[Marxism] Fictitious capital

["Anthony Boynton" <anthony.boynton@xxxxxxxxx>]

Here is a good introduction to the idea of fictitious capital, and its
relation to real capital from http://www.marxists.org/glossary/terms/f/i.htm


Fictitious Capital

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

If a capitalist forces a hundred workers to work ten hours a week unpaid for
a year, and succeeds in selling the product of their labour at its value,
then he has secured for himself a definite quantity of the product of their
labour, in the form of
capital<http://www.marxists.org/glossary/terms/c/a.htm#capital>.
In the normal course of affairs, he would exchange his money-capital for
commodities and restart the cycle of reproduction with the aim of
accumulating more capital.

*On the other hand* though, let us suppose that he now wants to retire, and
instead of putting his money-capital back into commodities, he *invests* it
in the bank. He now holds in his hands a *claim* to capital, perhaps in the
form of a bank-account, or a bond, shares or whatever, rather than capital
as such.

Now if his money lies idle in the bank vault, just the same as if it lay in
his own vault, his claim is to money is secure. However neither his claim
nor the money itself are *capital* as such and can earn no interest, because
the money is not in circulation.

In order to expand itself, in order to be capital, money must circulate, it
must again employ labour-power and again realise itself in expanded value.
So, in order to pay interest to our retired industrialist, the bank must *
loan* his capital to another industrialist. So long as one and the same sum
of money is loaned only once, then all that we have is *claims
upon*really-existing capital. The industrialist who has borrowed the
money must
service the loan, i.e., pay interest, out of the profits he makes.

However, as the class of speculators, bankers, brokers, financiers, and so
on, grows, as is inevitably the case wherever the mass of capital in a
country reaches a sufficient scale, what happens is, for example, the bank
finds that it is able to loan out *far more* than it has deposited in its
vaults; speculators can sell products that they do not possess, "the right
kind of person" is good for
credit<http://www.marxists.org/glossary/terms/c/r.htm#credit>even when
they have nothing, .etc., etc. Thus one and the same unit of
productive capital may have to support not just the one retired
industrialist who deposited his savings with the bank, but *multiple* claims
on one and the same capital.

If the bank accepts one million from our retiree, but loans out ten
millions, each of those ten millions has *equal* claim to that same value.
This is how *ficitious capital* comes about.

To put it another way, the hundred workers who were able to create the
original value by a year's worth of their surplus
labour<http://www.marxists.org/glossary/terms/n/e.htm#necessary-labour>time,
can now find
*ten* units of capital all, by one means or another, claiming a share of the
same surplus.

The ability of the bank to make unsecured loans is dependent on
"confidence", and at times of expansion and boom, the mass of *fictitious
capital* grows rapidly. Then, when the period of contraction arrives, and
the workers can no longer feed the voracious appetites of all these
capitals, the bank finds itself under pressure and calls in its loans,
defaults occur, bankruptcies, closures, share prices fall, and things fall
back to reality – fictitious value is wiped out.

In times of recession, even good, useful commodities cannot be sold because
money and credit has become scarce, and the commodities prove to be
valueless.

*Fictitious capital is that proportion of capital which cannot be
simultaneously converted into existing
*use-values<http://www.marxists.org/glossary/terms/u/s.htm#use-value>.
It is an *invention* which is absolutely necessary for the growth of real
capital, it constitutes the symbol of confidence in the future. It is a
necessary but costly fiction, and sooner or later it crashes to earth.

Marx did not fully elaborate his views on
credit<http://www.marxists.org/glossary/terms/c/r.htm#credit>and
fictitious capital before his death. What he had written on the
subject
is presented by Engels in Volume III of *Capital*, particularly Part V. For
example:

"... a large portion of this money-capital is always necessarily purely
fictitious, that is, a title to value – just as paper money. In so far as
money functions in the circuit of capital, it constitutes indeed, for a
moment, money-capital; ... it exists only in the form of claims to capital.
With the assumption made, the accumulation of these claims arises from
actual accumulation, that is, from the transformation of the value of
commodity-capital, etc., into money; but nevertheless the accumulation of
these claims or titles as such differs from the actual accumulation from
which it arises ....

"*Prima facie* loan capital always exists in the form of money, later as a
claim to money, since the money in which it originally exists is now in the
hands of the borrower in actual money-form. For the lender it has been
transformed into a claim to money, into a title of ownership. The same mass
of actual money can, therefore, represent very different masses of
money-capital. ... With the growth of material wealth the class of
money-capitalists grows; on the one hand, the number and the wealth of
retiring capitalists, rentiers, increases; and on the other hand, the
development of the credit system is promoted, thereby increasing the number
of bankers, money-lenders, financiers, etc. With the development of the
available money-capital, the quantity of interest-bearing paper, government
securities, stocks, etc., also grows as we have previously shown. However,
at the same time the demand for available money-capital also grows, the
jobbers, who speculate with this paper, playing a prominent role on the
money-market. If all the purchases and sales of this paper were only an
expression of actual investments of capital, it would be correct to say that
they could have no influence on the demand for loan capital, since when A
sells his paper, he draws exactly as much money as B puts into the paper.
But even if the paper itself exists though not the capital (at least not as
money-capital) originally represented by it, it always creates *pro tanto *a
new demand for such money-capital.." [*Capital* Volume III, Chapter
32<http://www.marxists.org/archive/marx/works/1894-c3/ch32.htm>
]

Throughout its history, capitalism has experienced its business
cycles<http://www.marxists.org/glossary/terms/b/u.htm#business-cycle>.
Roughly every ten years, the mass of fictitious capital grows while trade is
good, and then, as the capacity of the workers to sustain the mass of
hangers on reaches its limits, the downturn gathers momentum and fictitious
capital is wiped out, and the cycle begins again.

The scale of these
crises<http://www.marxists.org/glossary/terms/c/r.htm#crisis-capitalism>grew
continuously until the Wall
Street Crash <http://www.marxists.org/glossary/events/w/a.htm#wall-st-crash>of
1929, and the Great
Depression <http://www.marxists.org/glossary/events/d/e.htm#depression> of
the 1930s. The Depression and the War which followed wiped out all the
accumulated mass of capital so that a new cycle of reconstruction could
begin again in 1945. The New
Deal<http://www.marxists.org/glossary/events/n/e.htm#new-deal>in the
US,
Keynesian<http://www.marxists.org/glossary/people/k/e.htm#keynes-john-maynard>economic
policies and particularly the international monetary arrangements
set up at the Bretton Woods
Conference<http://www.marxists.org/glossary/events/b/r.htm#bretton-woods>of
July 1944, created conditions for an exceptionally long period of
growth
after the War.

The particular mechanism for the creation of an unprecedented mass of
fictitious value in this period was the role assigned to the US dollar as
the medium of international exchange in lieu of gold. Under the
Mashall Plan<http://www.marxists.org/glossary/events/m/a.htm#marshall-plan>,
Europe was rebuilt and the US capitalist class further enriched by the
labour of all those workers who did the rebuilding. But capital could not
organise that reconstruction other than by creating a new mass of fictitious
capital, in the form of inconvertible dollars.

By the *mid-1960s* this mass of fictitious capital began to collapse, and
world entered a prolonged period of crisis. The mass of fictitious capital
circulating in the money markets, futures exchanges and so on today is,
however, far *greater *than ever before. 98% of the value of monetary
transactions in the world are speculative, only 2% involve actual
use-values.

Capital continues to exist by means of the delicate balancing act performed
by all the governments and banks of the major capitalist countries, staving
off the collapse of this gigantic and parasitic fantasy.



Field

Pirerre Bourdieu adapted the notion of "field" from physics to surpass
sociological theories that endeavoured to theorise the activity in
institutions and social settings simply in terms of interactions between
individual actors. The idea of the field is that there is some entity which
everyone in the field is striving to attain, such as status, money, power,
reputation, or whatever, within a particular material culture, and that the
actions and relations between individuals can be understood in terms of this
striving. Thus different individuals who may not know each other and never
interact with one another, but by contributing to the development of the
material culture and acquiring positions in or portions of the relevant
"cultural capital," nevertheless compete or collaborate with one and
another. The concept is now widely used in sociology.

See Classes and
Classifications<http://www.marxists.org/reference/subject/philosophy/works/fr/bourdieu.htm>,
by Pierre Bourdieu.

The market <http://www.marxists.org/glossary/terms/m/a.htm#market> is an
example of a field where economic agents compete for profits and market
share, as would be the education system where student endeavour to acquire
educational certificates and academics compete for status and 'citations'.

See also Arena <http://www.marxists.org/glossary/terms/a/r.htm#arena>,
Community <http://www.marxists.org/glossary/terms/c/o.htm#community>,
Forum<http://www.marxists.org/glossary/terms/f/o.htm#forum>,
Party <http://www.marxists.org/glossary/terms/p/o.htm#political-party> and
Network <http://www.marxists.org/glossary/terms/n/e.htm#network>.



Finite & Infinite

Finite and Infinite are terms used in mathematics and philosophy concerned
with the boundedness or exhaustibility of a thing. Finite means having
limits <http://www.marxists.org/glossary/terms/l/i.htm#limit>, or in
mathematics 'countable'. Infinite means being without limits or
'uncountable'. However, as soon as we put a limit around something and
declare it to be finite, we simultaneously define its *other* which is
infinite, and a thing can only be deemed uncountable on the basis of a
conception of it as composed of finite parts.
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