‘Fictitious capital’ : from original intent to hyper-inflation

With the development of interest-bearing capital and the credit system, all capital seems to double itself, and sometimes treble itself, by the various modes in which the same capital, or perhaps even the same claim on a debt, appears in different forms, in different hands. The greater portion of this ‘money-capital’ is purely fictitious.

Karl Marx, Capital, III.[1]

OUTLINE
This article is another off-cut from my grappling to understand the current crisis in the accumulation of capital. Thirty-four of my Marxist Missiles are on www.surplusvalue.org.au as is a sequence on ‘Capital refined’, along with 18,000 words summarising the fragility of the Chinese economy in ‘Chinese Crackers’ and a brief ‘China Update’. In contrast to these immediate concerns, the present offering aims to establish what Marx - and Engels – wrote about fictitious capital in volume three of Capital. The account moves through twenty steps:

1.     the mis-uses of ‘fictitious’ as a term;
2.     are financial and industrial capitals antithetical?;

WHAT MARX WROTE

3.      vocabulary and translations;
4.      Engels as editor;
5.      capitalised incomes;
6.      advances on sales;
7.      government bonds;
8.      shares;
9.      swindles; 
10.    industrialists’ hoards;
11.    crises;
12.    bills of exchange;
13.    bankers’ hoards;
14.    ground-rent and slaves;
15.    ideological repercussions;

GEARING UP

16.    why has ‘fictitious’ become so current?
17.    possible extensions to other practices, notably

i.       accountancy;
ii.      hedging;
iii.,    state expenditures;
iv.     consumer credit;

18.    which other texts might be interrogated?;
19.    why revolutionaries should take the trouble, with a glance at China’s bubbleconomy;
20.    Dialectical reasoning.

Let us begin with a reminder of how to approach Marx’s thinking from the person who knew best. Frederick Engels pointed to an error which has become as common among Marxists as it was among bourgeois scholars who assumed

that Marx wishes to define where he only investigates, and that in general one might expect fixed, cut-to-measure, once and for all applicable definitions in Marx’s works. It is self-evident that where things and their inter-relations are conceived, not as fixed, but as changing, their mental images, the ideas, are likewise subject to change and transformation; and they are not encapsulated in rigid definitions, but are developed in their historical and logical process of formulation.[2]

An epilogue on ‘Dialectical Reasoning’ draws on the distinction between relative knowledge and absolute truths.

1. the fictitious follies
In the wake of the financial eruption of 2007-8, sloppy thinking about finance reached plague proportions. Around the Left, ‘fictitious’ became interchangeable with banking, credit, debt, derivatives and swindles. Sydney Marxist Dick Bryan protests:

Terms like ‘fictitious capital’ are transformed from their original meaning [in Marx and Hilferding] and given a pejorative twist to depict over-blown finance. The effect is to cast the crisis as a conflict between the real and the financial, not a conflict between classes.[3]

Marx would not have been surprised: ‘It is truly wonderful how in this credit gibberish of the money-market all categories of political economy receive a different meaning and a different form’.[4] The following four examples show that this wandering is no longer confined to the vulgar political economists.

As an instance of ill-considered pronouncements, the On-line Encyclopedia of Marxism: Glossary of Terms states that ‘fictitious capital’

is value, in the form of credit, shares, debts, speculation and various forms of paper money, above and beyond what can be realised in the form of commodities.

The first weakness in this version is that ‘speculation’ is an odd term out since it is not any kind of financial instrument. Speculate is what you can do with the other four forms.

Secondly, ‘fictitious’ is presented as value ‘above and beyond what can be realised in the form of commodities’. This account would have tickled Marx’s fancy as much as did Balzac’s miser, Gobseck, when he enters his second childhood by no longer hoarding gold but ‘begins to pile up commodities’, a true madness.[5] Furthermore, confining realisation to ‘commodities’ leaves us wondering what has happened to money, that universal equivalent of labour-times, that alpha and omega of capital’s expansion. The identification of real capital with commodities is Marxist only if the author treats money as a commodity.[6] The Glossary’s focus on commodities swivels on a misreading of Engels’s account of the 1840s. (Section 4) Thirdly, the Glossary misses a recurrent element in Marx’s writing about fictitious capital, namely, capitalised rates of interest on government bonds, shares, ground-rent and chattel-slaves. (Sections 7, 8, 13 and 14)

Chris Harman’s Glossary to his 2009 Zombie Capitalism crams too little into its definition:

Fictitious Capital: Things like shares and real-estate investment that are not part of the process of production but which provide the owners with an income out of surplus value.[7]

The insouciance of ‘things like’ is followed by examples that mention no kind of capitalised income. His view of real-estate investment is lop-sided since such outlays are part of the production process of surplus value in their construction stage though not if existing properties are purchased; he has followed David Harvey in forgetting the primary circuit of capital. He is right to source rents or dividends to surplus value but should have inserted that they do so only indirectly.

In 1987, the erstwhile editor of Monthly Review, James O’Connor, defined fictitious within the difficulties of realising surplus value because of its expropriation from the wage-slaves who produce it.  He misrepresented the resultant gap as arising from an ‘insufficient demand for commodities’ rather than from their over-production. The gap between their over-supply and effective demand for them, he observes,

may be compensated for by the growth of ‘fictitious capital’, i.e., money capital in circulation that is not materially embodied in commodities or productive capital but which exchanges against surplus value that is embedded in commodities.[8]

In considering productive capital, he rightly goes beyond the equation of fictitious with commodities. His account, however, is well nigh impossible to square with any form of capitalised income.  Moreover, capitalised incomes from shares, land or chattel-slaves stand in a different relationship to productive capital than do interest payments from government bonds. The latter show that fictitious capital need not be in circulation.

A lengthy statement in the Glossary to the 2009 symposium on the crisis in Historical Materialism deals only with stock prices, and is reprinted in footnote 50.

2. Parasites, high and low
As a corollary of the confusion about Marx’s views of fictitious capital, vulgar Marxists deem ‘finance’ to be morally inferior to production capital. Money capitals of every stamp are painted as parasitic on the virtuous capitals that expand thanks to their direct exploitation of workers. If anti-Semitism is fool’s socialism, the privileging of manufacturing over the money-power is fool’s Marxism.[9] (see Missile ‘All capitalists are parasites’)

Parallel weaknesses are found among knowledgeable Marxists. For instance, David Harvey speaks of ‘a conflict between finance and production capital’ but fails to specify either. From his subsequent remarks it seems that ‘production capital’ is ‘industrial’, which is correct if ‘industrial’ covers agriculture, construction and transport. It is not clear whether he wants us to treat production capital as productive of surplus value while finance, by its nature, lives off the profits realised therefrom. At one point, he alleges that ‘Wall Street finance connived at the de-industrialisation of the United States’ but later corrects this moralising to say that the rise of finance ‘facilitated the de-industrialisation in traditional core regions’. In Harvey’s 2010 lecture, his sole mention of ‘fictitious’ is the ‘creation of fictitious capital markets’ that drove up the leveraging ratios of banks.[10]

Drawing too sharp a line between the forms of capital is some of what Marx labeled as vulgar political economy.[11] Financial capital is essential to the expansion of the industrial, in ways he spent twenty years specifying. He spurned the prejudice that the financial forms of capital are merely parasitical on the industrial kind. Bankers’ hoards contribute to the expansion of real capital:

Credit … is the means whereby accumulated capital is not just used in that sphere in which it is created, but wherever it has the best chance of being turned to good account.[12] 

In so doing, credit goes beyond financing individual capitals to servicing aggregate capital, which is the object of Marx’s critique of political economy.[13]

Moneyed-capitalists and industrial capitalists, Marx writes, ‘are in fact co-partners, one of them being the juridical owner of the capital, and the other, while he employs it, the economic owner’.[14] He is at pains to integrate interest payments into the profit that can come only from the surplus value that is added through the valorisation phase of the production process. Production-capitalists separate interest from profit in their minds because, as debtors, their payment of interest encourages them to view their loans as commodities.[15] Not surprisingly, ‘illusory, fictitious capital’ nourishes greater absurdities than is usual among capitalists and their apologists, as we shall see in section 15 on ‘Ideology’. For the moment, it is enough to recognise that these misapprehensions are not delusional but serve a purpose.

Marx also recognised the benefits to the expansion of capital from a market in futures since they provide payments to producers from merchants in advance of the consumption of the commodities:

Had the linen manufacturer been obliged to wait until his linen had really ceased being a commodity … his process of production would have been interrupted. Or, to avoid interrupting it, he would have had to curtail his operations … and the scale of reproduction would have to be restricted accordingly.[16]

In the final chapter of volume II, Marx integrates the advantages from credit and futures-trading into his account of the reproduction of aggregate capital on an expanded scale.

In addition, Marx acknowledges the contribution that even speculators make to recovery after a bout of de-valorisation:

… the period during which moneyed interest enriches itself at the cost of industrial interest … will, on the whole, act favourably upon reproduction, since the parvenus into whose hands these stocks or shares fall cheaply, are mostly more enterprising than their former owners.[17]

Despite Marx’s acceptance of the contribution of financiers and crooks to the accumulation of surplus value, he cared no more for Mr Moneybags than for Mr Glass-blowing Capital. Yet, he could not deny the utility of financiers and certain swindlers to the growth of individual or aggregate capital.[18]

Hence, far from always sapping the life out of productive capital, financiers can help to restore its vigour. For instance, early in the twentieth-century, J Pierpont Morgan ‘Morgan-ised’ US businesses from the incompetence of their founding entrepreneurs. He explained that once he had redeemed a firm he felt ‘morally responsible for its management to protect it, and I generally do protect it’.[19] A more recent case was the rescue of Swiss watchmakers by a syndicate of investors headed by Nicholas G Hayek who, from 1985, sorted out the account-books of horologists and coined the brand-name Swatch. The role of money-men, therefore, is not confined to the asset-stripping made notorious by the 1987 leveraged management buyout of Nabisco documented in The barbarians at the gate.[20]

Of course, not every financier contributes to real capital all of the time. Recently, all manner of capitalists have yet again been overtaken by the fever to make money out of money (M-M’) without the bother of selling commodities, let alone producing them, as Engels observed.[21] For Marx, M-M’ was a ‘ meaningless condensation’ which encouraged capitalists to congratulate themselves on producing the increment without the intervention of labour.[22] That is impossible. Every swindler needs other capitalists to have gotten down and dirty in the expropriation of surplus value.

What Marx – and Engels - said

3. Cross-words
The status of Marx’s treatment of ‘fictitious’ capital is perplexing since the phrase rarely appears in his writings. Yet, today, it is on the lips of every Marxian. What did he and Engels mean by it? Because Marx writes of ‘illusorisch, fiktives Kapital’, we have to conclude that he thinks of fictitious and illusory as synonyms.[23] What would be the appeal of the explanatory power of this phenomenon had Marx used ‘illusory’ or ‘sham’ most of the time instead of the grander-sounding  ‘fictitious’?

Chapter XXV in Volume III of Capital is entitled ‘Credit and Fictitious Capital’. The term ‘fictitious’ appears only three times, twice in the first quotation from a Yorkshire banker and in a bracketed footnote inserted by Engels.[24] Chapter XXIX, on ‘Component Parts of Bank Capital’, contains more of Marx’s uses of ‘fictitious’ or its cognates than the rest of the four volumes. He uses fiktiv ten times and illusorisch seven times. Arriving at his original intent is not helped by translators going their own ways: Chicago has ‘fictitious’ thirteen times and Moscow twelve but Penguin follows Marx with only ten. All give Schein as ‘illusion’ when it is closer to pretence or sham.[25]

The German title for chapters XXX to XXXII is ‘Geldkapital und wirkliches Kapital’, which the Moscow and Penguin editions both render as ‘Money Capital and Real Capital’. The Chicago edition put ‘actual’ in place of ‘real’. To complicate matters, two lines down from the title, Moscow offers actual for ‘wirkliches’. Penguin slips around that repetition by talking of ‘money capital as such’, though in the next line it gives ‘genuine’ for ‘wirklicher’ while Moscow continues with ‘actual’.

To sort out what Marx and Engels understood by ‘fictitious’ we need to know what they meant by ‘wirkliches’/‘real’ capital. For them, real capital was, first and foremost, productive of surplus-value. Other kinds of capitals expand through the revenues that their agents extract from the profits realised out of surplus-value. In truth, surplus-value is the touchstone for what is and is not fictitious. That rule is explicit in Marx’s exposition of ground-rent as capitalised revenue in a chapter headed ‘The Transformation of Surplus Profit into Ground Rent’. ‘Surplus Profit’, he adds, is profit above its average rate, though both derive from the realisation of surplus-value.[26] (see Section 14).

Real, actual and genuine are not synonymous in the senses that they convey to an English reader. Real suggests the palpable, more than an appearance; actual is what exists against some ideal form; and genuine has a hint of honesty, not a fake (Shein). These nuances gain pertinence when we track the connections and differences between capital as things and capital as processes. Thing evokes objects as extensions in space, while we visualise processes as temporal rather than spatial. This distinction is significant for our discussion of fictitious least anyone assume that real capital has to be thing-like. Capital is neither just a thing nor even a set of processes but rather involves things undergoing processes of transmutation in and out of the money form.

A juxtaposition of ‘Money Capital and Real Capital’ implies that money-capital is not ‘real’. If money-capital is not real, is it always fictitious? If no money capital is real, how can Marx take it as the starting point for his account of capital’s expansion? The answers require delving more deeply into Marx’s accounts of the relations between money and capital than is possible here.[27] Suffice it to say that money becomes real capital only when it is contributing to the latter’s expansion: ‘Thus in capital the independent existence of value is raised to a higher power than in money’.[28]

Money-capital is not real capital because you can touch it. For instance, a miser’s hoard of gold coins is not real capital since it has not been thrown into the circuits of capital expansion and so can never be engaged in the production of surplus-value.[29] The miser’s hoard will become real capital should he come to his class sense and advance it to an industrial capitalist to invest for the expropriation of surplus-value. In contrast to a miser’s hoard, the hoard of an industrial capitalist is real capital because it is being stored in order later to expedite the turnovers of capital for its expansion.[30] (Section 9)

4. Engels as editor[31]
As editor of volume III, Engels cautioned readers about the status of chapters XXV to XXXII, most of which he had placed in Part V. They had given him more trouble than any of the others when assembling a publishable manuscript from the mare’s-nest that Marx had left:

Part V … dealt with the most complicated subject in the entire volume. And it was just at this point that Marx was overtaken by one of the above-mentioned serious attacks of illness. Here, then, was no finished draft, not even a scheme whose outlines might have been filled out, but only the beginning of an elaboration – often just a disorderly mass of notes, comments and extracts.

Engels confessed that he had failed at three attempts to fashion a version which ‘would at least approximately contain everything the author had intended’. The impossibility of this approach caused him to put the materials into the best order he could while ‘making only the most indispensable additions … Chapter XXV and XXVI required a sifting of the references and an interpolation of material found elsewhere’.[32]

To become more confident of Marx’s intention we need to unstitch Chapter XXV where, ‘fictitious’ makes its debut in the title though is nowhere from Marx’s hand. Marx made no claim to having coined ‘fictitious’, which Thomas Jefferson had used in 1819 and Engels in 1845.[33] Marx’s contribution is the significance he gives to fictitious in his exposition of money and capital. The thirteen pages of this chapter contain only three from his pen. Eight were copied from other books, newspapers and reports, with brief introductions which give a flavour of his reactions. The extracts deal with banks. The first, from 1840, by a Yorkshire banker mentions ‘fictitious’ twice:

It is impossible to decide what part arises out of real bona fide transactions, such as actual bargain and sale, or what part is fictitious and mere accommodation paper, that is, where one bill of exchange is drawn to take up another running, in order to raise a fictitious capital, by creating so much currency.[34]

This author is not dismissing all credit as an illusion, any more than did Marx who understood that an ever-expanding volume of commodities and their widening sphere of realisation depends on more credit being available than there is gold in the vaults. The circuits are kept turning by settling exchanges with money-of-account as book-keeping entries. The subsequent extracts in chapter XXV deal with bills-of-exchange as the foundation for credit.

5. Capitalisation
Before entering into Marx’s examples of fictitious capital we need to introduce his usual definition of it:

The formation of a fictitious capital is called capitalisation. Every periodic income is capitalised by calculating it on the basis of the average rate of interest, as an income which would be realised by a capital loaned at this rate of interest.[35]

‘Capitalisation’ is one way in which Marx identifies what is fictitious. ‘A title to value’ is another definition of ‘fictitious’ in regard to capitalisation. He applied this precept to government bonds, to shares[36] and to bills of exchange. (see Sections 7, 8 and 12)

To complicate matters, Marx sometimes uses ‘capitalisation’ as a synonym for accumulation, for example, ‘the capitalisation of surplus value’ and ‘the snatching of surplus-value and its capitalisation, i.e., accumulation’.[37] This sense of ‘capitalisation’ is the direct opposite of the capitalisation of rates of interest. The former gathers surplus-value for the expansion of real capital: the latter expects to live off surplus-value already secured elsewhere, as is blatant for government bonds.

6. Advances
Into chapter XXV, Engels introduces a form of the ‘fictitious’ which differs from those he placed in chapter XXIX where Marx examines capitalised income. Engels outlines events in 1844-47 when British businesses were swept up in speculation after the 1843 Opium War had opened China to British cotton goods. A Manchester manufacturer then asked him: ‘How can we ever produce too much? We have to clothe 300 million people’. Engels recalled how such exuberance had given rise to

the system of mass consignments to India and China against advance payments, and this soon developed into a system of consignments purely for the sake of getting advances … which led inevitably to over-flooding the markets and a crash.[38]  

After a while, the sham was kept afloat by advancing credit before manufacture, and no longer just before sale. Engels explained:

The easier it is to obtain advances on unsold commodities, the more such advances are taken, and the greater the temptation to manufacture commodities, or dump already manufactured commodities in distant markets, just to obtain advances of money on them.[39]

This fiddling was an effect of over-production and not an autonomous financial upset leading to crisis.

In Engels’s recounting of the craze, the only appearance of ‘fictitious capital’ is in a footnote which he added about how the telegraph and steamboats through the Suez Canal had put an end to this ‘method of fabrication’, rendering it ‘totally impractical’.[40] He did not name the advances on unsold goods as ‘fictitious’. We are left to impute that their value is ‘fictitious’ because he put his discussion of them into a chapter headed ‘Fictitious capital’. Materials in later chapters of volume III validate the connection.

7. Government bonds
Since the only chapter with ‘fictitious’ in its title tells us so little of what Marx thought fictitious capital was, we now to turn to Chapter XXIX on ‘Banking Capital’s Component Parts’. Most of its twelve pages are from Marx’s hand. Only two are extracts from other writers and one is taken up with footnotes added by Engels.

Marx’s own remarks about fictitious capital begin from the funds that are placed with governments to derive interest out of the taxes levied to service the national debt:

… from the simple concept of productive capital one cannot evolve fictitious capital, the object of gambling on the stock exchange, which is actually nothing but the selling and buying of entitlement to a certain part of the annual tax revenue.[41]

He thought such investments fictitious because they could not add value.[42] The funds had gone to the state to cover its debts, not to expand real capital.

Had the tax money been advanced to a manufacturer, it would have become real capital by engaging in the production of surplus value. The same applies had the bonds gone to a state-owned enterprise where the wage-slaves generate more value to increase its money-capital, as used to be the case with QANTAS. Indeed, some of the value added by QANTAS workers for a statutory corporation contributed to those interest payments on government bonds . Nowadays, the airline expands its capital as a share-holder corporation. Its shares become fictitious as a shadow of the capital invested in self-expansion. Some its tax payments end up meeting interest charges on the ‘fictitious’ capital that are government bonds. In neither circumstance do the earnings on QANTAS shares fulfill the criterion of incomes from taxes.

8.  Shares
The next appearance of ‘fictitious’ also deals with capitalisation but covers investments beyond government bonds. Here, Marx is concerned with shares. The value placed on them ‘is always merely capitalised income, that is, income calculated on the basis of fictitious capital at the prevailing rate of interest’.[43] Unlike with government bonds, the capitalisation of interest on shares is related, even if indirectly, to the promise of surplus value.

Once plant and equipment are represented by tradable shares, they attract a fictitious ‘value’. Marx stresses the difference between value and the market-price of shares as ownership titles to real capital:

their money value being determined differently from the value of the actual capital that they at least partially represent; or, where they represent only a claim to revenue and not capital at all, the claim to the same revenue is expressed in a constantly changing fictitious money capital.[44]

That volatility happens because the shares ‘become commodities, whose price has its own characteristic movements and is established in its own way’.[45] Over the longer term, the sale price of a share will gyrate around the dividends that the investment yields.[46] That return will affect the volume and price of stock-exchange bids:

The market-value of this paper is in part speculative, since it is determined not only by the actual income, but also by the anticipated income, which is calculated in advance.[47]

The ‘speculative’ part is not necessarily a swindle but refers to the expectation of earnings.

Marx acknowledges grades of fictitiousness by reminding us of the manner in which

the credit system creates associated capital. The paper serves as title of ownership which represents this capital. The stocks of railways, mines, navigation companies, and the like, represent actual capital, namely, capital invested and functioning in such enterprises, or the amount of money advanced by the stockholders for the purpose of being used as capital in such enterprises.[48]

Money-capital does not become ‘purely fictitious’ once it is advanced for enterprises generating surplus-value. For as long as the share price is matched by an equivalent value in operating stock, the paper-token is not ‘purely’ fictitious.

Such connections pose the problem of determining which part of the value of shares is not purely fictitious, and why:

Even when the promissory note – the security – does not represent a purely illusory capital, as it does in the case of national debts, the capital value of this security is still pure illusion.[49]

This sentence is puzzling because the basis of this promissory note is not ‘purely illusory’ yet its value is ‘pure illusion’. The tension is resolved once we distinguish real capital from its paper representations. For instance, the capital embodied in a serviceable QANTAS 767 is in no sense ‘purely illusory’. It is the capitalisation of a rate of return on the investment in QANTAS-share certificates that is fictitious.

Should an aircraft have to be pulled from service, then the fixed capital embodied in it will not be available for the addition of value, and the share price liable to decline.

To see how this happens, we need to follow how the value placed on shares in a corporation which is accumulating surplus value nonetheless prove fictitious. Let’s track a dollar invested in such a firm. The moneyed-capitalist buys a one-dollar share which is matched by the value of real capital in plant and stock that allows for the addition of value. That share certificate ‘does not represent purely illusory capital’. The tokens represent real capital but are not themselves real capital.

For the moment, we shall follow Mr Money-capital as he sells his shares above their issue price. We postpone any thought of a fall in the share price. He thrills when his one-dollar share trades at two dollars. The original share has lost its connection with representing  the value of the plant and stock. Indeed, the one-dollar token turned fictitious the instant its nominal value lost parity with the value of the real capital by rising to 101 cents. However, if a portion of the profits is reinvested but no more shares are issued, the token and the real continue to match each other and no fictitious capital is represented. Once that equation is breeched, the extra price offered for the share becomes purely fictitious as a capitalised rate of interest.

Whatever happens to the market-price of a share, Marx reminds the paper millionaire:

The same capital does not exist twice, once in the hands of the seller, and a second time in the hands of the buyer … It passes from the hands of the buyer to those of the seller, and there the matter ends.[50] 

The matter may end there in terms of the expansion of real capital, but not in the minds of an investor who now owns the shares. We cannot expect Messrs Speculator to appreciate that value exists only once. There is ready money to be gathered by gambling with the share-tokens as chips at the world’s biggest casino, the stock market which is, as Warren Buffett reminds us, a voting machine, not a weighing machine.[51]

The first trade of a one-dollar share at two dollars will be followed by an avalanche of illusory revaluations as all the investors in that company apply the latest market-price for a single share to all their holdings. They dream that they all have doubled their money. They might learn otherwise should they all try to sell all their shares at the same time. Some will get first-mover advantage by selling ahead of the pack. All of them can get that extra dollar only if the firm is taken over at a premium, as just happened with Skype. In that case, the money they receive for their shares can become latent money-capital before being re-invested in a process productive of surplus value. Once on the market, the shares in that new firm again represent degrees of fictitious value, the more so for investors who buy in later at capitalised prices.

The gap between the likely dividends and the speculative price placed on a stocks became blatant in mid-2001 when a broker returned $1.73bn to his clients, telling them that

given the rapid market run-up over the past two years and our ongoing concerns about economic outlook, and recent political tensions in the Middle East, I do not wish to be responsible to limited partners through another possible market crisis.[52]

He adopted this high moral stance only after the Dodd-Frank Act held him liable for certain losses.

The investors’ delusion that they possess two capitals is sustained by the fact that, in a rising market, they have two streams of income. In addition to six-monthly dividends on their real capital, they can make capital gains by selling off portions of made portfolios of fictitious capital in shares:

The independent movement of the value of these titles of ownership … adds weight to the illusion [Shein – sham] that they [the tokens] constitute real capital alongside of the capital or claim to which they may have title.[53]

Marx again cautions the capitalist that

the capital does not exist twice over, once as the capital value of the ownership titles, the shares, and then again as the capital actually invested or to be invested in the enterprises in question.[54]

Marx exorcises this doppelganger by delineating the hoards held by industrial capitalists from those of bankers.

9. Industrialists’ hoards
The phrase ‘or to be invested’ opens a window onto the difference between fictitious capital in shares and an intent to invest money-capital being held as a hoard. That accumulation is essential for expanded reproduction. (see section 13, ‘Bankers’ Hoards’, below) Marx shows why money-capital is not necessarily fictitious while it is waiting ‘to be invested’:

Besides real accumulation, or the transformation of surplus-value into productive capital … there is thus accumulation of money, scraping together a part of the surplus-value as latent money capital, which is only to function as additional active capital later on, when it has attained a certain volume.[55]

The purposes of these savings include (a) to replace equipment; (b) to maintain a continuous flow of materials and labour-power; and (c) best of all, to do both on an expanded scale.

The constituent parts of an industrialist’s hoard can be both ‘purely fictitious’ and potentially real:

It is also possible that this latent money capital consists simply of value tokens  …. or else of mere claims (titles) of the capitalist on third parties … In all these cases, whatever may be the form of existence of the extra money capital, it represents, in as much as it is prospective capital, no more than extra legal titles to the future additional production of the society that the capitalists hold in reserve.[56]

This accumulation is fraught with extra risks before the latent money-capital can be exchanged for real capital: ‘during crises and during periods of business depression in general’, fictitious capital ‘loses to a large extent its capacity to represent potential money-capital’.[57] That loss leads our investors away from the happy days when they could suppose that they had landed two capitals for the price of one. A crisis looms.

10. Crises
We bid farewell to the beautiful bull market as we contemplate the collapse of fictitious values, a regular occurrence in capitalism – as happens also to real values. The prices of shares and bonds have an inverse relationship. The price of

fictitious capital, interest-bearing paper in so far as it circulates on the stock exchange as money-capital … falls with rising rates of interest. It falls, furthermore, as a result of the general shortage of credit, which compels its owners to dump it in large quantities on the market in order to secure money.[58]

In these circumstances, aggregate capital lurches towards a rupture in the circuits of its expansion. Now, the price on the tokens tumbles even more,

partly as a result of the decrease in revenues for which it constitutes drafts … This fictitious money-capital is enormously reduced in times of crisis, and with it the ability of its owners to borrow money on it on the market.[59]

A systemic crisis is not inevitable at each blockage although there will be some under-tow towards a general collapse because of the contraction of credit.

In the wake of the 2007 implosion we are experiencing a double whammy. An excess of money-capital is sloshing around but unable to find a profitable outlet or can do so only at a rate of interest which is too steep to yield the average rate of profit. Interest rates are being forced up to match the heightened risk from still undisclosed insolvents and to improve liquidity for the banks after their bad debts. The so-called Greek crisis is but the rupture point for this system eruption.

A collapse in fictitious value of the shares will be as disproportionate to real capital as was their rise from parity:

… the reduction of the money equivalents of these securities on the stock-exchange list has nothing to do with the actual capital which they represent, but very much indeed with the solvency of their owners.[60]

These falling share prices express a negative fictitious value. Fewer and fewer capitalists can secure their usual lines of credit and hence are made insolvent even when profitable. They are thereby cornered into dodges such as trading while insolvent, or a Chapter-11 bankruptcy in the US of A, which is much the same.

A share price will almost always represent some fraction, no matter how tiny, of the real capital in which it has been invested. The exception is where the business is a fraud with no more real capital than an email address for receiving investors’ funds to steal. That scam is but the crudest of swindles.

11. Swindles

… the American prepares himself by a series of bankruptcies, genuine and fraudulent, for the role of millionaire.

Frederick Engels, The Role of Force in History.[61]

It did not take the genius of a Marx to know that the trading of shares in firms accumulating surplus-value never precludes their real capital from being caught up in swindles.[62] Moreover, share prices, he writes, fall ‘partly as a result of the spurious [Schwindel] character of the enterprises that it often enough represents’.[63]

Not all swindles are associated with fictitious capital and not all fictitious capital or values result from swindles. Nonetheless, the fictitious allows more scope for swindling. Although Marx scorns the slogan that property is theft, he regularly spotlights swindling, a strand neglected by Marxists.[64] Swindles among capitalists are ever present in their scramble for slices of such profit as can be realised after expropriating surplus value. 

The crux of Marx’s advance on Smith and Ricardo is his discovery that the exploitation of workers is not a swindle. On average, labour-power is paid for at its value, that is, the combined labour-times that went into its re-production. The workers are not paid for the values they add beyond that wage. In addition to capital’s holding onto the results of this unpaid labour-time, capital aims at zero labour costs. Its agents, therefore, cheat on hours, wages and entitlements. On top of expropriating surplus-value and underpaying their workers, capitalists over-charge and adulterate consumer goods to claw back a portion of the wages.[65]

Capitalists cheat each other in order to grab a slice of the surplus value expropriated by their suppliers or corporate customers. Dick Pratt’s price-fixing is one example of the intersection of these inter- and intra-class swindles. This second layer of exploitation is possible because production and consumption are wound together in the social metabolism of capital expansion.

A higher form of swindling follows from the need to sustain continuity in the productive process. Capital must have a ceaseless inflow of funds. Most wages are paid weekly. Invoices for production commodities fall due at different dates in each month. The formula money-commodity-more money (M-C-M’) is misleading in as much as it seems that all the money enters at the start of the production process. Rather, some money has to be available everyday and not just on the first morning. Capitalists tide themselves over by on-selling invoices for goods which have not been paid for by those who will consume them as use-values. This bridging finance institutionalised the advances gained from the China trade in the 1840s.[66] Even then, they were known as bills-of-exchange.

12. Bills-of-exchange
A bill-of-exchange is an invoice. It can be sold at less than its face value, in other words, it is discounted. The broker exacts a premium for risk should the bill return less than its face value.[67] Marx tracked their downward spiral which marks their trading even in normal times:

By making advances to the bill-broker on bills of exchange which this broker has already discounted once, the banker does, in fact, rediscount them; but in reality, very many of these bills have already been rediscounted by the bill-broker, and with the same money that the banker uses to rediscount the bills of the bill-broker, the latter rediscounts new bills.[68]

The operation spins out of control. Marx quotes a banker from 1858 to show how one torrent was undammed:

Extensive fictitious credits have been created by means of accommodation bills, and open credits, great facilities for which have been afforded by the practice of joint-stock country banks discounting such bills, and rediscounting them with the bill-brokers in the London market, upon the credit of the bank alone, without reference to the quality of the bills otherwise.[69]

This testimony reports an embryonic form of speculation in financial instruments, one with only two degrees of separation from the production of surplus value. During the past thirty years, such trading entered the stratosphere, with derivatives and collatoralised debts at ten times the monetary value of the world’s Gross Domestic Product.[70] That magnitude was beyond the wit of a even a Warren Buffett to profit from packaging and reselling debts over and again.[71]

Here is what happens on an average day. Invoices go forth. They are discounted. As a result, the producer has got back his costs plus surplus value. Yet, his firm gets no further orders until his wholesaler has got rid of last year’s stock:

But as soon as the commodities lying in the reservoirs of circulation do not make room for the swiftly succeeding wave of production, so that the reservoirs become over-stocked, the commodity-supply expands in consequence of the stagnation in circulation just as the hoards increase when money-circulation is clogged. It does not make any difference whether this jam occurs in the warehouses of the industrial capitalist or in the storerooms of the merchant. The commodity-supply is in that case not a prerequisite of uninterrupted sale, but a consequence of the impossibility of selling the goods.[72]

Typically, a mechanism invented to facilitate growth has twisted into a device which compounds the crisis.

One perplexing consequence of on-selling invoices is that a collapse can be underway while everything seems rosy:

Thus the production of surplus-value, and with it the individual consumption of the capitalist, may increase, the entire process of reproduction may be in a flourishing condition, and yet a large part of the commodities may have entered into consumption only apparently, while in reality they may still remain unsold in the hands of dealers, may in fact still be lying in the market. Now one stream of commodities follows another, and finally it is discovered that the previous streams had been absorbed only apparently by consumption. The commodity-capitals compete with one another for a place in the market. Late-comers, to sell at all, sell at lower prices. The former streams have not yet been disposed of when payment for them fall due. Their owners must declare their insolvency or sell at any price to meet their obligations. This sale has nothing whatever to do with the actual state of the demand. It only concerns the demand for payment, the pressing necessity of transforming commodities into money. Then a crisis breaks out.[73]

Capitalists of every stamp now compete to swindle their way out of bankruptcy. They stampede to unload invoices at a discount in the hope of getting enough cash to hang on until the cycle picks up.

13. Bankers’ hoards
Drawing on our investigation so far, we can appreciate the fictitious nature of the banker’s hoards, which,

in countries of developed capitalist production, always express the average amount of money existing as a hoard … and a part of this hoard itself consists of paper, mere drafts on gold, which have no value of their own. The greater part of banker’s capital is therefore purely fictitious.[74]

Marx specifies three forms of fictitious capital held in a banker’s reserve funds, most of which

consists of claims (bills of exchange) and shares (drafts on future revenues). It should not be forgotten here that this capital’s money value … is completely fictitious even in so far as they are drafts on certain assured revenues (as with government securities).[75]

Each of the three components is fictitious in its own way. The first pair are caught up, again indirectly, in mechanisms to expand values while the third lives off taxes exacted from that process. For the moment, none is latent real capital because none is available ‘to be invested’ to add value. Any portion of them could be sold to release them for that purpose.

Despite the dreams of utopians, one can no more have capitalism without bankers than without money as the universal equivalent for labour-time. Indeed, bankers perform an essential role by assembling the funds for the expanded reproduction on which capital depends for its existence. Providing this service cannot separate productive capital from its fictitious shade. Later on, Marx observes: 

Even on the assumption that the form in which the loan capital exists is simply that of actual money, gold or silver … a large portion of this money capital is still necessarily always merely fictitious, i.e., a title to value, just like value tokens.[76]

Marx explores how bankers extend their services beyond holding fictitious capitals to how they go about adding to them.

The degree to which a banker’s hoard is fictitious is related to its liquidity, that is, the ratio of a bank’s reserves to its loans:

In as much as the Bank [of England] issues notes that are not backed by metal reserve in its values, it creates tokens of value that are not only means of circulation, but also form additional – even if fictitious (wenn auch fiktives) – capital for it, to the nominal value of these fiduciary notes.[77]

Engels explains that the

suspension of the Bank Act of 1844 permits the Bank to issue any quantity of bank-notes regardless of the gold reserve backing in its possession; thus, to create an arbitrary quantity of fictitious paper money-capital, and to use it for the purpose of making loans to banks, exchange brokers, and through them to commerce.[78]

By 1893, Engels had observed the sophistication of the stock exchange and banks during the twenty-five years since Marx had drafted his chapter on banking capital.[79]            

It is unheard of for banks to hold a quantity of gold to equal the quantity of their loans, that is, to operate on 100 percent liquidity. Capitalism could never have come into existence had they done so. This impossibility is a reminder that credit and several of the forms of fictitious capitals are essential to the expansion of real capital and are not always a drain on it. That contribution applies whether the credit is advanced by Westpac to a particular firm to expand its production or by the Reserve Bank to stimulate aggregate capital.

14. Non-monetary forms - ground-rent and slaves
The concept of ‘fictitious’, but not the term, appears in other sections of volume III. Marx re-introduces his criterion for fictitious capital as capitalised revenues in two surprising and incongruous contexts: ground-rent and the slave-trade. Both involve physical properties, not illusions or tokens. The first is land, whether for farms or mines. In the second, Marx focuses on chattel-slaves in the American South. Both, he says, depend on the capitalisation of a promised fixed income as rent:

The price of land is nothing but the capitalised and thus anticipated rent. If agriculture is pursued on a capitalist basis, so that the landowner simply receives the annual rent and the farmer pays nothing for the land besides this, it is obvious that the capital which the landowner himself invests in purchasing land … has nothing at all to do with the capital invested in agriculture itself. It forms part neither of the fixed capital functioning here nor of the circulating capital; it procures a title for the purchaser to receive the annual rent, but it has absolutely nothing to do with the production of this rent.[80]

The capitalised rent is fictitious capital because it is not engaged in adding values though it rests on their extraction. Marx spent 220 pages explaining how the mechanisms by which ground-rent is secured differ from other kinds of capitalised rent, though all are interest-bearing investment.[81]

Marx does find a parallel between ground-rent and government bonds, the form in which he had introduced fictitious capital 350 pages earlier:

The circumstance that the rent produced by a real investment of capital in this land is calculated by the new landowner as interest on capital which he has not invested in the land, but given away to acquire the lands, does not in the least alter the economic nature of the land factor, any more than the fact that someone has paid £1,000 for 3 percent Consols has anything to do with the capital from whose revenue the interest on the national debt is paid.[82]

What they have in common is their capitalised rates of interest.

Marx went straight from demolishing an ‘insane’ attempt by capitalists to represent wages as interest earned by workers on the investment of their labour-power to reminding those gentlemen that this subterfuge had a parallel in chattel-slavery where

the labourer has a capital-value, namely, his purchase price. And when he is hired out, the hirer must pay, in the first place, the interest on this purchase price and, in addition, replace the annual wear and tear on the capital.[83]

That the chattel form of slavery differs from wage-slavery is central to Marx’s analysis of capital. In the present discussion we also have to distinguish the chattel-slaves who work for their owners from those who are hired out. In every case, they are variable capital, that is, they produce more values than went into reproducing their capacity to add value. The purchase of a chattel-slave, like the acquisition of farm land, will return no rent unless profit has been realised on surplus value:

The fact that he has bought the slave does not enable him to exploit the slave without further ado. He is only able to do so when he invests some additional capital in the slave economy itself.[84]

Whether under chattel-slavery or wage-slavery, capitalised interest is fictitious capital because it is not adding value.[85]

When Marx discusses the place of a waterfall in manufacturing, he uncovers ‘a hidden, a real economic relationship’, which further illuminates his presentation of fictitious capital as capitalised rent:

The waterfall, like land in general, and like any natural force, has no value because it does not represent any materialised labour, and therefore, it has no price, which is normally no more than the expression of value in money terms. Where there is no value, there is also eo ipso nothing to be expressed in money. This price is nothing more than the capitalised rent. Landownership enables the landowner to appropriate the difference between the individual profit and average profit. The profit thus acquired, which is renewed every year, may be capitalised, and appears then as the price of the natural force itself.[86]

Monopoly power over a natural resource allows for the extraction of rent. Capitalised income results from a social relationship of class rule, whether over a gift of nature or the chattel-slave.

15. Ideology
In moving between the disparate properties of land and slaves, Marx reveals how the incomes from both are misconceived by their owners:

The fact that capitalised ground-rent appears as the price of value of land, so that land, therefore, is bought and sold like any other commodity, serves some apologists as a justification for landed property since the buyer pays an equivalent for it, the same as for other commodities …

The same reason in that case would also serve to justify slavery, since the returns from the labour of the slaves, whom the slave-holder has bought, merely represent the interest on the capital invested in this purchase. [87]

The landlords’ receipt of ground-rent as capitalised income is one fount of mystification:

The fact that it is only a title which a number of people have to property in the earth that enables them to appropriate a part of society’s surplus labour as tribute … is concealed by the fact that the capitalised rent … appears as the price of land, which can be bought and sold just like any other item of trade. For the buyer, therefore, his claim to rent does not appear as something obtained for nothing … but rather as the return for his equivalent. Rent seems to him … simply interest on the capital with which he has purchased the land, and with it the claim to rent.

The ideological response to the purchase of chattel-slaves is ‘exactly the same’ since

it appears to the slave-owner who has bought a Negro slave that his property in the Negro is created not by the institution of slavery as such but rather by the purchase and sale of this commodity.[88]

Here, bourgeois individualism disowns the social formation that gave it birth to pretend that there is only an exchange of cash for a thing, whether land or a chattel-slave. Marx reminds the Robinsonades that there was no slavery in Crusoe’s domain until Man Friday appeared.[89] No one is born a slave. People are born or forced into slavery.

Marx’s approach to interpreting class-based interpretations of the world has an added relevance to fictitious value. For a start, that sham will multiply illusions about the expansion of real capital:

All connection with the actual expansion process of capital is thus completely lost, and the conception of capital as something with automatic self-expansion properties is thereby strengthened.[90]

Confronted with the fictitious, the vulgar economists outdo each other in propagating the trite and the banal:

To derive a justification for the existence of ground-rent from its sale and purchase means in general to justify its existence by its existence. [91]

Through spotlighting such tautologies, Marx traces a decline from the peaks of classical political economy to the flatland of marginal-utility calculators:

The insanity of the capitalist mode of conception reaches its climax here, for instead of explaining the expansion of capital on the basis of the exploitation of labour-power, the matter is reversed and the productivity of labour is explained by attributing this mystical quality of interest-bearing capital to labour-power itself.[92]

The absurdities in the capitalists’ account of their own doings as the personifications of capital are made many times more ludicrous. The spread of fictitious values throughout capital expansion doubles the deceit that disguises the historical nature of class rule as if it were eternal and its social basis as natural as breathing: Luft macht eigen (the air makes the serf).[93]

Criticising the ideological dimension of fictitious is essential to penetrating its actualities:

As important as it may be for a scientific analysis of ground-rent …. to study it in its pure form free of all distorting and obfuscating irrelevancies, it is just as important for an understanding of the practical effects of landed property – even for a theoretical comprehension of a multitude of facts which contradict the concept and nature of ground-rent and yet appear as modes of existence of ground-rent – to learn the sources which give rise to such muddling in theory.[94]

Marx laid out why 

[t]he various forms of capital … thus approach step by step the form that they assume on the surface of society, in the action of different capitals upon one another, in competition, and in the ordinary consciousness of the agents of production themselves.[95]

In carrying his critique from the concept of the value to the surface of market- prices, Marx never abandoned the quest for the reality of the latter. Prices are on the surface but are not just an appearance. Similarly, fictitious capital is not confined to the surface of the circuits of capital but is intertwined with its expansion.[96] What has become ever more superficial are the distortions peddled in Schools of Business about every element in that synthesis. When catastrophe struck in 2007-08, the world was being run by people with PhDs proving that it could never happen.

GEARING UP
Despite the intricacies of our investigation, we have to accept that ‘fictitious capital’ is under-developed in Capital. That inchoate status invites us to apply the concept in ways not even sketched by Marx or Engels. At the same time, we must be on the alert lest the phrase entices us into mental  speculations that rival those by any stock-market jobber.

Since the preceding pages have rarely strayed beyond unraveling what Marx and Engels wrote, the remainder of the essay can be only a starting place for understanding how fictitious capital meshes with the expansion of real capital today. Four lines of inquiry will be introduced:

16. why has fictitious become central to debates?;

17. a quartet of current practices to which the concept might be extended:

i. accountancy;
ii. hedging;
iii. state expenditures;
iv. consumer credit.

18. to which other texts should a close reading be applied?;

19. why revolutionaries need textual analysis and theoretical interrogations, taking the example of China’s bubbleconomy.

The concluding pages open up these areas for dispute, with no suggestion that they are equally important, or more so than others unnamed.

16. Why central?
How is it that Marx’s scant notice to ‘fictitious’ is attracting so much interest? One reason is the conflation of ‘fictitious’ with every form of finance as in the on-line Marxist Glossary. This web of associations has spun out of a hope of incorporating the post-1980 explosion of financial instruments into Marx’s critique of political economy beyond the dispossession and exploitation at the heart of volume I.

As resolutely as we have to proceed with Marx beyond expropriation, we must keep sight of them when considering the fictitious. Without the anchors of wage-slavery surplus value, we will slide towards swindling as the explanation not only for fictitious capital but also for the expansion of real capital. Swindling is important in the redistribution of profits among capitalists but marginal to expropriating the surplus-value from which profits are realised and rents allocated. Vital as it is to attend to those Marxists who are on top of monetary systems and financial instruments (Hilferding, de Brunoff,[97] Bryan and Rafferty), one cannot be any kind of Marxist if one forgets that dispossession and exploitation are at the root of every upheaval.

17.  wider applications
To what more practices might we apply the concept of fictitious capital more than 120 years after the deaths of Marx and Engels? Articles on Google by Tony Blunden and Loren Goldner spend almost no time on the textual matters explored above, focusing instead on how the mechanisms of ‘fictitious’ contribute to the current crisis. Those innovations from financiers are far from exhausted in actuality just as investigations of their place in the current implosion are only getting under way. Our route into some twentieth-century expressions of ‘fictitious capital’ will be through four issues that have to be unstitched separately before they can be woven together and then sewn into the fabric of capital expansion.

i. cooking the books
Accountants and auditors conjure the mystery of fictitious capitals whenever they try to put a number on the valuation of items in company balance sheets:

- brands and good-will,[98] for instance, the closure of the News of the World puts a question mark over the values attributed to all mastheads, indeed, of all intangible assets;
- shares in companies that have never earned a cent let alone turned a profit, as prevailed throughout the dot.com. boom;[99]
- enter plant and production goods at historical cost or at replacement cost?[100]

This trio offers opportunities for cooking the books. Buffett accuses creative accountants of ‘drawing the bulls-eye around the arrow’.[101] (see Missile on ‘Adding MacValue’) Accountants for Mass Murdoch provided iconic instances of ‘now-you-see-it/now-you-don’t’ when, to avoid tax, one News Ltd subsidiary in 1996 had a capital of $190 but carried debts of $4.16bn while being owed $2.95bn by other subsidiaries.[102]

Even in combination, these three book-keeping twisters are as nothing compared with the challenge that neo-Classical economists face over the distribution of income between ‘profits’ and wages when they try to reckon ‘capital’ in the same unit as they measure the others. Their brightest and best spent decades trying to evade this circularity before deciding that silence was the safest defence for their ‘logically insecure’ treatment, a censorship which they have perpetrated on generations of unergraduates. Marxists know that the distribution of income is decided by the balance of class forces.[103] In the sense that capital-within-capitalism  is a power relationship, all its economic guises might be deemed fictional.

ii. Hedging  
The hedging of shares began in 1949 when a writer for Fortune, Alfred Winslow Jones, ‘sold short’, that is, he bet $60,000 against stocks that he thought overpriced. Today, 10,000 funds manage two trillion.[104]

Hedging is also an insurance which allows the manufacturer to buy an input in advance of purchase to avoid price hikes or, at least, to be certain of forward production costs. QANTAS did well by its forward purchases of aviation fuels. Managers also hedge on the costs of the money-capital they borrow from bankers’ hoards, thereby betting on shifts in the rate of interest for loans and overdrafts. This hedging facilitates the expansion of individual capitals, and perhaps of aggregate capital, if it accelerates turnover times.[105]

The hedging of commodity prices paved the expressway to hedging the price of the foreign currencies in which firms pay their bills. This variant spread following the abandonment of the dollar standard in 1971 to be expedited after currencies were floated in the 1980s. The change was phenomenal. In 1985, the daily turnover of futures contracts in Australia was $100m. By 1999, it was seventy times as large, or $7 billion. If we add the futures market to the share, foreign exchange and money markets, the total trades here hit $50,000,000,000,000, i.e., fifty trillion. Speculators entered the money markets to bet on the direction in which exchange rates would go. George Soros sucked in billions as governments tried to prop up their currencies. As Europe spirals downward, its governments and banks strain and squabble to re-regulate global finances after they had conspired with gamblers to trash their copies of Hoyle.[106]

Hedging is another zero-sum game. It cannot add value, but redistributes it. Founder of Bridgewater Associates Ray Dalio says of his recently launched fund, Pure Alpha Major Markets: ‘In order to earn more than the market return, you have to take money from somebody else’.[107] Dalio, of course, cannot see that the losers had already taken their money out of the surplus value produced by wage-slaves.

iii. State expenditures
In 1987, James O’Connor drew on his The Fiscal Crisis of the State from 1974 to spotlight the creation of ‘state credit money to realise fictitious capital (as well as fictitious values which may not otherwise be realised)’.[108] Recent examples are the Quantitative Easings whereby the US Federal Reserve has twice put funds into circulation by buying its government bonds. These interventions came after seventy years of juggling ‘state credit money’ known as welfare and warfare Keynesianism.

J M Keynes pointed out in 1936 that capitalists would sometimes hoard their money in the hope of a speculative gain. Meanwhile, investment stagnated. To break out of what he called this ‘liquidity trap’ he recommended that governments spend more than they collect. He advocated ‘digging holes before filling them in again’ since this apparently wasteful expenditure produced a ripple-out effect (the multiplier) from each dollar added to the budget. Demand created supply.[109] However, he was no less adamant that when an economy was booming, the government should reduce its outlays.[110] If it does not, the upshot will be that, as O’Connor explains,

credit money and fictitious capital tend to grow more rapidly than real capital, thus producing a twofold realisation problem – the realisation of fictitious values as well as values in the commodity form.[111]

Instead of pulling back during booms, politicians and social reformers inflated Keynes’s adjustment mechanism into a machine for perpetuating growth in government spending. The budgets of OECD economies lurched towards the Peak Debt that is now helping to cripple accumulation.

iv. Demand management: effective yet fictitious
As a universal human right, consumer indebtedness is a recent entrant to the demesne of the fictitious just as credit cards act a novel counter to the tendential law of the rate of profit to fall (TLRPF).[112] The post-war expansion of capital in the metropolitan nation-market-states has pirouetted on mass marketing to absorb over-production. Consumer credit supplies an advance on wages to bridge some of the gap between them and the total value of commodities. In this way, more of the surplus-value embodied in them has been realised as profit. The creation of fictitious wages compounds the difficulty of keeping the supply of and demand for consumer goods (Marx’s Department II) in step with those for production goods such as machine tools. (Department I).[113]

Consumer credit from the 1950s installed a fictitious yet effective demand.[114] Its continuation is as essential to expansion, as its unchecked growth is perilous. Increases in household debt have been staving off crises in over-production ever since capital escaped from the deflationary cycle of the 1930s by warfare spending. By the 1990s, consumer debt in the US imperium took over from the military-industry-academic-congressional complex as the prime counter-tendency to the TLRPTF. US outlays on the armed services fell from 52 percent of Federal spending in 1960 to 16 percent in 2001, and from 9.3 percent of Gross Domestic Product to below 3 percent, rising to just over 4 percent in 2003.[115] Over those forty years, the number of weeks’ income after tax needed for the average household to pay off its debts went from thirty to fifty-two.

Household debt underpins mass marketing, or what Baran and Sweezy discussed as ‘the Sales Effort’,[116] in which advertising is merely front of house for the empire of mass marketing. That process begins with the design of products for inculcating what its apologists pretend are our latent needs.[117] Remortgaging the family home became another device for absorbing over-production until – as Brenner put it - the house became an ATM.[118] Superannuation intended for retirement was turned into collateral for more consumption now. At each barrier to the realisation of surplus-value, the merchants of debt pushed further down the yellow-brick road until they were forcing sub-prime loans on people with zero credit-ratings. The crisis of 2007-08 spun out of this sales effort to deal with excess capacity.[119]

The connections between state expenditures, consumer credit, fictitious capital and input-output flows await a fuller analysis.[120] We need to chart the shifts in levels of debt between the state sector, the corporates and households, and track the shifts in their incidence between nation-market-states. Japan, for instance, has high levels of personal savings but the world’s third worst debt to GDP ratio.

18. Other texts
I had hoped to survey ‘fictitious’ in Rudolf Hilferding’s Finanzkapital (1910)[121] and the writings David Harvey. Other commitments prevent my completing this aspect at the moment. The reasons for wanting to do so are, first, to see how those authors found ways of extending Marx’s concept of fictitious to developments in capital expansion since the 1860s, and, secondly, to identify any misunderstandings that have seeped from their writings. For instance, Harvey’s concern with real-estate, secondary circuits of capital and capital-switching has encouraged others to detach their analyses of fictitious capital from the production of surplus value.[122]

19. why bother?
Landed with this 12,500-word assay with its 138 footnotes, a revolutionary is entitled to ask: why tinker with a translator’s choice of words? Part of the answer is that although one need not be fluent in German (as I am not) to benefit from Marx and Engels, no interpretation should be constructed around a translated word or phrase before cross-checking its original, as illustrated in footnote 25 about Marx’s use of fiktiv. Far more importantly, he altered his vocabulary to capture conceptual breakthroughs, most notably, his greatest discovery, namely, that wage-slaves sell timed units of their labour-power, not their labour.[123]

Moreover, interpreting the phrase ‘fictitious capital’ is a tiny part of interpreting the world in order to change it. Getting the meaning of ‘fictitious’ wrong leads activists away from the exploitation of labour-power into moralising about greed and thus onto missteps in political practice.

Changes that benefit working people will never come without the yakka of interpretation. One is not possible without the other. Mindless militants incant Marx’s ‘Thesis Eleven’: ‘The philosophers have only interpreted the world in various ways; the point is to change it’. Those choristers remain deaf to the historical materialism at the opening of The German Ideology that makes sense of the scraps masquerading as ‘Theses’.[124] (See Missile on ‘Thesis Eleven’)

Were Marxists to confine our contributions to the class struggle to exegesis, the dismissal of interpretation would apply. However, conceptual investigation, agitational writings and political practice form a loop in which each element nourishes the others to strengthen the proletariat, as demonstrated in the revolutionary lives of Marx, Engels, Lenin[125] and Mao[126].

Chinese brass

One instance of how a keener understanding of ‘fictitious’ has helped me is in summarising the weaknesses that the Chinese authorities acknowledge run through their economy, where the ‘fictitious’ gathers together statistical fraud, an under-valued currency, real-estate bubbles, bad debts, inflation and escalating bank liquidity. (see ‘Chinese Crackers’ and ‘China Update’ on surplusvalue.org.au) The great disorder under heaven from the boom set off by the 2009 stimulus package required Beijing in June 2011 to buy up $US463 billion in bad debts to banks from local governments. That bailout was half as big again proportionately as the 2008 one in the US.[127] In addition, Moody’s estimated that local governments still had undisclosed debts of $540bn that the central authorities considered not to be real claims because they were ‘poorly documented’.[128]

At the same time, the State Council tried to control inflation and the property bubble by driving the reserve requirements on banks over 22 percent before the end of 2010-11 financial year. Not surprisingly, bank lending shrank by 12 percent year on year to mid-2011 while the money supply (M2) grew by only 15 percent.[129] Nonetheless, investment in the property sector increased by 35 percent.[130] How did developers squeeze so much more money-capital out of somewhat less? One answer is that they used copper, aluminum and even steel as if they were gold bars in Fort Knox. Financiers found a way around the controls on liquidity, as is their wont, until

inventory financing has become so common that one Standard Chartered report suggested that copper could be rebranded as a form of collateral for loans rather than a commodity. Borrowing copper and converting it into cash can be cheaper than traditional borrowing.

It seems Chinese importers are paying the terms of letters of credit. They can buy, for example, a tonne of copper at $10,000, obtain a letter of credit from a bank by paying 20 percent, sell the copper – either domestically or by re-reporting it – and invest in high-yield assets, such as the property market, then pay off the letter of credit when the term is up, typically after 90 or 180 days.[131]

This method of securing funds poses hard questions about which of the forms taken by the capital during this metamorphosing are fictitious and which real. A store of copper is not real just because it is in metal bars, yet becomes real when it funds construction from which surplus value will be extracted. However, at least some of the valuation that the owners will put on those blocks of units and offices will prove fictitious until they can be rented at returns that bring an average rate of profit, which is not easy in the current over-supply.

20. Dialectical reasoning
‘Fictitious capital’ is not a label to be stuck on blatant instances of fraud. Were it so easy! Rather, the case of China’s non-precious metals is underlines how ‘arduous’ interpretation must be, for as Marx reminds us:

There is no royal road to science, and only those who do not dread the fatiguing climb of its steep paths have a chance of gaining its luminous summits.[132]

My contribution towards clarifying ‘fictitious capital’ has been scholastic so that others need not start from base camp; the footnotes will allow them to check my reading and correct my version.

Above all, only by remaining attentive to how the current crisis plays out will any interpretation be put to the test of practice, the test that alone can identify errors of interpretation - whether of original intent, conceptual developments, new fictitious forms, or our political responses. The lessons from practice will not deprive us of the chance to make new mistakes. Hence, we should heed the advice of Engels on the gap between relative and absolute knowledge:

Here once again we find the same contradiction as we found above, between the character of human thought, necessarily conceived as absolute, and its reality in individual human beings with their extremely limited thought. This is a contradiction which can only be solved in the infinite progression, or what is for us, at least from a practical standpoint, the endless succession of generations of mankind. In this sense human thought is just as much sovereign as not sovereign, and its capacity for knowledge just as much unlimited as limited. It is sovereign and unlimited in its disposition, its vocation, its possibilities and its historical goal; it is not sovereign and it is limited in its individual expression and in its realisation at each particular moment.[133]

Advances within this asymptotic accumulation of understanding are marked also by zigs and zags.

Similar twists apply to the application of even our most advanced understanding to the natural world and to the social domain, as Engels warned:

Each victory, it is true, in the first place brings about the results we expected, but in the second and third places it has quite different, unforeseen effects which only too often cancel the first.[134]

That catch is also true for capital. Marx and Engels in 1848 saw that the success that its agents have in surmounting each crisis is ‘paving the way for more extensive and more destructive crises, and by diminishing the means whereby crises are prevented’.[135] However, capital is yet to encounter a limit which some of its lieutenants could not overcome. In the process of survival, every success has compounded some other problem until a long wave of adding to excess capacity has left fewer outlets through which capital can expand. Each rescue package to settle this or that manifestation of the present crisis in the accumulation of capital has failed in the medium term. Few nation-market-states can afford to repeat the stimulus packages of 2008-09. Australia will remain exceptional until a collapse everywhere else again shrinks China’s exports and thereby slashes sales of and prices for our dirt, provoking a budget crisis.

In dealing with this trajectory of chaotic competitiveness, the personifications of capital cannot shed their ideological blinkers about why it needs to expand, what is real and what fictitious, and how income is distributed. Protagonists of the proletariat still have a chance to learn the laws of capital expansion and thus how better to react against them.[136] If not, the catastrophe will not end ‘in a revolutionary reconstruction of society at large’, but ‘in the common ruin of the contending classes’.[137]