Origins
Marx saw the origin of fictitious
capital in the development of the credit system and the
joint-stock system.
Governments and banks could create additional
money or
credit, which generated purchasing power unrelated to the value of
real production or real consumption, or to the real value of
physical assets owned.
They could also issue debt securities of various kinds which could
be traded in, regardless of whether these were backed by assets or
deposits, and which became objects of speculation.
Companies could likewise issue share certificates that were
speculated in. Again, this caused fluctuations in asset values
unrelated to what a business and its production were really worth.
Effects
The
general effect was that:
-
the
market value of physical and financial assets could, backed by
credit, be driven up and artificially inflated by some margin,
purely as a result of supply and demand factors which could
themselves be manipulated for profit. That margin of value could,
however, just as suddenly disappear, if large amounts of capital
were withdrawn.
-
profit could be made purely from trading in a variety of
financial claims existing only on paper.
-
profit could be made by using only borrowed capital to
engage in (speculative) trade, not backed up by any tangible
asset.
In
addition, changes in underlying technology of a competitor, such as
a labour saving advance, can render market value of paper claims to
an asset "fictitious."
Illustration
Marx cites the case of a Mr Chapman who testified before the British
Bank Acts Committee in 1857:
"though in 1857 he was himself still a magnate on the money market,
[Chapman] complained bitterly that there were several large money
capitalists in London who were strong enough to bring the entire
money market into disorder at a given moment and in this way fleece
the smaller money dealers most shamelessly. There were supposed to
be several great sharks of this kind who could significantly
intensify a difficult situation by selling one or two million pounds
worth of Consols and in this way taking an equivalent sum of
banknotes (and thereby available loan capital) out of the market.
The collaboration of three big banks in such a maneouvre would
suffice to turn a pressure into a panic." (Das Kapital Vol. 3,
Penguin edition, p. 674).
Marx added that:
"The biggest capital power in London is of course the Bank of
England, but its position as a semi-state institution makes it
impossible for it to assert its domination in so brutal a fashion.
None the less, it too is sufficiently capable of looking after
itself... Inasmuch as the Bank issues notes that are not backed by
the metal reserve in its vaults, it creates tokens of value that
are not only means of circulation, but also forms additional - even
if fictitious - capital for it, to the nominal value of these
fiduciary notes. And this extra capital yields it an extra profit."
(ibid., p. 674-675, emphasis added).
See also
References
-
Karl
Marx,
Das Kapital, Vol. 3.
-
Makoto Itoh and Costas Lapavitsas, Political Economy of Money
and Finance.
