Marxist Moments

• FICTITIOUS CAPITAL –
  How finance is appropriating our future
  by Cedric Durand  Transl. David Broder
  (Verso, London 2017)
   
   
            In a previous blog I quoted the Daily Telegraph’s Jeremy Warner as intimating that crisis may well be international finance’s permanent state. However, we got little in the way of explanatory analysis of this and needless to say any Marxian approach would have been shoved aside. You should read this book by Cedric Durand because it puts meat on the bones of the chaotic state of things without requiring any moralising on human greed. And, just as importantly, it is crucial to Marxists brought up on the fundamental Marxian view that profit derives from unpaid labour power worked on commodities that are sold in the marketplace. But how can this be so when we see gigantic profits being made by the so-called 1% from derivatives and all other sorts of fancy financial packages? What does this have to do with unpaid labour time?
            Reading this book we will soon learn that both have to do with what Durand has identified as fictitious capital: ‘Fictitious capital is an incarnation of that which tends to free itself from the process of valorisation-through-production.’
            Marxists have long suspected that capitalists would much rather simply turn money into more money, like the old usurers (M-M’) instead of going through the tedious and risky business of routing profit-making through commodity production as well (M-C-M’). With the ascendancy of fictitious capital this dream is being realised, on a grand scale. If once upon a time in capitalism the real money was in textiles, or railways, or (more recently) oil, today the ‘real’ money is in money.
            After World War II, the Bretton Woods agreement pegged the US dollar at $35 per gold ounce. As even then the dollar was the dominant world currency this continuance of the gold standard anchored all money to a universally-recognised value – that of gold. By the early 1970s the Americans, now horrified by the extent of the amount of US dollars held abroad (due, amongst other things, to the huge expenditures during the Vietnam War) were fearful that if other countries demanded gold for their dollars, the American gold reserves would soon drain away. President Nixon accordingly took the dollar off the gold standard, which meant that money no longer had any anchorage except in what Durand calls social acceptability, that is, with the breakdown of the Bretton Woods system. Other countries took this to mean that money could be printed willy-nilly, and in a short time, what with the early ‘70s oil crises as well, inflation went through the roof – as those of us who lived through the 1970s will recall. (See George Cooper: The Origin of Financial Crises, 2008.) This was only finally quelled by crushingly high interest rates imposed by the Federal Reserve Board until inflation was brought more or less under control by the mid-1980s. This freeing-up of money has over time ballooned one aspect of fictitious capital: ‘total credits to the non-financial sector,’ according to Durand.
            Another aspect of fictitious capital lies in the prodigious sale of derivatives which make claims on commodities that have not yet been produced. Thus the tenuous link with unpaid labour time, only the unpaid labour time has not yet come about. Since it may never come about in many cases, this form of investment is a major source of instability. But it makes claims on the future long before the future arrives. The future of the economy, in other words, is already mortgaged in advance. At least ten times’ more world capital is tied up in derivatives than in production.
            Economic reliance on both insurance and real estate is also a source of fictitious capital. While it may be a form of protection, insurance sells nothing at all. Housebuilding and property speculation may make fortunes for some, but houses and indeed skyscrapers (not to speak of land apart from its yield) can’t be exported - and so when financialised become a big drag on a nation’s ability to invest in the production of goods and services for sale including foreign sale. Houses belong – as they are a necessity – to the public sphere whether under socialism or capitalism.
            Another form of fictitious capital, already identified by Marx in Grundrisse (Penguin, p. 853) as worker ‘exploitation by capital without the mode of production of capital’ is debt interest. That is, profits upon alienation which now burden so many in our working populations as they seek credit – at ridiculous interest – to pay for necessities in lieu of adequate wages. This form is of course usurer’s capital, which pre-dates industrial capital by a long way and has once more become dominant in the formation of fictitious capital.
            Then there is interest drawn from surplus value – that is, dividends as deductions from surplus value.
            What with (a) the lowering of taxes on the rich, (b) the ‘tax-efficient’ convenience of low-tax ‘havens’ around the world, and (c) the enormous bailing-out of banking and other institutions by governments in the 2007-08 financial crisis (and is this to be repeated in the not-too-distant future?) public debt and the private claims upon it has spiralled upwards and is a fundamental aspect of fictitious capital. Its existence is why we shall not be saying goodbye to Austerity any time soon, since governments will continue in various ways to prioritise the shoring-up of the banking system. It might be worth noting in passing that the Fed is not a public institution but a private consortium of the leading US banks.
            Share price on the stock market is calculated on the basis of anticipated profits, and securities will be sold at a higher price than they cost to buy, in other words, capital gains, which are another aspect of fictitious capital. Durand adds that ‘quantitative easing’ by central banks pushes up the prices of asset purchases and – in addition – prompts investors to go for riskier and more remunerative asset classes. ‘This,’ says Durand, ‘allows the realisation of fictitious-capital gains that would otherwise not have existed.’
            Another aspect of fictitious capital is the profit made by financial institutions in the heavy fees charged (for example) on arranging mergers and company buy-outs.
            Meanwhile, prodded by ‘shareholder value’, companies buy back their own shares in the billions to up their share-value on the stock exchange, thus removing or scaling-down the funding that might otherwise have been available for productive development through structural investment.
            While salaries as such might not be considered capital, the size of the salaries of top executives works its way into the fictitious capital complex, though, as Durand says, this aspect is less easily documented than the others. I would say that as non-financial corporations become dominated by their own financial (as opposed to commercial and manufacturing) activities, this in effect turns their CEOs into financiers with a greater involvement in the financial running of the company than over what the company actually makes and sells. In my view this is a factor that has led over the years to the widening of the gap between the salaries of top executives of non-financial companies, so called, and the wages of their ordinary employees. The top men and women are essentially bankers in another guise. We will not see the lowering of their salaries, stock options and pension rights any time soon, either.
            Durand notes the payment of hugely remunerative legal fees for the protection of corporate ‘intellectual property rights’ which itself can stymie independent research and development. There is nothing productive in paying lawyers though the outcome be profitable when lawyers win cases in court (or reach out-of-court settlements).
            ‘The mass of accumulated fictitious capital can, then, assume proportions incompatible with the real potential of economies.’
            And so into a world dominated by state-dependent ‘phoney capitalism’, where productivity (the basis of real wealth) continues to wither – see recent reports. And in which ‘unemployment’ translates into zero-hour contracts, families living on ‘in-work benefits’ while the term ‘self-employment’ comes to mask de facto unemployment or certainly underemployment.
            Durand is clear that the much-vaunted ‘technological revolution’ by itself is not going to change all this for the better. In relation to the dominance today of fictitious capital advanced technology is something of an irrelevance. Irrelevant also are the arguments of neoliberals against Keynesians and bourgeois politicking generally.
            There is bound to be a reckoning sometime in the not-too-distant future, but whether it takes the form of a financial crash of incredible proportions, or the mass immiseration of most of us when governments have to step in to bail out the whole banking and financial system all over again, it is we who will be the real losers. That is, unless we seize the political initiative of expropriation – and seize it globally.  For, as Durand emphasises, fictitious capital must be seen in the context of globalisation.
            Durand presents his case clearly and with irrefutable statistical evidence. Readers may well find him a bit formidable in the magnitude of his scholarship, but bear with him: it is worth it. Reading it twice would not go amiss (it is only 164 pages). Read him, and prepare, as best you might.