Abstract
Does the rate of interest on money, as fixed by the Central Banking Authorities, determine the rate of profit? There is a suggestion to this effect in Sraffa (1960, p. 33) and Pivetti (1985) has interpreted this to mean that the ‘normal’ rate of profit, as opposed to the actual rate, will be governed by the effects of the rate of interest on the ratio of money prices to money wages: a fall (rise) in the rate of interest will lower (raise) costs, so will lead to lower (higher) prices, but there will be no similar effect on money wages. So a fall (rise) in the rate of interest will bring a rise (fall) in the real wage; thus the rate of profit will move in the same direction as, and by a magnitude proportional to the change in the rate of interest. In short, ‘lasting changes in interest rates must be followed by corresponding changes in normal profit rates’ (Pivetti, 1985, p. 81). Similar arguments have been advanced by Panico (1985) who finds the root of the idea in Keynes’ Chapter 17, by Vianello, (1985) and by Schefold, (1985), who limits the claim by arguing that the mechanism works only under historical conditions of slow accumulation.
* Political Economy, 4 (2) (1988).
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
References
Garegnani, P. (1983) ‘Notes on Consumption, Investment and Effective Demand,’ in J. Eatwell and M. Milgate (eds), Keynes’ Economics and the Theory of Value and Distribution (London).
Keynes, J.M. (1930) Treatise on Money, Vol. II (London).
Nell, E.J. (1985) ‘Notes Sur le Financement, le Riscue et la Depense d’Investissement,’ in Alain Barrère (ed.), Keynes Aujourd’hui (Paris: Economica).
Nell, E.J. (1986) ‘On Monetary Circulation and The Rate of Exploitation,’ Thames Papers in Political Economy (Summer).
Nell, E.J. (1988) Prosperity and Public Spending (Boston, London: Allen and Unwin).
Panico, C. (1985) ‘Market Forces and the relation between the Rates of Interest and Profit,’ Contributions to Political Economy, 4.
Pivetti, M. (1985) ‘On the Monetary Explanation of Distribution,’ Political Economy.
Schefold, B. (1985) ‘Cambridge Price Theory: Special Model or General Theory of Value?,’ AEA Papers and Proceedings pp. 144–5.
Sraffa, Piero, (1960) Production of Commodities by Means of Commodities (Cambridge: Cambridge University Press).
Vianello, F. (1985) ‘The Pace of Accumulation,’ Political Economy 1 (1).
Author information
Authors and Affiliations
Copyright information
© 1992 Edward J. Nell
About this chapter
Cite this chapter
Nell, E.J. (1992). Does the Rate of Interest Determine the Rate of Profit?. In: Transformational Growth and Effective Demand. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-21779-3_22
Download citation
DOI: https://doi.org/10.1007/978-1-349-21779-3_22
Publisher Name: Palgrave Macmillan, London
Print ISBN: 978-1-349-21781-6
Online ISBN: 978-1-349-21779-3
eBook Packages: Palgrave Political & Intern. Studies CollectionPolitical Science and International Studies (R0)