Capital III, Chapter 29 - Part 9

The various pieces of paper that constitute this fictitious capital then amount to nothing more than claims on future revenue, none of which is capital, or to the sense it is, in respect of company shares, is governed by different rules than those governing the growth of the actual capital itself.

Government bonds are a claim on a part of the state's future tax revenue; corporate bonds on the future revenue of companies; shares on the future profits of the company; mortgages on the revenue from the rent of property or the income of the property buyer. But, none of these things underlying these bits of paper constitute capital, contrary to the belief of Thomas Picketty. The state's tax revenue, is revenue not capital. It does not arise from a self-expansion of capital in the hands of the state. The interest on a corporate bond is paid out of its revenue, whether it makes profits or not. Dividends may or may not be paid on shares, but they do not arise simply from the nature of money-capital to bear interest, but only to the extent that the productive-capital produces profits. A house is not capital for an owner occupier. Its value does not self-expand, no matter how much property bubbles create that delusion.

That is obvious when the seller comes to buy another house, and finds that the money realised from the sale of one goes no further – and for a more valuable house will even go less far – than before the prices were inflated. For houses that are mortgaged and rented, although it may seem that the rent represents a self-expansion of the capital, its clear that this is no more so than with money-capital.

The capital value of the house does not self-expand. The owner of the house obtains rent from the tenant for giving them the use-value of the money-capital value of the house for a given period of time, plus the wear and tear of the property. Out of this rent the property buyer pays interest on the money-capital borrowed for its purchase.

“In all countries based on capitalist production, there exists in this form an enormous quantity of so-called interest-bearing capital, or moneyed capital. And by accumulation of money-capital nothing more, in the main, is connoted than an accumulation of these claims on production, an accumulation of the market-price, the illusory capital-value of these claims.” (p 468)

Even in Marx's day, the quantity of bank capital that was fictitious was then sizeable. Rather than comprising actual value, in the form of gold, or even Bank of England notes, backed by gold, it comprised bank notes which in themselves had no value, but to an even greater extent comprised a range of securities, such as those described above.

But, in more recent times, although banks may not hold bills of exchange, which they discount, as they did in Marx's day, the extent to which they rely on deposits from savers has declined even further. Instead, the banks obtain the funds they require for lending purposes, by themselves going into the money markets to borrow. It was when short term lending between banks seized up in 2007 that banks like Northern Rock, that had become dependent on such funding, found themselves in difficulty, which ultimately resulted in the financial crisis of 2008.

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