Fictitious Capital - Part 5

Marx, in Capital III, argues that money borrowed by the state, for the purpose of building dams and so on, does not go to purchase productive-capital, because a dam, for example, cannot be repossessed by the lender, and because this dam is not capital used productively for the purpose of creating surplus value. I would dispute this argument. I would argue that all social capital, to the extent it is necessary for social production, and not just a necessary cost, just like all social labour, participates in the production of total surplus value, even if the particular capital is not employed to directly produce surplus value.

However, this aside, as Marx says, such state bonds, as with any other bonds, are not themselves capital, but only fictitious capital. The interest paid on them is only a reflection of the fact that they represent a claim on the future tax revenues of the state. In this respect, they are different, and doubly fictitious compared to the bonds issued by companies, to raise funds for the purchase of productive-capital. The latter at least are a duplicate of real capital, whereas the former are only a duplicate of revenue, which represents a drawing down of social wealth.

The same is true for the issuing of bonds for any other non-productive purpose. A mortgage, for example, is a bond issued in relation to a loan of money for the purchase of property, with the property itself acting as security for the loan. But a property, unless it is used as premises for a business, i.e. for productive purposes, is not capital, and its value has no possibility of self-expansion. There is then no potential for the interest on this loan to be paid out of the surplus value, produced by the use of the money-capital, for productive purposes, as productive-capital. In this case, the capital represented by the mortgage is again doubly fictitious. The mortgage itself, as with any other loan, is merely fictitious capital, but the property which stands as collateral for the mortgage, is also fictitious, because it is not capital, a house is simply an expensive commodity, a consumer durable, not capital. 

A consideration of the extent of such debt, in Britain, therefore, gives an idea of just how much fictitious capital exists compared to the quantity of real capital. Government debt amounts to around £1.4 trillion, and household debt amounts to the same figure, with other private debt, i.e. company debt, of a similar figure. Even if we assume that the last figure is wholly based on lending for productive purposes, that still gives a figure of £4.2 trillion of fictitious capital solely in this form, and does not include the mountain of fictitious capital built upon it, in various tiers, as derivatives. The £4.2 trillion figure of fictitious capital is itself equal to double UK GDP!

But, just as capital itself becomes a commodity, as loanable money-capital, which can be bought and sold on the market, and whose price is the rate of interest, so too, the fictitious capital itself can become a commodity, which is similarly bought and sold on the market. So, company shares, which are no more than loan certificates, issued in return for money-capital, loaned to the company, but on different terms and conditions from those applying to bonds, are bought and sold on the stock exchange. Bonds themselves are bought and sold on the market, both corporate bonds, as well as government and local government bonds. Other types of bonds, such as mortgage bonds, produced by banks and financial institutions, along with a variety of other such financial instruments, are also bought and sold as commodities on financial markets, even though none of these things have any value, in and of themselves, each are only fictitious capital reflecting an entitlement to a share of future revenue.

But, as Marx puts it, in relation to state debt,

“To the original creditor A, the share of annual taxes accruing to him represents interest on his capital, just as the share of the spendthrift's fortune accruing to the usurer appears to the latter, although in both cases the loaned amount was not invested as capital. The possibility of selling the state's promissory note represents for A the potential means of regaining his principal. As for B, his capital is invested, from his individual point of view, as interest-bearing capital. So far as the transaction is concerned, B has simply taken the place of A by buying the latter's claim on the state's revenue. No matter how often this transaction is repeated, the capital of the state debt remains purely fictitious, and, as soon as the promissory notes become unsaleable, the illusion of this capital disappears. Nevertheless, this fictitious capital has its own laws of motion, as we shall presently see.”

(Capital III, Chapter 29)

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