. It is the complex interaction between the falling rate of profit due to the capitalist need to expand the "surplus labour force" so as to lower the "socially necessary" part of the working day (wages), and the inability to lower this "socially necessary" portion without exasperating global "overpopulation" (meant to absorb the "surplus" portion of the working day) to the point of environmental catastrophe - it is this catastrophic contradictory tendency on the part of capitalism that Wicksell's theory points to (in terms of the conflict implied in "universally free competition" [Thomas Hobbes] - and the "organic" or "physiological" limits implicit in the notion of a "natural" rate of interest [nothing expands "naturally" forever])- it is this complex and catastrophic series of theoretical links that obviously I am seeking to highlight. Your observations, if I may, go very much and far in this direction:

" I can think of two destabilizing responses to low interest rates: One, low rates don't provide enough return for the "savers"--who really invest to increase their wealth and not to balance their time preference--so instead of increasing their consumption, their response is to pursue speculative investments. With an abundance of speculative investments, the average rate of return on capital can actually become negative--an absurdity by the time preference theory! But then we see the other response to low interest rates, that money is hoarded and not invested at all, and all sorts of deflationary problems result. So...[that is] what the natural interest rate theorists miss--the permanent crisis (secular stagnation) that results once demographic changes push the interest rate below a certain level..." (question mark omitted! I have taken the liberty to turn your question into a statement.)

If I had to summarise my argument tersely and pithily. I could not do better than Thomas Friedman and his tremendously perspicacious observation that "the Earth cannot afford 8 billion Americans!" The theoretical framework I am developing - one that Marx clearly foresaw in the Grundrisse without, alas, being able to see the truly apocalyptic implications of his theory in environmental terms - seeks to capture this complex reality - through which we are already living.

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