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

This paper tries to offer a new 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 tool of the Sraffian-type price equation is used to study and represent this relationship within the framework of the Sraffian “Marxian” approach of Garegnani. In order to describe the operation 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 and the compatibility of economic concepts such as input, output and capital with endogenous money theory is discussed. The results of this investigation show the possibility of conceiving a causal relationship between the rate of profit to 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, which are apparently contradictory.