The Influence of the Interest Rate in Capitalist Competition: Capital Differentiation and Structural Change

NICOLÁS ÁGUILA; JUAN M. GRAÑA

Bulletin of Political Economy

Serial Publications

Año: 2020

0973-5747

We contribute to the Marxist discussion on the role of theinterest rate in the investment and financing decisions of firms, a crucialdimension that has not received sufficient attention in the literature. Themarket rate of interest acts as a benchmark for the profit rate of eachcapital, allowing firms to decide how to allocate their funds betweenindustrial accumulation and financial valorization. Once they resolve toinvest, the interest rate also influences their choice on how to finance theinvestment between their own and borrowed capital. Considering capitalistcompetition as a process resulting in the differentiation between ?normal?capitals - that appropriate the general rate of profit - and ?small? capitals -that appropriate a lower-than-general rate of profit -, we show that changesin the interest rate have different consequences for these two types ofcapitals. ?Normal? capitals invest if the general rate of profit is higher thanthe interest rate and borrow capital to finance their investment, therebyappropriating a higher rate of profit of enterprise. Meanwhile, ?small?capitals are regulated by the interest rate. If the rate of interest increases,even if it remains below the general rate of profit, it could push them intobankruptcy and turn them into interest-bearing capital. Moreover, theyface restrictions to access credit, further widening the gap between theirrate of profit of enterprise and that of normal capitals. Finally, the paperpresents some ideas to build a framework to analyze the consequences ofdifferent interest rate regimes for structural change in the context of capitaldifferentiation, and argues for state direction of credit.