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A division of the capitalist class and the market for money capital

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  • Hyun Woong Park

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.

Suggested Citation

  • Hyun Woong Park, 2021. "A division of the capitalist class and the market for money capital," Metroeconomica, Wiley Blackwell, vol. 72(1), pages 2-21, February.
    • Handle: RePEc:bla:metroe:v:72:y:2021:i:1:p:2-21
    DOI: 10.1111/meca.12308
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    References listed on IDEAS

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    1. Francisco Paulo Cipolla, 1997. "Interest Rate Changes in Marx’s Theory of the Industrial Cycle," International Journal of Political Economy, Taylor & Francis Journals, vol. 27(1), pages 73-84, March.
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    3. Eckhard Hein, 2006. "Money, interest and capital accumulationin Karl Marx's economics: a monetary interpretation and some similaritiesto post-Keynesian approaches," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 13(1), pages 113-140.
    4. Bengt Holmstrom & Jean Tirole, 1998. "Private and Public Supply of Liquidity," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 1-40, February.
    5. Theodore P. Lianos, 1987. "Marx on the Rate of Interest," Review of Radical Political Economics, Union for Radical Political Economics, vol. 19(3), pages 34-55, September.
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    7. Gary A. Dymski, 1990. "Money and Credit in Radical Political Economy: A Survey of Contemporary Perspectives," Review of Radical Political Economics, Union for Radical Political Economics, vol. 22(2-3), pages 38-65, June.
    8. Panico, Carlo, 1980. "Marx's Analysis of the Relationship between the Rate of Interest and the Rate of Profits," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 4(4), pages 363-378, December.
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    Cited by:

    1. Zolea, Riccardo, 2023. "An Estimation of the Italian Banking Sector Profit Rate in a Crisis Period," MPRA Paper 117579, University Library of Munich, Germany.

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