Friday, 19 December 2014

Fictitious Capital - Part 3

Considering the circuit of capital, as M – C... P... C' – M', the three forms of industrial capital are identifiable. Money-capital exists as M, which is transformed into the commodities which comprise the productive-capital, P, which is transformed into commodity-capital, C', which again is transformed into money-capital. But, the interest bearing-capital exists outside this circuit. This interest bearing capital exists as a sum of money-capital, which is not used to buy productive-capital, but which is instead loaned to a productive-capitalist, who requires to employ its use value. The fictitious nature of this capital arises because although it seems to possess the capacity of all capital to self-expand, because it is only loaned if it attracts interest, in reality, it has no such power. It is only able to attract interest, because real capital does self-expand, and produces profits.

The circuit of this interest bearing capital appears as simply M – M', so that it is loaned out, and appears to miraculously return as a greater sum, enhanced by the interest, like Jack's magic beans. But, in reality, it is M – M – C... P … C' – M' – M+i. The fact that this capital is fictitious is evidenced by the fact that the interest-bearing capital that is loaned at the start of this circuit is not an additional separate capital, from the money-capital, which is used to purchase productive-capital, but is the same capital that simply functions twice, once in the hands of the money lending capitalist, and once in the hands of the productive-capitalist who borrows it.

Yet, it is precisely from this that fictitious capital takes on its appearance as capital, and consequently gives the appearance that one and the same capital has multiplied itself not just once, but several times over! By giving the appearance that capital has been increased, it gives the illusion that wealth itself has increased, even though usually the opposite is the case, because the expansion of this fictitious capital goes along with an expansion of debt.

When A lends the lathe with a value of £10,000 to productive-capitalist B, the only capital in existence is £10,000, in the shape of the lathe, which participates in the production process, and thereby obtains its share of total surplus value, equal to £1,000 of profits. But, in return for the loan of this £10,000 of capital-value, A obtains a loan certificate, indicating that B owes them £10,000 plus interest. For A, this certificate appears as capital, and wealth for two reasons. Firstly, it appears as capital because as a result of earning interest, it appears to self expand its value, and secondly, it appears both as capital and wealth, because this certificate can itself be used as collateral. On the basis of the ownership of this certificate, A could borrow against it, to themselves obtain a loan of £10,000, for example.

It appears, therefore, that £20,000 of capital exists - £10,000 in the shape of the machine, and £10,000 in the shape of this loan certificate - where before only £10,000 existed, in the shape of the machine. Yet, the reality is that only £10,000 of capital exists here, in the shape of the machine as productive-capital. If B used the machine borrowed from A only to produce use values required for their own consumption, the machine would act only as a machine, and not as capital. It would produce no surplus value. All that B could give back to A would be the machine itself. They would have generated no surplus value out of which to give A any interest.

Similarly, if B borrowed £10,000 from A, rather than a machine, and simply used this money to cover their purchase of means of consumption, no surplus value would be created. In fact, because they would have consumed the commodities bought with that £10,000, they would not even be able to repay the original capital sum to A, let alone any interest. There is nothing specific about the £10,000, as a loan, therefore, which enables it to self-expand its value. Interest is not some inherent characteristic of loanable capital.

The interest is only payable, if the loaned capital is used as actual real capital, as productive-capital, which generates surplus value. If A decides to liquidate the loan of the machine, that would require that B hand it over to them. But, as simply a return of the machine, all it provides for A, is then its original value, without any interest. Moreover, having had the machine returned to them, the fictitious capital itself disappears. If B is no longer in possession of the machine, A must similarly scrap the loan note raised upon it. It is then clear that this loan note did not represent real capital, and that the only real capital in existence was that represented by the machine.

If A wants to obtain the interest they would have received on the loan of the machine, the only way they can now do this is by becoming a productive-capitalist themselves. They must put the machine to work as capital, and thereby create a surplus value. They can then obtain the interest out of this surplus value, just as previously B would have paid the interest to A, and would have retained the rest of the surplus value themselves, as a profit of enterprise. But, again, it is clear here that the only capital that actually exists, is the £10,000 of productive capital in the form of the machine.

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