A Sraffian Approach to the Relationship Between the Interest Rate and the Profit Rate

This paper seeks to offer an innovative interpretation of the relationship between interest rate and profit rate, based on the profitability of bank capital and a rethinking of the traditional multi-sectoral depiction of the economy. That is, considering the banking sector as a particular ‘productive’ sector with a specific price equation. The Sraffian-type price equation tool is used to study and represent this relationship within the framework of the Sraffian ‘Marxian’ approach of Garegnani. In order to describe the functioning of the banking sector with such a tool, a careful analysis of the necessary and normal coefficients of a banking sector price equation is conducted, while the compatibility of economic concepts such as input, output and capital with endogenous money theory is also discussed. The results of this investigation demonstrate that a causal relationship exists between the rate of profit and the rate of interest, with the central bank wielding significant influence. These findings can also reconnect and develop the different cues in Marx’s analysis of the financial system—in particular, the idea that the determination of the interest rate also depends on the conflict between financial and productive capitalists.