But, the bonds, issued in exchange for this money, are not capital either. They have no inherent capacity to self expand. The interest paid on them arises only as a claim on the revenue taken in by the state in taxes. But, the state can only raise these taxes because a social surplus is produced, and under capitalism, the form of this surplus is surplus value, produced by the expansion of real capital, in production, which appears as initially as profit, before being divided into interest, rent and profit of enterprise. The value of the commodities, which comprise real productive-capital can also rise or fall, but only because the labour-time required for their production, as with any other commodity, rises and falls as a consequence of changes in productivity. If capitalist A buys a machine with a value of £1,000 then, if there are no changes in the labour-time required for its production, they can sell the machine to B, at its value of £1,000, i.e. this capital-value can be transferred, and the money-capital advanced for its purchase recovered.
In the same way, if A is a money-capitalist, who makes a loan to B of £1,000, who buys the machine with it, the £1,000 has acted as money-capital, and in the hands of B, is transformed into real capital in the form of the machine. If B defaults, A can obtain the capital value they advanced by taking ownership of the machine, whose value remains intact. The value of the components of capital can be reduced, as with any other commodity, as a result of changes in productivity or technological changes that bring about moral depreciation. The value of the capital may also be destroyed as a result of overproduction, but this is, in reality, no different from the destruction of the value of other commodities on whom social labour-time was expended unnecessarily.
In fact, to speak of the destruction of capital value is not strictly correct, because, to the extent that social labour-time was expended that was not socially necessary, the value was not created in the first place. As Marx points out, socially necessary labour-time is not just about ensuring that the minimum required time is expended on the production of each commodity unit, but also that no more labour-time is expended on the production of the total quantity of any commodity, compared to the demand for it at its price of production.
If the price of production of X is £1, and 1,000,000 units are produced, but there is only a demand for 800,000 units at that price, 20% of the labour-time expended was not socially necessary, and, therefore, produced no value or surplus value. It is as though the 1,000,000 units only required 80% of the time actually spent on their production, and so their value, or price of production is then equal to only £0.80.
That is why the market price of these commodities then falls. In fact, depending on the elasticity of demand for the particular commodity, the market price may even fall below this price of production. If say the commodity is milk, it doesn't matter whether farmers put all this milk on the market and sell 1 million gallons at £0.80 per gallon, or put 800,000 gallons on the market at £1 per gallon, and flush the other 200,000 gallons down the drain. The effect is the same, they take in only £800 thousand rather than £1 million either way. The value was never really created, because the labour was not socially necessary. In the latter instance, its physical destruction is simply a reflection of its actual destruction as value. As Marx describes later, this is the fundamental basis of crises of overproduction, as capital expands the output of use values with no regard for whether the market is able to absorb them, at the price of production.
This example, in relation to commodity-capital, applies equally to productive-capital. The only purpose of productive-capital is to produce commodities ultimately for consumption, and thereby to realise surplus value. If too much productive-capital is produced in relation to that required for that purpose, it has been overproduced, more labour-time has been expended on its production than was socially necessary, and so an equivalent amount of value was never produced in reality, and that becomes manifest in the destruction of that apparent value.
But, in all these cases, underlying this capital resides actual value, the expenditure of social labour-time. No such value underlies fictitious capital. But, as Marx comments,
“Nevertheless, this fictitious capital has its own laws of motion, as we shall presently see.” (p 465)
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