Capital Volume II: Class 7

Readings: Capital III, ch. 36, 27-32

I have yet to find a place in Volume III where Marx explicitly defines fictitious capital. This may be a result of the unfinished nature of Part Five of this volume, or an oversight on my part. The closest I have found is his reference to fictitious capital as interest-bearing paper at the end of chapter 30 (page 625). He also refers often to ownership titles, like stocks and bonds, as fictitious capital. What is the relationship of fictitious capital to the other forms of capital and to the capitalist production process as a whole?

It seems to me that fictitious capital is the fourth form of capital alongside money capital, commodity capital and productive capital. Together these four forms of capital constitute the entire capital in society. When Marx applied his earlier limited framework that excluded the credit system (in Volume II), he had looked only at the capital that correlates with real existing value, i.e. value produced by human labor. When considering the credit system, we see that there is actually more capital in the economy than just that which correlates to existing value. This is fictitious capital because it does not contain value.

Ownership titles like stocks, bonds and other assets are commodified, which generates the same illusions that characterize all commodities—they are seen as having a value that is separate from their underlying social conditions. While the prices of the products of human labor tend to fluctuate around their labor-derived values, the prices of ownership titles have a purely fabricated value that is determined by capitalization. “Their market values receive a determination differing from their nominal values, without any change in the value of the actual capital (even if its valorization does change)… [A security’s] value is always simply the capitalized yield, i.e. the yield as reckoned on an illusory capital at the existing rate of interest.” (598)

How is fictitious capital valued in bourgeois economics? “The formation of fictitious capital is known as capitalization. Any regular periodic income can be capitalized by reckoning it up, on the basis of the average rate of interest, as the sum that a capital lent out at this interest rate would yield.” (597) Interest rates and yields become the means by which a financial analyst can determine the “value” (really the price) of a piece of fictitious capital. The obvious example is U.S. Treasury Bonds, whose interest rates vary in inverse relation to the values of the underlying bonds.

This is ABC to any financial analyst, so what is Marx’s critique? Fictitious capital is the highest form of the commodity fetish. From an ideological perspective, fictitious capital is the ultimate illusion that money instead of labor creates value. It is a way for the capitalist class to centralize and hide its power over the working class, and what Marx ultimately hates about capitalism is the domination that the capitalist class exercises over the working class. Finance centralizes that power even more than primitive capitalism. The reality points to Lenin’s notion of imperialism, the highest stage of capitalism.

The modern credit system channels and centralizes class power through finance in many forms. One identified by Marx is the joint-stock company, forerunner of the corporation. He writes, “Capital, which is inherently based on a social mode of production and presupposes a social concentration of means of production and labour-power, now receives the form of social capital (capital of directly associated individuals) in contrast to private capital, and its enterprises appear as social enterprises as opposed to private ones. This is the abolition of capital as private property within the confines of the capitalist mode of production itself.” (567)

While Marx’s analysis of the joint-stock company is dialectical, indicating that it is pregnant with the potential to socialize property ownership, he recognizes that under capitalist relations of production, it concentrates class domination. Large amounts of capital are raised from many people, but the capital is centralized under the control of the board of directors. This returns us to Marx’s analysis in chapter 25 of Volume I, where he lays out the ultimate logic of capitalist competition. As certain capitalists win and others lose, the winners destroy or buy out the losers, which leads to greater and greater centralization of power. This inner logic of capitalism is simply augmented by the modern credit system, which pools all the available money capital of the capitalist class to augment it. The subjective driving force animating the individual capitalists involved in this project of class domination is greater social power through money accumulation.

The division of control over the enterprise between functioning capitalists and rentiers leads to the formation of a new “financial aristocracy,” the rise to power of those who gain wealth and sustain their existence from simply owning capital and not necessarily doing anything, i.e. neither doing labor nor exploiting labor. So the people who have power in this system control a vastly larger amount of capital than before because finance allows them to centralize it.