Fictitious Capital - Part 2

Under capitalism, each individual capital shares in the total surplus value produced, not on the basis of the surplus value it produces itself, but on a proportionate basis to its share of the total social capital. This is the consequence of market prices being based not upon exchange values, as in pre-capitalist commodity production and exchange, but on the basis of prices of production. As a result, a merchant capitalist does not produce any surplus value, but they obtain a share of the total surplus value produced in society, because this capital, like every other capital, obtains the average rate of profit. The same is true of money-dealing capital, which is only a form of merchant capital.  Money dealing capital, as Marx sets out only performs the same functions as do the commercial workers employed by productive-capital.  They carry out the function of keeping accounts of transactions, they make payments and take in receipts.  The specialist firms that become established to carry out these functions, obtain profits in the same way as any other merchant capital, i.e. because they are capital, they charge a price for carrying out this function, which is paid by the productive-capitalist, because the specialist firm performs this function at lower cost.

But, this is quite different when it comes to money-lending capital, interest-bearing capital, as opposed to money-dealing capital. The difference is often overlooked, because it becomes natural for the money-dealing capitalists to also become money-lending capitalists, and also because money-lending capitalists can only lend money via the medium of the money-dealing capitalist. Banks for example, act as money-dealing capitalists by processing payments through the clearing of cheques. They make profits on this activity as merchant capital, by charging for carrying out the function, but they also take in deposits from lenders, and make loans to borrowers.  In this latter function, they become a centralised representative of interest-bearing capital.  Productive-capital, commodity-capital, and money-capital are all forms of capital-value within the context of the circuit of industrial capital, and each obtains the average profit on that basis. Interest-bearing capital, exists outside that circuit. It does not, therefore, obtain the average profit. It is not in reality capital, but only fictitious capital. What it obtains is not a profit, but only a price for the commodity it sells, and that commodity is capital itself, or more precisely the use value of capital, the ability to self-expand.

In this respect, interest-bearing capital, capital as a commodity, is like labour-power. Both are commodities that are sold in the market, and whose price is a price based upon the use value they provide, the use-value of self-expanding value. It is based on that use value, in the sense that nothing can be a commodity and have a price unless it provides some form of use value.  Labour-power provides this use value, because it creates new value that is greater than the value of the labour-power itself. But, because all capital obtains a share in the total surplus value, all capital possesses the use value of being able to self-expand in value. A capitalist who owns a machine, and uses it to process material, to make commodities, even if they employ no labour-power whatsoever, and so produces no surplus value, will still see the value of their capital self-expand, i.e. they will make profits, solely because, as capital, it shares in the total surplus value produced, and they will obtain this share as profits, because of the price of production of the commodities they sell.

Anyone who possesses capital, therefore, possesses the ability to participate in the sharing out of the total surplus value of the society. And, for anyone who does not possess capital, but who seeks it, in order to obtain this use value, of being self-expanding value, there is a price to pay. Suppose, I am an engineer, but I do not own a lathe. I cannot then undertake production so as to be able to produce a commodity to sell, and thereby share in the total surplus value. However, if A owns a lathe, they may be prepared to loan this machine to me. I can then use it to process materials, produce commodities, and thereby make profits. What I pay for, in interest, is not a price for use of the machine as a machine, but a price for use of the machine as capital.

If the value of the machine is £10,000, and the average rate of profit is 10%, then, assuming I sell my output at its price of production, this £10,000 of capital, represented by the machine, will bring me £1,000 of profit. That is its use value, as capital. But, A, will not sell this use value to me for nothing. They will seek to obtain a price for this use value. Clearly, that price cannot be equal to the value of the machine itself, of £10,000, because, if I had £10,000 of money-capital, I would have simply bought the machine, rather than needing to loan it. Moreover, if A had paid £10,000 for the machine, they would make nothing from loaning it to me, for a total payment of £10,000, over its lifetime. By loaning it to me, they are standing out of being able to use it as capital, and make 10% profit themselves.

The use value of the lathe, as a machine, is a function of its ability to process metal. But, the use value of the lathe as capital, is its ability to self-expand in value. The value of the machine is determined by the labour-time required for its production. But, the machine, as capital, as an ability to self-expand value, has no value, because it is not the product of labour. Like land, which also has no value, because it is not the product of labour, however, it is a use value, a commodity, which is bought and sold, and which, therefore, has a market price.

I am not buying the use value of the machine, which is represented by its value of £10,000, I am only buying the use value of the machine as capital, as something which has the ability to expand value, by obtaining a proportionate share of total social surplus value. Where the price of every other commodity revolves around its exchange value, and under capitalism its price of production, therefore, determined ultimately by its value, the price of capital, like the price of land can have no such locus, because it has no such value. The market price of capital as a commodity, like the price of land, is determined solely by the interaction of supply and demand, but is then regulated by an upper and lower limit.  That market price for the use value of land is rent, and for capital is the rate rate of interest.

As Marx makes clear, therefore, in describing the rate of interest, as the price of loanable capital, this loanable capital is defined in money terms, because, in order to make rational calculations, all capital value must be expressed in money, as unit of account, but it can relate just as easily to capital loaned in the form of machines, material and so on. The lower limit for the price of capital is zero, because no one will make available the use value of capital without demanding a price for it. The upper limit is determined, by the rate of profit, because no one will borrow capital if the price for doing so is greater than the return on that capital.

Back To Part 1

Forward To Part 3