A division of the capitalist class and the market for money capital. (7th January 2021)

• Record Type: Journal Article
• Authors: Park, Hyun Woong
• Is Part Of: Metroeconomica. Volume 72:Number 1(2021)
• Page Start: 2
• Page End: 21
• Publication Date: 2021-01-07
• Subjects: credit -- interest‐bearing capital -- interest rate -- loanable capital -- money capital; Economics -- Periodicals; 330
• DOI: 10.1111/meca.12308
• Languages: English
• ISSNs: 0026-1386

Abstract

Abstract: In a one‐commodity economy populated by capitalists equipped with equal endowment but with heterogeneous linear production technology, a division of the capitalist class emerges endogenously. The capitalists with relatively weak technology, yielding the profit rate lower than the interest rate, become a money capitalist (lender), whereas the capitalists with relatively strong technology, yielding the profit rate greater than the interest rate, become an industrial capitalist (borrower). The equilibrium interest rate is derived by the associated demand and supply relation. From this setup of the model follow two essential relationships Marx establishes between the average profit rate and the interest rate: (a) that the profit (rate) sets a maximum limit of interest (rate), and (b) that the two rates are correlated in the long‐run. Lastly, the profit rate of financial sector is less than that of industrial sector due to the basic setup of the model where the industrial sector uses leverage to amplify the underlying capital profit rate, whereas the financial sector lacks intermediation technology, which would have enabled it to borrow profitably.