FICTITIOUS AND PROFITS: A CRITICAL APPRAISAL OF AND A MARXIAN PROPOSAL

Dr. Sergio Cámara Izquierdo Email: [email protected] Web page: [email protected] Professor of Research Area Sociedad y Acumulación Capitalista Universidad Autónoma Metropolitana-Azcapotzalco, Mexico City, Mexico

Mtro. Leinad Johan Alcalá Sandoval Email: [email protected] Ph.D. student at the Programa Integrado de Maestría y Doctorado en Ciencias Económicas, Universidad Autónoma Metropolitana, Mexico City, Mexico Short-term fellowship visiting researcher at Universidade Federal do Espírito Santo, Vitória, Brazil This is a draft paper of an ongoing research. Please, ask the first author about the final version of the paper

INTRODUCTION The current structural crisis has sparked an on-going debate among scholars about its nature. Given the inability of orthodox economic approaches to provide satisfactory accounts of the crisis, heterodox approaches, including Marx’s theory of crisis, have become popular again. Indeed, Marxist economic theory provides a solid base for structural economic analysis. According to it, the capitalist is a class society in which the social relations of are characterized by capital’s and its drive for , which is itself lastly explained by capital’s drive for accumulation. In this sense, is a social order that abstracts from the subjective dimension of the process of human ; the reproduction of the capitalist social relation of production is based on the unlimited self-expansion of capital as a quantitative magnitude of .1 The structural

1 Therefore, capital constitutes the subject of the economic process and subsumes every aspect of human life. An interpretation of capital as a subject can be found in Robles (2009).

1 conditions of such process of reproduction –the conditions of profitability– are a foremost indicator of the health of the process of .

Accordingly, the Marxist debate about the crisis has been centred on the role of profitability as a contributing factor to the current structural crisis. On the one hand, several Marxist have appealed to the of the falling as the main structural explanation of the crisis, either directly or as a consequence of its lack of recovery to the 1950s and 1960s levels. (Carchedi, 2009, 2011; Harman, 2009; Brenner, 2009; and Kliman, 2011; among others) Nevertheless, we have argued that the falling trend of the general rate of profit was not behind the crisis. (Cámara, 2014) On the other hand, some Marxist disregard the falling rate of profit as the cause of the crisis and focus on the contradictory nature of the dynamics of the economy since the , labelled as . (Duménil and Lévy, 2011; Husson, 2010; and Moseley, 2009; among others)

In the second strand of explanations, which we favour, a strong emphasis is put on the general notion of financialisation, which refers to a very wide range of phenomena and is postulated to have played a central role in the neoliberal period and in the outbreak of the current crisis. Several works have attempted to provide an extensive review of the literature about the concept. (Epstein, 2005; Erturk et al., 2008; Orhangazi, 2008; Lapavitsas, 2011; Hoca, 2012) The common contention is that there is neither a consensual nor even concurrent definition of financialisation. Four different approaches to financialisation can be distinguished. A first straightforward approach characterises financialisation by the greater relative weight of the financial sector in the economy. A second one depicts financialisation as a new regime of capital accumulation and, consequently, draws attention to the financial channels of and profit-making. A third one emphasizes the power structure and features financialisation as an institutional interlock to the interests of the faction of holders. The fourth one stresses the changes in the corporate governance associated to the alignment of managerial and shareholder interests. Although there is sometimes an explicit interconnection between the different approaches, a systematic interpretation is generally absent.

In our opinion, the difficulties of arriving to a thorough definition of the financialisation are practical and theoretical, with the former subdued in the latter. The practical difficulties lay

2 in the aforementioned broad scope of aspects involved. However, the main explanation is the lack of a clear account of the role of finance in capitalist . Specifically, a vast part of the Marxist debate has generally not been well integrated with the Marxist economic theory of value and surplus-value creation and ; specifically, Marx’s analysis of the forms of of capital has not been properly incorporated to the analysis. Within this discussion about financialisation, the Marxist’s concepts of and profits have been reclaimed. These concepts have been employed in a plentiful variety of ways, but with a lack of a solid theoretical ground; few compelling attempts have been done to provide a thorough definition of both concepts.

This aim of the paper is twofold. First, it provides a critical appraisal of the concepts of fictitious capital and profits in the Marxist literature, including both Marx’s own writings and contemporary Marxists. Second, it proposes a definition of fictitious capital in better fit with the Marxist theory of value. The next section analyses first the Marx’s writings on fictitious capital and profits. We show that Marx´s use of the concept is manifold and ambiguous, mostly because of the draft status of his works. Nonetheless, he posits the right foundations for an appropriate understanding of fictitious capital. Then, we analyse the contemporary Marxist literature and we identify two major shortcomings. First, fictitious capital is habitually conflated with the or financial forms of capital. Although there is a narrow relationship between them, they are conceptually different concepts. Second, the term fictitious is often used as synonymous of unreal as opposed to the real dimension of capital and profits. On the contrary, we argue that every “real” capital has necessarily a fictitious nature; rather than an opposition between real and fictitious capital, these are two necessary dimensions of every capital. Finally, we present our own proposal of a Marxian definition of fictitious capital in accordance with the overall Marxist theory of value and surplus-value creation and distribution. First, we present the concept of abstract forms of valorisation as the theoretical basis of the analysis. Then, we present speculative capital as a specific abstract form of capital valorisation, related to the fictitious nature of capital, whatever its particular form. This part has yet to be amended

3 1. FICTITIOUS CAPITAL AND PROFITS IN MARXIST ECONOMIC THEORY 1.1 Fictitious capital and profits in Marx’s Volume III of Capital Marx’s references to fictitious capital in volume III of Capital are sparse. In chapter XXV, entitled ‘ and Fictitious Capital’, Marx focuses in commercial and bank credit and relates fictitious capital to the though credit beyond real transactions (Marx, 1894: 513, 520-521), given that the “reproduction process... is elastic by nature.” (Ibídem: 568-569) In other words, it refers to the fact that market-values of financial assets can fluctuate independently of their nominal-values and or the value of the money-capital originally spent. These values are determined by the mere capitalisation through the prevailing average interest rate of the periodic income expected to be returned by the issuer. In Marx’s terms, “[t]he formation of a fictitious capital is called capitalisation.” (Marx, 1894: 601)

In contrast, in his analysis of chapter XXIX, ‘Component Parts of Bank Capital’, he characterises national debt as fictitious capital given that it is not spent as capital by the and hence does not generate the means of its self-valorisation. (Marx, 1894: 599)

Nonetheless, Marx also regards stocks as fictitious capital, even if they are spent in ‘real’ capital. (Ibídem: 601-603) Here, it refers to the duplication of the capital-value involved in the issue of debt titles and shares by which they appear fictitiously as capital- value in hands of the creditor alongside with the capital-value funded in hands of the debtor. The notion of fictitious capital addresses here the developed manifestation of the general contradiction between capital- and active-capital.

Marx considers that fictitious capital to be essentially banker’s capital. (Ibídem: 603-606) This part has to be further developed

1.2 Fictitious capital and in other works of Marx This part has yet to be developed

2. FICTITIOUS CAPITAL AND PROFITS IN THE MARXIST LITERATURE This part has yet to be developed

4 3. A MARXIAN DEFINITION OF FICTITIOUS CAPITAL 3.1 Abstract forms of capital valorisation2 Marx defines capital as a magnitude of value advanced to circulation with the purpose of self-valorising. (Marx, 1867: ch. 4) The general valorisation of capital is accomplished through the exploitation of the labour force; surplus-value arises from the difference between the value that labour-power creates in the labour process and the value of labour-power. (Ibídem: ch. 6 and 7) Marx depicts this global process by means of the general formula of capital and the circulation of industrial capital (M–C [MP, LP]...P...C’–M’). At this level of abstraction, industrial capital is characterized “as a value which goes… the process as a whole”, (Marx, 1885: 58) which “comprises every branch of industry run on a capitalist basis”, (Ibídem: 59) independently of the material basis of the industry. (Ibídem: 60-62)

Along its circulation, industrial capital assumes different functional forms –money-capital (M), -capital (C) and productive capital (P)– and executes the different, specific functions related to these forms. (Ibídem: ch. 1) Although Marx discards initially these forms as autonomous capitals, (Ibídem: 59) he thenceforth posits industrial capital to be a mode of existence of capital that confronts to commodity- and money-capital. (Ibídem: 62-63) Thus industrial, commercial and money-dealing capitals constitute independent entities that execute the specific functions of productive, commodity- and money-capital, respectively; besides, money, due to its capacity to circulate as a capital, becomes interest-bearing capital, an independent capital that is loaned for an interest instead of invested productively. (Marx, 1894: Part IV and V)

In spite of this, we claim that Marx’s conceptualization of the functional forms as autonomous capitals is both problematic and unnecessary. Firstly, independent concrete capitals do not exist in a pure form executing a single specific function, (Marx, 1894: 352, 411) but they exist as combined capitals that execute several or even all functions of capital. (Marx, 1894: 344, 345, 370-372, 409, 412; Marx, 1885: ch. VI) Secondly, these forms of capital can be conceptualized even if not hypothesized as autonomous, independent capitals. In contrast, we postulate that the concept of abstract forms of capital valorisation, defined as forms of profit appropriation that analytically exclude each other, is more adequate to

2 This part relies heavily on Mariña and Torres (2010) and Cámara and Mariña (2015).

5 theorise these forms. Accordingly, concrete forms of existence of capital actually combine several abstract forms of capital valorisation. Abstract forms of capital valorisation3 are characterised by its productive or unproductive nature, are classified into active-capital and capital-property, and are characterized according to their relation with surplus-value production, the source of the profits appropriated and the mechanisms of such appropriation; non-parasitic, semi-parasitic and parasitic abstract forms of capital valorisation are identified according to their direct, indirect or absence of relation with their means of self-valorisation.4

Industrial capital is the only productive abstract form; it produces surplus-value through the exploitation of wage-labour in the phase of commodity ( and services) production (...P...). Merchant’s capital comprises commercial capital, which relates to the circulation of commodities, and money-dealing capital, which carries out the technical movements associated to the different functions of money in the circulation of capital. (Marx, 1885: ch. 19) Merchant’s capital is a non-productive abstract form of valorisation, but as long as it strengthens profitability by accelerating the turnover of industrial capital and by reducing its circulation costs, it increases indirectly the production of surplus-value. Hence, it has a non- parasitic nature.

Industrial and merchant’s capital execute the diverse active functions of capital along its circulation and constitue active-capital, as opposed to the capital-property forms presented hereafter. Analogously, industrial and merchant’s profits are both encompassed as profit of enterprise, which is the return to active-capital, as opposed to the interests, dividends and other financial profits, which are the return to capital-property. (Marx, 1894: ch. 23)

The capacity of money to circulate as capital converts it into a sui generis commodity with the use-value of producing profit, which is the basis of the financing capital abstract form of valorisation. The return of financing capital is the interest, dividend or any type of financial profit received by the creditor. (Marx, 1894: ch. 21) The specific characteristics of financing

3 Ground rent is excluded from the analysis here. 4 The opposition between non-parasitic and parasitic forms of valorisation depending on their objective relation with surplus-value production is developed by Carcanholo and Nakatani (2001). It worth noting that the concept parasitic is not used here as a subjective judgement, neither as synonymous of superfluous or detrimental.

6 capital depend on how the debtor uses the credit.5 Financing capital that funds circulating commercial capital and industrial and merchant’s capital accumulation enhances surplus- value production and realisation by accelerating the turnover of industrial capital and by boosting active-capital accumulation through monetary intermediation and creation. This financing capital is capital for both the creditor and the debtor, who uses it as a mechanism of valorisation. (Ibídem: 440) Therefore, it potentially generates the means of its self- valorisation and it has a non-parasitic nature. Financing capital that funds personal final consumption and public expenses does not have a direct relation with surplus-value production. It is capital only for the creditor, but not for the debtor, who spends it unproductively. (Marx, 1894: 599) In spite of this, this type of financing capital facilitates the realisation of commodities and surplus-value through the increase in the velocity of money circulation and the reduction of the turnovers of commodities, and through the increase of purchasing power when it is related to the creation of new money. Thus it has a semi-parasitic nature. Finally, financing capital that refinances debt is further detached from surplus-value production and realisation and, therefore, has a parasitic nature.

Capital-dealing capital is another abstract form of valorisation that, analogously to money- dealing-capital, facilitates the intermediation of all types of financing capital transactions and centralises the money-capital of the lenders and the borrowers; furthermore, it creates new money beyond the existing social accumulation, and consumption reserves. (Ibídem: 515-520) It also comprises the itself of the money-forms developed in circulation, as well as the credit-forms created for commercial financing and for accumulation financing by banking and non-banking intermediaries. Capital-dealing capital is also involved in the creation and trading of the different types of derived financial instruments. Finally, it encompasses the technical operations associated to the functions of money outside the circuit of capital. It is characterised as a parasitic form of valorisation, as it does not itself enhance production or realisation. This part has yet to be amended

5 In his analysis of financing in Part V of Volume III of Capital, Marx mainly conceptualises interest-bearing capital as being loaned for real (industrial or commercial) capital accumulation in order to define interest as a share of the surplus value appropriated by these capitals.

7 3.2 Fictitious capital as an abstract form of valorisation Speculative capital is an additional independent type of abstract form of capital valorisation, which relates to the fictitious nature of capital. In this paper, we simply term fictitious capital to the capitalised future flow of incomes, through the prevailing average interest rate, which is expected to receive the possessor of a sum of capital advanced, whatever is particular form: productive, commodity, money, credit or derivative form.6 This present value normally differs from the money-capital originally disbursed to acquire the productive, commodity or financial assets. As a consequence, a potential or actual speculative profit (or loss) arises from the difference between both values, which constitutes a redistribution across agents and over time of the profit associated to an asset among its successive owners. Speculative profit is itself a deduction of the surplus-value produced by industrial capital or of other money revenues or stocks; therefore, it is profit upon alienation.7 Hence speculative capital itself is completely parasitic inasmuch as it neither facilitates the realisation of production, nor enhances surplus-value production or productive accumulation.

To sum up, every capital whatever its form has a fictitious nature that arises from the difference between its net present value and the value spent on it. Therefore, speculative capital is an abstract form of valorisation inescapably coupled with the trade of any capital. Nevertheless, two notes of caution and clarification must be made here. On the one hand, the characterisation of here is rather abstract and does not relate to the concrete speculative nature of the . Besides, the quantitative degree of speculation of a form of capital depends on the prospect of high differences between both values; in this sense, money, financial and derivative assets, mostly involved in financial abstract forms of valorisation, are prone to have a much higher speculative nature.8 As a matter of fact, the financial abstract forms of valorisation are associated to the speculative bubbles in which successive layers of speculative profits are financed by credit expansion. This explains why the fictitious nature of capital and its speculative character is often restricted to the financial sphere.

6 In contrast with the perspective adopted here, Lapavitsas (2011) Duménil and Lévy (2006) relegate fictitious capital to financing capital. 7 Lapavitsas and Levina (2011) characterise the process of speculative profits as a zero-sum game. 8 Commodities containing ground rent should also be included in this list.

8 This part has to be further developed

CONCLUSIONS This part has yet to be developed

REFERENCES This part has yet to be developed

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