Division of Profit. Rate of Interest. Natural Rate of Interest.

Since interest is merely a part of profit paid, according to our earlier assumption, by the industrial capitalist to the money-capitalist, the maximum limit of interest is the profit itself, in which case the portion pocketed by the productive capitalist would = 0. Aside from exceptional cases, in which interest might actually be larger than profit, but then could not be paid out of the profit, one might consider as the maximum limit of interest the total profit minus the portion (to be subsequently analyzed) which resolves itself into wages of superintendence. The minimum limit of interest is altogether indeterminable. It may fall to any low. Yet in that case there will always be counteracting influences to raise it again above this relative minimum.

The relation between the sum paid for the use of capital and the capital expresses the rate of interest as measured in money. The rate of interest depends 1) on the rate of profit; 2) on the proportion in which the entire profit is divided between the lender and borrower.

All other conditions taken as equal, i.e., assuming the proportion between interest and total profit to be more or less constant, the functioning capitalist is able and willing to pay a higher or lower interest directly proportional to the level of the rate of profit.

Since we have seen that the rate of profit is inversely proportional to the development of capitalist production, it follows that the higher or lower rate of interest in a country is in the same inverse proportion to the degree of industrial development, at least in so far as the difference in the rate of interest actually expresses the difference in the rates of profit. It shall later develop that this need not always be the case. In this sense it may be said that interest is regulated through profit, or, more precisely, the general rate of profit. And this mode of regulating interest applies even to its average.

In any event the average rate of profit is to be regarded as the ultimate determinant of the maximum limit of interest.

The rate of interest reaches its peak during crises, when money is borrowed at any cost to meet payments. Since a rise in interest implies a fall in the price of securities, this simultaneously offers a fine opportunity to people with available money-capital, to acquire at ridiculously low prices such interest-bearing securities as must, in the course of things, at least regain their average price as soon as the rate of interest falls again.

Interest is a portion of the profit, i.e., of the surplus-value, which the functioning capitalist, industrialist or merchant has to pay to the owner and lender of money-capital whenever he uses loaned capital instead of his own. If he employs only his own capital, no such division of profit takes place; the latter is then entirely his.

The rate of interestmay be defined to be that proportional sum which the lender is content to receive, and the borrower to pay, annually, or for any longer or shorter period, for the use of a certain amount of moneyed capital.... When the owner of a capital employs it actively in reproduction, he does not come under the head of those capitalists, the proportion of whom, to the number of borrowers, determines the rate of interest.

For the productive capitalist who works on borrowed capital, the gross profit falls into two parts — the interest, which he is to pay the lender, and the surplus over and above the interest, which makes up his own share of the profit. If the general rate of profit is given, this latter portion is determined by the rate of interest; and if the rate of interest is given, then by the general rate of profit.