Prof. Jan Toporowski (SOAS University of London)

The publication of Anwar Shaikh’s book Capitalism, Competition, Conflict, Crises presents an opportunity to reconsider the classical theory of interest, on which much of the structure of the book is based (Shaikh 2016 chapter 10). This Note takes issue with the classical theory of interest that is the foundation of Shaikh’s monetary economics and the theory of bank profit that arises from that classical view. The Note argues that the classical theory of money applies to a very particular capitalist economy in which the monetary sector or banking are external to capitalist production. However, when credit is endogenous to capitalist production, the rate of interest is no longer governed by the rate of profit in the real economy, and the rate of profit of the banking sector does not depend on the actual rate of interest.

This Note does not claim to represent Shaikh’s book, or even its core argument. The criticism in this Note proceeds by describing the banking system in which the classical theory of interest holds true and then explaining how, in the credit system that emerged with capitalism, that classical theory of interest does not hold. The Note concludes by arguing that debt and interest perform a purely distributional function in a credit economy, unrelated to the rate of profit from production around which Shaikh builds his analysis.

Jan Toporowski is Professor of Economics and Finance at SOAS University of London.

Speaker(s): Prof. Jan Toporowski (SOAS), Dr. Gregor Semieniuk (SOAS)

Event Date:

01 March 2017

Released by:

SOAS Economics Podcast