Monday, 7 December 2015

Capital III, Chapter 19 - Part 9

A worker who sells their labour-power for money wages is not engaged in a circuit of capital. Their circuit is C – M – C. They sell their commodity, labour-power, and obtain money with which they buy commodities. Unlike the capitalist who metamorphoses commodity-capital into money-capital, the worker merely metamorphoses their-labour-power, as a commodity, into money, in order to metamorphose this money, into the commodities required to reproduce their labour-power. This is not a circuit of capital, but only of money and commodities. It only forms part of a circuit of capital in so far as, having sold labour-power to a capitalist, it now forms part of his productive-capital, and having bought commodities from other capitalists, the worker's money payment forms part of those capitalists' potential money-capital.

The same is true of the revenue spent by capitalists and other exploiting classes, for consumption. These circuits are related to the circuit of capital because without these circuits of money and commodities there could be no circuit of capital. Capital requires that the commodities that comprise its commodity-capital are sold, and requires that labour-power is sold to it. But, money can also have a totally separated circuit of its own in the realm of fictitious capital.

If A has £100,000, which they choose to spend on the purchase of shares on the stock market, this is not the purchase of any commodity. But, nor is it the advance of capital. They have not advanced this money to buy means of production or labour-power, and if they have bought existing shares, neither has the money gone to some third party for that purpose. The money has simply gone to B, the former owner of those shares.

B is now free to use this money to buy £100,000 of shares from C on the same basis, and so on ad infinitum, without any of this money ever leaving this circuit to go to buy commodities for either productive or unproductive consumption.

Moreover, because credit money is created in the private bank sector, on the basis of deposits, this also forms the basis of expanding liquidity, so that more of this currency can continue to circulate round and round in this circuit of money and fictitious capital.

A who now owns £100,000 of shares can use this as collateral for a loan to buy a £200,000 house. The bank creates a deposit for A of £200,000, and from this account pays C, the existing owner of the house. C now has a deposit in their bank of £200,000, and out of this their bank can create further credit.

If B had originally bought their shares for £50,000, the increase in their price to £100,000 by A might reflect no real increase in the underlying value of the company or its production. It simply reflects a preparedness and ability to pay that amount by A, for the shares. Yet, on the basis of this £100,000, as opposed to £50,000 valuation, A was allowed to borrow £200,000, with the shares being used by the bank as collateral.

Similarly, C may only have paid £50,000 for the house. Its value will not have changed. Its price of £200,000 again only reflects A's willingness and ability to pay that amount due to the availability of credit to do so.

Yet, on the basis of this continual inflation of these asset prices, be they shares, bonds or property, because of the availability of credit to buy them, the deposits in the banks continue to rise, and their balance sheets are inflated because on the opposite side to these deposits (liabilities) there is an increasing quantity of corresponding assets, in the form of loans and collateral (shares, bonds, property.)

Its on this basis that massive financial bubbles, like the one we have now, are blown up, as currency, retained within its own circuit, continues to expand, as the equivalent of the expansion of this fictitious capital. But, it is fictitious for the simple reason that it is not real, it is not capital that has been produced via the expenditures of labour-time, and the production and accumulation of surplus value.

Real capital value is only destroyed when it is found that it too was not real capital. That is capital that cannot be validated in the market via realisation, labour-time that was expended that was not socially necessary, never was capital, never created value, even though it had that potentiality. But, fictitious capital never was capital, it was never even potentially self-expanding value.

The only value of a bond or share is in the claim to future income which they give to the owner. The only value of a house is for most owners as a commodity, and that value as with any other commodity is equal to its current price of production, less depreciation.

When the price of these things is blown up, beyond these levels, as they are now, then it is only a matter of time before such bubbles burst. Then the balance sheets of the banks are themselves exposed as a fiction, because the assets, in the form of loans, are found incapable of realisation, as the loans turn into bad debts, and the collateral, on which they were issued, turns out itself to be worthless.

Back To Part 8

Forward To Part 10

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