Chapter 6 – Fictitious Capital
It
is, of course, not the case that fictitious capital grew whilst real
capital did not. What is the case is that the former expanded at a
faster pace than the latter, and for the reasons described, this is
not sustainable, and must ultimately end in a financial crash, and a
huge destruction of those financial asset prices. It ultimately
comes down to a showdown between conservatism and social-democracy,
as the owners of fictitious capital seek to defend the nominal value
of their paper wealth, at any cost, including the destruction or
limitation in the growth of real capital.
“The
credit system, which has its focus in the so-called national banks
and the big money-lenders and usurers surrounding them,
constitutes enormous centralisation, and gives to this class of
parasites the fabulous power, not only to periodically despoil
industrial capitalists, but also to interfere in actual production
in a most dangerous manner — and this gang knows nothing about
production and has nothing to do with it. The Acts of 1844 and
1845 are proof of the growing power of these bandits, who are
augmented by financiers and stock-jobbers.”
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In
1999, capital entered a new long wave boom phase. Real capital
accumulation did proceed apace. But, as Marx sets out in Capital
III, in describing this interest rate cycle, at the point of this
initial phase of growth, following the period of stagnation, interest
rates may not rise, or may even fall, because the expansion of
economic activity itself produces a greater mass of realised profits,
available for direct reinvestment by firms in additional capacity, or
to be thrown into money markets, increasing the supply of
money-capital.
“This
is, in fact, the only
time
that it can be said a low rate of interest, and consequently a
relative abundance of loanable capital, coincides with a real
expansion of industrial capital. The ready flow and regularity of
the returns, linked with extensive commercial credit, ensures the
supply of loan capital in spite of the increased demand for it,
and prevents the level of the rate of interest from rising.”
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In
addition, the increased tempo of economic activity raises the
velocity of circulation of money and capital, and encourages the
extension of commercial credit releasing currency to be used as money-capital.
Moreover,
changes in the nature of capitalist production and consumption, with
service industries becoming the dominant sphere of value and surplus value creation, meant that capital accumulation – the employment of
additional labour-power, which produces increased masses of surplus
value – now required much less in terms of additional accumulation
of constant capital. This creates a tendency for the rate of profit to rise..
For
these new service industries, it was large chunks of fixed capital
investment that were characteristic, as opposed to manufacturing
industry, where it is more continuous, ever-expanding volumes of raw
material being processed due to rising productivity, which drives the
accumulation of capital, and a rising organic composition of capital.
For
this new service industry, it is large one-off investments in
infrastructure, such as new communications networks (the Internet,
mobile telephony, new road and rail networks) along with the
construction of other fixed capital (new large high rise commercial
buildings etc.) that are characteristic. This investment in fixed
capital can then be amortised over long periods, with the requirement
for only marginal additional investments, as the existing capacity is
then more and more fully utilised. In this sense, it is more like
mineral production.
The
rise in social productivity means that the value of the machines used
in these service industries, for example, personal computers, becomes
less and less significant, whilst the marginal cost of adding
additional nodes to the communications networks is near zero. Hence,
real capital accumulation takes place, and an expansion of
variable-capital, without the kind of additional large-scale
fixed-capital accumulation seen in the past, and this expansion of
the economy, via an expansion of this now dominant service industry
does not result in the same proportional rise in the accumulation of
circulating constant capital (materials) that typified capital in
previous periods. To use the term used by orthodox economics, investment becomes more lumpy as described in these case studies, .
The
consequence of this is not only that this greater weight of variable
capital reduces the organic composition of capital, but the rate of turnover of this capital is higher, resulting in a higher annual rate of profit, which further limits the potential rise in interest rates.
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