Interest

In the loan relationship, the remuneration received by the money-owner for lending money funds. It comes from a portion of the profits of functioning capitalists and exists in various forms such as usurious interest, interest on bank deposits and loans.

In different social systems, the nature and source of interest vary, also reflect different relations of production. Usurer’s capital existed and developed in slave and feudal societies, with usurers pocketing high interests on their loans. Such interest mainly originated from the surplus-labor of slaves or serfs and from the results of the labor of peasants and craftsmen. The main form of interest which is prevalent in the capitalist system is the interest on loan capital. The interest on loan capital is essentially profit, a particular transmuted form of surplus-value. Functional capitalists must pay interest to both the money-owner and the lender when they use borrowed capital. Money itself cannot valorize or create value; it is only when the industrial capitalist uses money to buy means of production and labor-power, and creates surplus-value through the production process, that the money-capitalist shares a part of the surplus-value from the industrial capitalist, thus surplus-value is transformed into interest. Here in this transaction money-capital is the money functioning as capital-value, which begets surplus-value and which is used to exploit wage-labor. The separation of the property and the right to use money is the inner condition for the emergence of interest, while the shortage and surplus of funds is the external condition for the existence of interest. The money-capitalist can obtain interest by the mere property of money; the functioning capitalist makes profit by his activity, i.e., by performing the functions of capital, both are involved in the division of the surplus-value created by the wage-laborer.

Interest is regulated and figured by the interest rate, which is the ratio of interest to the sum of loan capital in a given period of time and figured on annual basis. Market interest rates are constantly changing and do not follow a fixed law.

Under the socialist system, the categories of loan relationship and interest still exist. Socialist interest is a form of redistribution of national income and embodies the socialist relations of production between the state, enterprises and the workers.