IDEAS home Printed from https://ideas.repec.org/p/ris/sraffa/0055.html
   My bibliography  Save this paper

A Model of the Relationship between the Interest Rate and the Profit Rate

Author

Listed:
  • Zolea, Riccardo

    (Roma Tre University)

Abstract

In this paper we investigate the relationship between interest rate and profit rate. Considering that the bank must obtain on the invested capital a profit rate at least equal to the normal one, the bank interest rate can be calculated as the price of the bank output, i.e. the loan. The profit rate thus determines the interest rate, through the instrument of the price equation. Central to this study is the analysis of the best way to imagine such a price equation, considering the role of the central bank. We then move on to study the structure of interest rates and their relationship to the profit rate. Finally, by introducing the hypothesis of a bank profit rate permanently higher than the normal one, we confirm and better explain from an analytical point of view some insights expressed by Marx in Book III of Capital.

Suggested Citation

  • Zolea, Riccardo, 2022. "A Model of the Relationship between the Interest Rate and the Profit Rate," Centro Sraffa Working Papers CSWP55, Centro di Ricerche e Documentazione "Piero Sraffa".
    • Handle: RePEc:ris:sraffa:0055
    as

    Download full text from publisher

    File URL: http://www.centrosraffa.org/public/4fbb6329-2222-4e89-9428-50e2e4c66fa4.pdf
    File Function: Full text
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Robert DeYoung & Tara N. Rice, 2004. "How do banks make money? the fallacies of fee income," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 28(Q IV), pages 34-51.
    2. Shaikh, Anwar, 2016. "Capitalism: Competition, Conflict, Crises," OUP Catalogue, Oxford University Press, number 9780199390632.
    3. Garegnani, Pierangelo, 1984. "Value and Distribution in the Classical Economists and Marx," Oxford Economic Papers, Oxford University Press, vol. 36(2), pages 291-325, June.
    4. Hicks, John, 2017. "A Market Theory of Money," OUP Catalogue, Oxford University Press, number 9780198796237.
    5. George Argitis, 2001. "Intra-capitalist Conflicts, Monetary Policy and Income Distribution," Review of Political Economy, Taylor & Francis Journals, vol. 13(4), pages 453-470.
    6. Riccardo Zolea, 2022. "A History of the Relationship Between Interest Rate and Profit Rate in Heterodox Approaches," International Journal of Political Economy, Taylor & Francis Journals, vol. 51(2), pages 121-136, April.
    7. Costas Lapavitsas & Ivan Mendieta-Muñoz, 2019. "The historic rise of financial profits in the U.S. economy," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 42(3), pages 443-468, July.
    8. Boucinha, Miguel & Burlon, Lorenzo, 2020. "Negative rates and the transmission of monetary policy," Economic Bulletin Articles, European Central Bank, vol. 3.
    9. Robert DeYoung & Tara N. Rice, 2004. "How do banks make money? a variety of business strategies," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 28(Q IV), pages 52-67.
    10. Di Bucchianico, Stefano, 2019. "The Impact of Financialization on the Rate of Profit: A Discussion," Centro Sraffa Working Papers CSWP36, Centro di Ricerche e Documentazione "Piero Sraffa".
    11. Costas Lapavitsas, 1997. "Two Approaches to the Concept of Interest-Bearing Capital," International Journal of Political Economy, Taylor & Francis Journals, vol. 27(1), pages 85-106, March.
    12. Franke, Reiner, 1988. "Integrating the Financing of Production and a Rate of Interest into Production Price Models," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 12(2), pages 257-272, June.
    13. Fratini, Saverio M., 2020. "Incomes from Capital in Alternative Economic Theories," Centro Sraffa Working Papers CSWP42, Centro di Ricerche e Documentazione "Piero Sraffa".
    14. Pierangelo Garegnani, 2007. "Professor Samuelson on Sraffa and the classical economists," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 14(2), pages 181-242.
    15. Stefano Di Bucchianico, 2020. "A note on financialization from a Classical-Keynesian standpoint," Department of Economics University of Siena 824, Department of Economics, University of Siena.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Zolea, Riccardo, 2021. "The relation between interest rate and profit rate: the role of bank profitability in an endogenous money framework," MPRA Paper 108973, University Library of Munich, Germany.
    2. Riccardo Zolea, 2024. "An introduction to the distributional role of bank credit to workers in a surplus approach framework," Working Papers PKWP2403, Post Keynesian Economics Society (PKES).
    3. Di Bucchianico, Stefano, 2019. "The Impact of Financialization on the Rate of Profit: A Discussion," Centro Sraffa Working Papers CSWP36, Centro di Ricerche e Documentazione "Piero Sraffa".
    4. Stefano Di Bucchianico & Federica Cappelli, 2021. "Exploring the theoretical link between profitability and luxury emissions," Working Papers PKWP2114, Post Keynesian Economics Society (PKES).
    5. Bolívar, Fernando & Duran, Miguel A. & Lozano-Vivas, Ana, 2023. "Bank business models, size, and profitability," Finance Research Letters, Elsevier, vol. 53(C).
    6. 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.
    7. Stefano Di Bucchianico, 2020. "A note on financialization from a Classical-Keynesian standpoint," Department of Economics University of Siena 824, Department of Economics, University of Siena.
    8. Bellino, Enrico & Nerozzi, Sebastiano, 2013. "Causality and interdependence in Pasinetti's works and in the modern classical approach," MPRA Paper 52179, University Library of Munich, Germany.
    9. Enrico Sergio Levrero & Giacomo Sbrenna, 2022. "Some Factors Affecting US Capital Profitability over the Last Decades," Bulletin of Political Economy, Bulletin of Political Economy, vol. 16(2), pages 77-101, December.
    10. Loretta Mastroeni & Alessandro Mazzoccoli & Greta Quaresima & Pierluigi Vellucci, 2021. "Wavelet analysis and energy-based measures for oil-food price relationship as a footprint of financialisation effect," Papers 2104.11891, arXiv.org, revised Mar 2022.
    11. Luis Daniel Torres-González, 2020. "The Characteristics of the Productive Structure Behind the Empirical Regularities in Production Prices Curves," Working Papers 2016, New School for Social Research, Department of Economics.
    12. Jonathan F. Cogliano & Roberto Veneziani & Naoki Yoshihara, 2022. "Computational methods and classical‐Marxian economics," Journal of Economic Surveys, Wiley Blackwell, vol. 36(2), pages 310-349, April.
    13. Jonathan F. Cogliano, 2017. "Surplus Value Production and Realization in Marxian Theory - Applications to the U.S., 1987-2015," Working Paper Series 2017-01, Dickinson College, Department of Economics.
    14. Saverio M. Fratini, 2020. "Interest, profit and saving in Arrow-Debreu equilibrium models," Bulletin of Political Economy, Bulletin of Political Economy, vol. 14(1), pages 39-53, June.
    15. Manel Zidi & Mouldi Djelassi & Helmi Hamdi, 2016. "Pouvoir de marché et stabilité financière: Etude du secteur bancaire Tunisien," African Development Review, African Development Bank, vol. 28(4), pages 416-429, December.
    16. Eckhard Hein, 2019. "Karl Marx: an early post-Keynesian? A comparison of Marx's economics with the contributions by Sraffa, Keynes, Kalecki and Minsky," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 16(2), pages 238-259, September.
    17. Mamun, Abdullah & Hassan, M. Kabir, 2014. "What explains the lack of monetary policy influence on bank holding companies?," Review of Financial Economics, Elsevier, vol. 23(4), pages 227-235.
    18. Canan Yildirim & Adnan Kasman, 2015. "Bank Market Power and Non-Interest Income in Emerging Markets," Working Papers 930, Economic Research Forum, revised Jul 2015.
    19. Eckhard Hein, 2005. "Money, Interest, and Capital Accumulation in Karl Marx’s," Method and Hist of Econ Thought 0501002, University Library of Munich, Germany.
    20. Goddard, John & McKillop, Donal & Wilson, John O.S., 2008. "The diversification and financial performance of US credit unions," Journal of Banking & Finance, Elsevier, vol. 32(9), pages 1836-1849, September.

    More about this item

    Keywords

    bank profitability; interest rate; price equation; Marx; finance;
    All these keywords.

    JEL classification:

    • E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Kaleckian
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ris:sraffa:0055. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Saverio M. Fratini (email available below). General contact details of provider: https://edirc.repec.org/data/sraffit.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.