Chapter 10 - Interest

Calling interest the price of providing credit has long been systematic. No longer calling the return on placements in capital this way is more recent and not yet systematic in economic theory. However, the clear distinction between credit and interest on the one hand, and capital and profit on the other, leads to the possibility of a general adjustment of interest rates which is most favorable to employment.

By prioritizing rates of profit on capital over interest rates as directors, this approach curbs the excessive financialization that breeds enrichment through capital gains. Consequently, it provides the market economy with a degree of systemic stability and clarity that is currently lacking — a fact evidenced by the recurrence of major financial crises.¹⁵⁴

Propositions

Notes

Here the Objective Political Economy reverses the suggestion of Sraffa, for whom the rate of profits is “susceptible of being determined from outside the system of production, in particular by the level of the money rates of interest” (P. Sraffa, Production of Commodities by Means of Commodities, Cambridge University Press, 1960, §44). Sraffian authors developed this suggestion into a monetary theory of distribution, in which the interest rate policy of the central bank governs the normal rate of profit (C. Panico, Interest and Profit in the Theories of Value and Distribution, Macmillan, 1988; M. Pivetti, An Essay on Money and Distribution, Macmillan, 1991). In the Objective Political Economy, the national average rate of profit on capital (NARP) is the director, and interest rates are set below or above it (Propositions 10.4 to 10.6). Fabra holds the same position on Ricardian grounds (P. Fabra, Capital for Profit, Rowman & Littlefield, 1991, pp. 335–338). See the appendix Objective Political Economy and Sraffa. ↩