Financial Speculation and Fictitious Profits; a Marxist Analysis - 2019 by ElectricStorm

MARX, ENGELS, AND MARXISMS

Financial Speculation and Fictitious Profits A Marxist Analysis

Edited by Gustavo Moura de Cavalcanti Mello Mauricio de Souza Sabadini

Marx, Engels, and Marxisms Series Editors Marcello Musto York University Toronto, ON, Canada Terrell Carver University of Bristol Bristol, UK

The Marx renaissance is underway on a global scale. Wherever the critique of capitalism re-emerges, there is an intellectual and political demand for new, critical engagements with Marxism. The peer-reviewed series Marx, Engels and Marxisms (edited by Marcello Musto & Terrell Carver, with Babak Amini and Kohei Saito as Assistant Editors) publishes monographs, edited volumes, critical editions, reprints of old texts, as well as translations of books already published in other languages. Our volumes come from a wide range of political perspectives, subject matters, academic disciplines and geographical areas, producing an eclectic and informative collection that appeals to a diverse and international audience. Our main areas of focus include: the oeuvre of Marx and Engels, Marxist authors and traditions of the 19th and 20th centuries, labour and social movements, Marxist analyses of contemporary issues, and reception of Marxism in the world. More information about this series at http://www.palgrave.com/gp/series/14812

Gustavo Moura de Cavalcanti Mello Mauricio de Souza Sabadini Editors

Financial Speculation and Fictitious Profits A Marxist Analysis

Editors Gustavo Moura de Cavalcanti Mello Department of Economics and Post-Graduate Programme in Social Policy Federal University of Espírito Santo (UFES) Vitória, Espírito Santo, Brazil

Mauricio de Souza Sabadini Department of Economics and Post-Graduate Programme in Social Policy Federal University of Espírito Santo (UFES) Vitória, Espírito Santo, Brazil

ISSN 2524-7123 ISSN 2524-7131 (electronic) Marx, Engels, and Marxisms ISBN 978-3-030-23359-4 ISBN 978-3-030-23360-0 (eBook) https://doi.org/10.1007/978-3-030-23360-0 © The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Switzerland AG 2019 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. Cover illustration: Craig Stennett / Alamy Stock Photo This Palgrave Macmillan imprint is published by the registered company Springer Nature Switzerland AG. The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

Acknowledgement

This study was written by some members of CAPES-PRINT Inter- nationalization Project from UFES and was financed in part by the Coordenação de Aperfeiçoamento de Pessoal de Nível Superior—Brazil (CAPES)—Finance Code 001.

Series Foreword

The Marx Revival The Marx renaissance is underway on a global scale. Whether the puzzle is the economic boom in China or the economic bust in “the West”, there is no doubt that Marx appears regularly in the media nowadays as a guru, and not a threat, as he used to be. The literature dealing with Marxism, which all but dried up 25 years ago, is reviving in the global context. Academic and popular journals and even newspapers and online journalism are increasingly open to contributions on Marxism, just as there are now many international conferences, university courses and seminars on related themes. In all parts of the world, leading daily and weekly papers are featuring the contemporary relevance of Marx’s thought. From Latin America to Europe, and wherever the critique to capitalism is remerging, there is an intellectual and political demand for a new critical encounter with Marxism.

Types of Publications This series bring together reflections on Marx, Engels and Marxisms from perspectives that are varied in terms of political outlook, geographical base, academic methodologies and subject matter, thus challenging many preconceptions as to what “Marxist” thought can be like, as opposed to what it has been. The series will appeal internationally to intellectual communities that are increasingly interested in rediscovering the most powerful critical analysis of capitalism: Marxism. The series editors will ensure vii

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SERIES FOREWORD

that authors and editors in the series are producing overall an eclectic and stimulating yet synoptic and informative vision that will draw a very wide and diverse audience. This series will embrace a much wider range of scholarly interests and academic approaches than any previous “family” of books in the area. This innovative series will present monographs, edited volumes and critical editions, including translations, to Anglophone readers. The books in this series will work through three main categories. Studies on Marx and Engels The series will include titles focusing on the oeuvre of Marx and Engels which utilize the scholarly achievements of the ongoing Marx-Engels Gesamtausgabe, a project that has strongly revivified the research on these two authors in the past decade. Critical Studies on Marxisms Volumes will awaken readers to the overarching issues and world-changing encounters that shelter within the broad categorization, “Marxist”. Particular attention will be given to authors such as Gramsci and Benjamin, who are very popular and widely translated nowadays all over the world, but also to authors who are less known in the English-speaking countries, such as Mariátegui. Reception Studies and Marxist National Traditions Political projects have necessarily required oversimplifications in the twentieth century, and Marx and Engels have found themselves “made over” numerous times and in quite contradictory ways. Taking a national perspective on “reception” will be a global revelation and the volumes of this series will enable the worldwide Anglophone community to understand the variety of intellectual and political traditions through which Marx and Engels have been received in local contexts. University of Bristol Bristol, UK York University Toronto, ON, Canada

Terrell Carver Marcello Musto

Foreword

This book, authored by Gustavo Mello and Mauricio Sabadini, is important not only because of the clarity of its explanation of a difficult subject, but also because it comes at a time when financial globalization once again threatens to provoke a large-scale economic crisis. It provides the necessary elements for understanding the potential effects of an increase in speculative parasitism and fictitious profits on the economy and, therefore, on labor, from the point of view of both wages and unemployment. Increases in financial activity are not naturally parasitic. In general, companies operate in a macroeconomic environment over which they have little long-term control and in which they operate with incomplete information. Today, the complexity of production increases uncertainty regarding the profitability of projects. Covering these new risks leads to the development of complex financial products. In a way, the complexity of the financial market is a consequence of the complexity of production. Such financial complexity is developed through financial liberalization (de-compartmentalization, disintermediation and deregulation). This has a cost, but it makes it possible to obtain a higher profit that exceeds this

On the theme of Marxism, he is the author of Sur la Valeur (Ed. Maspero), in partnership with Valier J.; Une introduction à l’économie politique (Ed. Maspero) in partnership with Mathias G.; L’Etat surdéveloppé (Ed. Maspero-La decouverte) and Nature et formes de l’Etat capitaliste, analyses marxistes contemporaines (Ed. Syllepse), with A. Artous, JL Solis Gonzales and T. Hai Hac.

FOREWORD

cost.1 Therefore, the development of finance and the growth of sophisticated financial products makes possible, in abstract, the development of capital. This is because the capital cycle only develops if financial activities permit the growth in value of productive capital. Currently, the growth of the industrial sector demands a more than proportional development of the financial sector. However, finance, like a Janus, has two faces. One is “virtuous”, as we have just mentioned; the other is “vicious”, having acquired an uncontrollable amplitude with financial globalization. Financialization is the childhood disease of finance, its own monster. Financialization is the threshold from which the financial sector, more profitable than the industrial sector, develops to the detriment of the latter. That there has been a shift toward “financialization,” since its development is mainly due to the attraction exerted by these new financial products in themselves, rather than the function of reducing risk in production. In this way, the financial sector seems to become autonomous from the productive sector and, in this sense, we can say that the relationship between finance and labor is both fetishized and complex. It is fetishized because finance and labor seem to operate in separate watertight spaces: money seems to become autonomous, just like the miracle of bread, and to generate money from itself without there being a relationship with labor and working conditions. It is complex because there are relationships between the development of finance and working conditions (total wages, employment and types of jobs), relationships that develop underground, appearing more clearly in times of crisis. In the context of commercial and financial globalization, these relationships, in addition to national determinants, are difficult to decipher, especially since the virtuous and vicious aspects are the two faces of the same coin. In other words, virtuous finance contains within it the tendency to financialization. Therefore, there is a dialectical relationship between them. Much has been written about the origins and causes of the financial crisis in developed countries and its highly negative consequences for economic activity. The development of speculative bubbles and their bursting have been facilitated by: (1) techniques that are at the very least “misleading” in assessing risks, (2) the possibility of banks profitably “selling” the risks they take by designing and issuing increasingly complex derivative financial products (securitization) and deleting them from their balance sheets, and (3) the adoption of accounting rules that value assets based on their market prices (“mark to market”). Financial engineering, conceived

FOREWORD

in this way, provided an exciting logic: credit is less and less granted from the prospective income of lenders, being more and more from the anticipation of the asset value acquired by these lenders, as we observe with the case of real estate and financial bubbles. To return to Minsky’s expression, Ponzi-type financing is quickly arrived at and instability is reproduced. The financial system implodes with brutal devaluation of assets and what previously favored the bubble (the equity value, that is, the positive difference between the market value and its commitments) becomes its opposite (the market value plummets, falling below the value of the loans to be repaid). The resumption of the cycle causes an acute shortage of liquidity. Financial companies seek liquidity to finance a risk that only the day before, transferred and disseminated, was considerably revalued. Banks stop lending to each other and, à fortiori, brutally break their loans to companies to individuals. Non-financial companies, with the devaluation of their capitalized securities, see a series of rates “turn red” and are confronted with a growing lack of liquidity. The “credit crunch” turns financial crisis into economic crisis. It becomes systemic, affecting companies and banks, including those that have maintained prudent management of their assets. It forcefully spreads across borders through the channels forged by financial globalization. In search of liquidity, banks and multinational companies liquidate a portion of their assets abroad, particularly in Latin America, repatriating a significant portion of their profits and interrupting the purchasing of bonds. Foreign banks provide much less credit to Latin American exporters. In addition to these difficulties, there is a reduction of commitments in industrialized countries due to the crisis in the real economy that is developing. Lack of liquidity, capital flight and reduction of external commitments are the factors that transform the financial crisis into a crisis of the real economy in emerging economies. Interest rates and the importance of these currencies have made various authors return to the foundations of the Marxist theory of currency, developed in Book I of Capital, and of finance, developed in Book III of Capital. Thanks to this theoretical deepening, the authors go beyond simple description to grasp the essence of the causes and consequences of financial globalization. If currency and financial globalization are given priority in this remarkable book, it is because financial globalization is much more prominent than commercial globalization. When the financial crisis in advanced countries provoked a “credit crunch” (an accentuated shortage of liquidity), the subsidiaries of multinational companies repatri-

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ated a significant portion of their profits to compensate for the lack of liquidity of the parent companies in advanced countries, resulting in a change to the world economy. The foundations of the emerging Latin American countries, although relatively good, with a low degree of openness, simply did not constitute a sufficient defense against the “solidarity” of the balance sheets of transnational companies and the financial crisis, through contagion, affected the “real” world with a force ten times stronger. Paris XIII University Paris, France

Pierre Salama

Note 1. In Marxist terms, work in the financial sector is “indirectly productive”, like those of the commercial activities analyzed by Marx. The work that develops is not productive, but it is not unproductive either. Paid on account of the added value, it allows for free growth, among other things, of a significant increase in the rotation of capital. However, the growth of the financial sector does not only meet the conditions of capital appreciation, it is also the cause and consequence of speculation. Its predatory dimension, in relation to surplus value, is accentuated and, to a certain extent, indirectly productive labor becomes unproductive. That is, incapable of creating value, even if indirectly. In this way, two distinct dimensions coexist in this type of work: indirectly productive and unproductive. With financialization, the second factor prevails over the first.

Titles Published

1. Terrell Carver and Daniel Blank, A Political History of the Editions of Marx and Engels’s “German Ideology” Manuscripts, 2014. 2. Terrell Carver and Daniel Blank, Marx and Engels’s “German Ideology” Manuscripts: Presentation and Analysis of the “Feuerbach chapter,” 2014. 3. Alfonso Maurizio Iacono, The History and Theory of Fetishism, 2015. 4. Paresh Chattopadhyay, Marx’s Associated Mode of Production: A Critique of Marxism, 2016. 5. Domenico Losurdo, Class Struggle: A Political and Philosophical History, 2016. 6. Frederick Harry Pitts, Critiquing Capitalism Today: New Ways to Read Marx, 2017. 7. Ranabir Samaddar, Karl Marx and the Postcolonial Age, 2017. 8. George Comninel, Alienation and Emancipation in the Work of Karl Marx, 2018. 9. Jean-Numa Ducange and Razmig Keucheyan (Eds.), The End of the Democratic State: Nicos Poulantzas, a Marxism for the 21st Century, 2018. 10. Robert Ware, Marx on Emancipation and the Socialist Transition: Retrieving Marx for the Future, 2018. 11. Xavier LaFrance and Charles Post (Eds.), Case Studies in the Origins of Capitalism, 2018.

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12. John Gregson, Marxism, Ethics, and Politics: The Work of Alasdair MacIntyre, 2018. 13. Vladimir Puzone and Luis Felipe Miguel (Eds.), The Brazilian Left in the 21st Century: Conflict and Conciliation in Peripheral Capitalism, 2019. 14. James Muldoon and Gaard Kets (Eds.), The German Revolution and Political Theory, 2019.

Titles Forthcoming

Michael Brie, Rediscovering Lenin: Dialectics of Revolution and Metaphysics of Domination August H. Nimtz, Marxism versus Liberalism: Comparative Real-Time Political Analysis Shaibal Gupta, Marcello Musto & Babak Amini (Eds), Karl Marx’s Life, Ideas, and Influences: A Critical Examination on the Bicentenary Juan Pablo Rodríguez, Resisting Neoliberal Capitalism in Chile: The Possibility of Social Critique Igor Shoikhedbrod, Revisiting Marx’s Critique of Liberalism: Rethinking Justice, Legality, and Rights Alfonso Maurizio Iacono, The Bourgeois and the Savage: A Marxian Critique of the Image of the Isolated Individual in Defoe, Turgot and Smith Ducange, Jean-Numa, Jules Guesde: The Birth of Socialism and Marxism in France Spencer A. Leonard, Marx, the India Question, and the Crisis of Cosmopolitanism Kaan Kangal, Friedrich Engels and the Dialectics of Nature Victor Wallis, Socialist Practice: Histories and Theories Marcello Mustè, Marxism and Philosophy of Praxis: An Italian Perspective from Labriola to Gramsci

Praise for Financial Speculation and Fictitious Profits “This book offers a wide-ranging critique of contemporary political economy grounded in the work of Karl Marx. The contributions focus on value, money, finance and financialisation, and their transformations under neoliberalism. Financial Speculation and Fictitious Profits is a refreshing and original perspective which will inform debates within Marxist Political Economy for many years. Scholars and students will find here a treasure trove of materials to be examined, discussed and developed: a truly valuable contribution to Marxist debates!” —Alfredo Saad Filho, Professor of Political Economy, SOAS University of London, UK “This collection of essays is a timely intervention at this contemporary stage of predatory capitalism, with fictitious capital dominating economy and society. A refreshed understanding of the nature of fictitious capital in both its historical evolution and contemporary forms is necessary for the search for alternatives to end its tyranny and for a new chapter of humanity to unfold.” —Lau Kin Chi, Professor, Lingnan University, Hong Kong “The distinguishing feature of today’s post-industrial evolution into finance capitalism is fictitious capital—that is, finance capital on the liabilities (debt) side of the balance sheet taking over economic management from industry and also from government. The chapters in this book provide a much-needed background to see the extent to which financial engineering has replaced industrial engineering as the key to rising ‘wealth.’” —Michael Hudson, Professor of Economics, University of Missouri–Kansas City, and Researcher, Levy Economics Institute at Bard College, USA “The destructive march of capital makes it imperative to systematically study the Marxian critique of political economy. In undertaking this task, throughout the chapters that compose this work the authors offer us relevant contributions to a critical interpretation of contemporary capitalism, especially through a careful and original analysis of the fictitious forms of capital.” —Wen Tiejun, Professor of Economics, Fujian Agriculture & Forestry University, China

“The theory of fictitious capital belongs only to Marx. Yet curiously, despite its centrality in the working of capitalism since the turn of the 21st century and its role in the 2008 financial crisis, it has remained an extremely unresearched domain of Marxist scholarship. The two decades of work from economists at the Federal University of Espirito Santo has been a notable exception, and this book brings it finally to Anglophone researchers.” —François Chesnais, Professor Emeritus, University of Paris XIII, France

Contents

1 Introduction 1 Helder Gomes, Gustavo Moura de Cavalcanti Mello, Paulo Nakatani, Mauricio de Souza Sabadini, and Adriano Lopes Almeida Teixeira 2 The Place of Money in Marx’s Theory of Capital 9 Adriano Lopes Almeida Teixeira 3 Speculative Capital and the Dematerialization of Money 43 Reinaldo Antonio Carcanholo 4 Crypto-Currencies: From the Fetishism of Gold to Hayek Gold 63 Paulo Nakatani and Gustavo Moura de Cavalcanti Mello 5 Financialization and the Contradictory Unity Between the Real and Financial Dimensions of Capital Accumulation 87 Paulo Nakatani, Adriano Lopes Almeida Teixeira, and Helder Gomes 6 Parasitic Speculative Capital: A Theoretical Precision on Financial Capital, Characteristic of Globalization 117 Reinaldo Antonio Carcanholo and Paulo Nakatani

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7 Profit, Interest, Rent, and Fictitious Profit 139 Gustavo Moura de Cavalcanti Mello and Mauricio de Souza Sabadini 8 The Nature and the Contradictions of the Capitalist Crisis 183 Paulo Nakatani and Helder Gomes Final Words

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Notes on Contributors

Reinaldo Antonio Carcanholo (in memoriam) was a professor at the Department of Economics and at the Post-Graduate Programme in Social Policy at the Federal University of Espírito Santo (UFES), Brazil. He received his doctorate in Economics from the National Autonomous University of Mexico (UNAM). Helder Gomes is a post-doctoral fellow at the Federal University of Espírito Santo (UFES), Brazil. He received his doctorate in Social Policy from the Federal University of Espírito Santo (UFES). Gustavo Moura de Cavalcanti Mello (Ed.) is a professor at the Department of Economics and at the Post-Graduate Programme in Social Policy at the Federal University of Espírito Santo (UFES), Brazil. He received his doctorate degrees in Sociology from the University of São Paulo (USP). Paulo Nakatani is a professor at the Department of Economics and at the Post-Graduate Programme in Social Policy at the Federal University of Espírito Santo (UFES), Brazil. President of the Brazilian Society of Economic Policy (SEP) (2008–2012). He received his doctorate in Economics from the University of Picardie, France. Mauricio de Souza Sabadini (Ed.) is a professor at the Department of Economics and at the Post-Graduate Programme in Social Policy at the Federal University of Espírito Santo (UFES), Brazil. Director (2016–2018)

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and President of the Brazilian Society of Economic Policy (SEP) (2018–2020). He received his doctorate in Economics from the University of Paris 1 Panthéon Sorbonne, France. Adriano Lopes Almeida Teixeira is a professor at the Department of Economics at the Federal University of Espírito Santo (UFES), Brazil. He received his doctorate in Economics from the Federal University of Minas Gerais (UFMG).

List of Figures

Fig. 2.1 Fig. 2.2 Fig. 2.3 Fig. 2.4 Fig. 8.1 Fig. 8.2 Fig. 8.3 Fig. 8.4 Fig. 8.5

Ordering of categories in diverse works 17 The artistic whole (section I of Capital). (Source: Our own production based on section I of chapter one of Capital. ∗ C = commodity, V = value, W = work, M = money) 23 Development of forms of value 24 The contradictions in motion 28 Monetary base and means of payments USA (US$ billions). (Source: Federal Reserve: http://www.federalreserve.gov/ releases/H3/default.htm. Our own production) 196 USA: Short-term interest rates—2005–2018. (Source: Federal Reserve: H.15 Selected Interest Rates for Sep 25, 2018. Our own production) 198 Monetary base and means of payments in the Eurozone (€ billions). (Source: http://sdw.ecb.europa.eu/browse. do?node=bbn27. Our own production) 198 Balance of payments balance in current account accumulated between 2006 and 2017 (US$ trillions). (Source: World Bank: http://data.worldbank.org/indicator/bn.cab.xoka.cd) 201 International Reserves 2017—Selected countries with the largest reserves (US$ billions). (Source: World Bank: http:// data.worldbank.org/indicator/fi.res.totl.cd. Our own production) 201

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List of Tables

Table 2.1 Table 2.2 Table 2.3 Table 8.1 Table 8.2 Table 8.3 Table 8.4

London notebooks (1850–1853) 13 Grundrisse (1857–1858) 13 From money to capital 15 Total assets of banks and other financial institutions (US$ billions) 189 Market value of companies in stock exchanges (US$ billions) 191 Selected government debt securities (US$ billions) 193 Global OTC derivatives market (US$ trillions) 194

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CHAPTER 1

Introduction Helder Gomes, Gustavo Moura de Cavalcanti Mello, Paulo Nakatani, Mauricio de Souza Sabadini, and Adriano Lopes Almeida Teixeira

The recurrent and devastating economic crises, the widened reproduction of inequality and misery, militarism, the unmeasured thirst for surplus value, advancing predatorily not only on the working population but also on nature, to the point of putting at risk the very existence of humanity, in short, the barbaric dynamics of capital once again silenced the death sentences of Marxian criticism to political economy. In particular, after the 2007–8 crisis and amid the popular revolts that responded to their effects,

H. Gomes (*) Post-Graduate Programme in Social Policy, Federal University of Espírito Santo (UFES), Vitória, Espírito Santo, Brazil G. M. de C. Mello • M. de S. Sabadini • P. Nakatani Department of Economics and Post-Graduate Programme in Social Policy, Federal University of Espírito Santo (UFES), Vitória, Espírito Santo, Brazil e-mail: mauricio.sabadini@ufes.br A. L. A. Teixeira Department of Economics, Federal University of Espírito Santo (UFES), Vitória, Espírito Santo, Brazil © The Author(s) 2019 G. M. de C. Mello, M. de S. Sabadini (eds.), Financial Speculation and Fictitious Profits, Marx, Engels, and Marxisms, https://doi.org/10.1007/978-3-030-23360-0_1

H. GOMES ET AL.

Marx’s thinking was revived, leading to a proliferation of efforts to mobilize its analyzes for a critical understanding of contemporary capitalism. As one of its most salient features is the prominence of the financial dimension of accumulation, Marx’s analysis of the fictitious forms of capital has acquired particular interest and in recent years has been the subject of increasing research. It is precisely this investigation that constitutes the fundamental object of the studies gathered in this book. Composed of seven chapters, besides this Introduction, three of them unpublished and the other four revised and expanded versions of articles already published (but unpublished in English), this book tries to synthesize more than 20 years of research and debates fictitious wealth and fictitious capital. Its content suggests the need to distinguish the present stage of capitalist accumulation from the period that stretches from the end of the Second World War to the mid-1970s. This distinction goes beyond the traits of the so-called globalization to the consequences of the restructuring of production and the application of neoliberal policies. The authors seek to emphasize the fundamental characteristics and contemporary specificities of the current stage of the evolution of capital: the domination of fictitious capital over other forms of capital, together with which it forms a contradictory totality. In this sense, the book presents a close reading of fictitious capital and the place it holds in the Marxist exposure of the process of autonomization and subjectivation of capital, emphasizing the power and topicality of the work of Marx. In addition to this logical approach and considering the development of capitalist social formations, the authors explore the historical uniqueness of today’s dynamic of capital accumulation, guided by the appropriation of fictitious profits. From this analysis, the authors provide an explanation of the recent economic crises, highlighting the 2007–8 crisis, and make considerations about the gloomy prospects for capitalism in the immediate future. The fictitious reproduction of capital as a modern novelty is not at issue. The proposal is to consider the special character of this stage of the accumulation of wealth in which the strong dominance of fictitious capital is reproduced over and above other forms of capital throughout the world, particularly going forward from the economic stagnation that began in the late 1960s. This means that the logic of capitalist expansion is currently based on the fictitious production of wealth and the centralized appropriation of fictitious profits. Such conclusions did not, however, arise instantaneously. They began with concerns of researchers Paulo Nakatani

1 INTRODUCTION

and Reinaldo A. Carcanholo, Professors at the Federal University of Espírito Santo since the early 1990s, about what they considered to be limits in the interpretations of Marxist economists of the economic crisis that had been deepening over the preceding decades. The great challenge, proposed by these authors, was to overcome the resistance against updating the embryonic concepts developed by Karl Marx in Capital. They were convinced that dialectic categories, and not finished definitions, should always be considered in the process of transformation, ready to be used at any time and place. If social phenomena are by nature dynamic, in a continuous metamorphosis, then the simplicity of the definitions fails to capture and interpret them with adequate precision. The dialectic perspective overcomes some of the obstacles to the processual construction of knowledge about the current capitalist crises from the Marxist viewpoint. In the face of somewhat imprecise interpretations and to qualify the phenomenon of the current capitalist crisis, the general use of the term financial capital seemed lacking, both in designating the distinct forms that capital interest assumes and in referring to the various modes of speculation that have multiplied since the collapse of the Bretton Woods system in the early 1970s. The quest for greater precision led them to look at the Marxist category of fictitious capital, little investigated at the time, which then became the springboard for the theoretical effort that these researchers undertook. From this point onwards, the authors were able to better interpret the capitalist crisis, seeing it not as inherently problematical, but as an important moment in the search for solutions to the growing contradictions that periodically threaten the widening reproduction of capital. The researchers’ choice was to explore the process of the dematerialization of wealth under capitalism, seeking to understand more precisely the production of fictitious wealth and the various operational practices used for their unequal appropriation. This would be based on the analytical assumption that the journey to the most recent stage in the development of capitalism has required the creation of ever more advanced forms of mercantile relationships. In these relationships, both money and capital are mainly dematerialized from their concrete forms, a phenomenon that gains more significance as speculative creativity advances. This is the result of an intense process of value nullification in which there is an increasing social relevance of the command, by some class factions, over the stock of wealth and, especially, of wealth that could be produced in the future by more sophisticated speculation mechanisms.

H. GOMES ET AL.

Along the same line of investigation, we attempt to make explicit the double character of fictitious wealth and its connections with distinct forms of speculation. According to the authors, a substantial part of fictitious wealth appears as if it were a real wealth. In other words, as appearance is also a dimension of reality, this form of wealth is both fictitious and real at the same time. This means that a unit of fictitious capital can realize the portion of fictitious wealth under its command. From the point of view of appearance, a portion of fictitious wealth can be exchanged for tangible commodities (land, factories, means of consumption, etc.). In other words, in the process of circulation, each new holder of the right granted by possession of a title (which represents a unit of fictitious wealth) could exchange it for any other commodity (real wealth). However, if considered in a broader context (separate from isolated exchanges), a considerable part of the fictitious wealth produced today is revealed. Derivative titles, for example, are a right and can be passed from hand-to-hand, being transferred uninterruptedly, in individual transactions. They can, therefore, be transferred but cannot be consumed or used materially. Their destruction would only happen with the suspension of the belief that their holder could convert it into any real wealth in the future. From an even broader perspective, one realizes that this form of fictitious wealth has no material connection to its effective realization. It exists only as a command power over a promised future wealth, which does not ensure that it will be produced at any future point. Capital has, for decades, found ways of managing the current global economic crisis, creating all sorts of speculative and regulatory instruments that have maintained a system that exponentially multiplies fictitious rights over wealth that, supposedly, will be produced at some unknown point in the future. It is, therefore, a single moment in which fictitious value, in the more sophisticated forms of speculation, contradicts the social relations of current production. The interpretation is, therefore, that this is a structural crisis in which the search for alternatives have only deepened its reproductive dynamism. Starting from a more abstract analysis of the evolution of the forms of current fictitious wealth production, the book sets out concrete relations on the contemporary stage of accumulation, demonstrating how the new management of imperialism has been used for the maintenance of the dollar as a world currency under strong pressure from the European Union and Asian countries, which has required great upheavals in the metamorphosis of state intervention, generating large-scale geopolitical crises.

1 INTRODUCTION

In the second chapter, “The Place of Money in Marx’s Theory of Capital,” Adriano L. Teixeira seeks to place Marx’s theory of money in relation to the major objective of his intellectual thinking, which sought to reveal the shape of capitalist sociability through a theory of capital. Marx’s theory of money appears as a theoretical snapshot before the advent of capital, which, notwithstanding the category of money, assumed the role of protagonist in the process of social reproduction, modifying the forms of capital (money) and reconfiguring the elements of a possible Marxist monetary theory. In the next chapter, “Speculative Capital and the Dematerialization of Money,” Reinaldo A. Carcanholo explores in more detail the process of the dematerialization of wealth under capitalism and presents the practices employed for unequal appropriation through speculation, which has meant the creation of ever more advanced forms of mercantile relationships. As the creative forms of parasitic speculation advance, both money and capital are dematerialized in their concrete forms, throwing off the operational impediments to the expanded reproduction of speculative capital, including creating new forms of regulation of securities transactions, which have come to dominate decisions throughout the capitalist world. Still with the aim of apprehending the concept of money as a moment of the concept of capital, but having as its immediate object the emergence of crypto-currencies, in Chap. 4, “Crypto-currencies: From the Fetishism of Gold to Hayek Gold,” Paulo Nakatani and Gustavo M. de C. Mello, based on the Marxist perspective of money and particularly Marx’s analysis of the fetishism of money and capital, grapple with the nature of crypto- currencies, highlighting their explosive growth in 2017 as a part of the dynamics of the overaccumulation of capital, which has been circling the world for decades, particularly in financial markets, in search of new and old assets that might serve as the means for the appropriation of fictitious income and which have taken on the most foolish and fetishized forms. In its turn Chap. 5, “Financialization and the Contradictory Unity Between the Real and Financial Dimensions of Capital Accumulation,” by Paulo Nakatani, Helder Gomes and Adriano L. Teixeira, rigorously exposes the co-pertinence and contradictions between “real” capital and monetary capital in order to highlight their specificities in contemporary capitalism. To achieve this, the authors unpack the concept of capital in general and its metamorphoses under autonomous functional forms, putting emphasis on the monetary capital form and its reproduction in the credit system. The authors hence established the foundation of the con-

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cept of interest-bearing capital and their fictitious forms. Under such a theoretical framework, we consider the elementary ways in which the functional forms of capital manifest themselves in effective reality. In the following chapter, “Parasitic Speculative Capital: A Theoretical Precision on Financial Capital, Characteristic of Globalization,” written in 1999, Reinaldo A. Carcanholo and Paulo Nakatani analyze the early forms of fictitious capital and apprehend the dual aspects of fictitious wealth which give rise to significantly distinct forms of speculation. Through this investigation, the authors expose the categories speculative capital and parasitic speculative capital as an unfolding of the fictitious capital. Furthermore, Nakatani and Carcanholo defend the heterodox thesis that contemporary capitalism is distinguished by the process of conversion of industrial capital into speculative capital, and its logic is totally subordinated to speculation and dominated by parasitism. In this way, it is the speculative logic of the capital on its circulation and reproduction in the international space that defines this new stage. In the seventh chapter, “Profit, Interest, Rent, and Fictitious Profit,” in the light of phenomena that have gained importance in the recent decades, such as the exponential growth of derivatives markets and the relevance assumed by intellectual property, Mauricio de S. Sabadini and Gustavo M. de C. Mello seek to conceptualize the different forms of income of the capital on the basis of the Marxian analyses of the categories of profit, interest and ground rent. In the light of increasing rate and means of exploitation of the labor force in the midst of a reconfiguration of the international division of labor, we seek to theorize moments of what we call fictitious profits, pari passu, to the expansion of the fictitious forms of capital. Finally, in the last chapter, “The Nature and the Contradictions of the Capitalist Crisis,” Paulo Nakatani and Helder Gomes seek to reveal the privileges achieved by the US economy due to its position in imperialist relations and its reaction to the capitalist crisis and to the threat of the replacement of the dollar as the world currency. Based on empirical evidence on international economic relations, the chapter seeks to demonstrate how the enforcement of the dollar reserve on most countries ends up financing the continuous US external deficits, thereby guaranteeing the fractional reserves model and maintaining US command over the regulation of the speculative race around the world.

1 INTRODUCTION

In short, the texts gathered here are intended to contribute to the updating of Marxist criticism to capitalist barbarism, which, once learned in its totalizing and totalitarian nature, prohibits any reformist whimsy and shows the imperative urgency of theoretical and practical engagement in its overcoming. As Marx correctly grasped, this overcoming corresponds to the determined negation of the capital form, and therefore of reification, heteronomy, competition, hierarchization, and of a whole system of inequalities that is immanent to it. Finally, the destruction of the fetishist forms of subsumption, exploitation and oppression of humanity—the social forms of commodity, money, state, the cultural industry, as well as patriarchy, racism and so on—through the conscious, planned and collective assumption of control over the forms of material and spiritual reproduction of social life. Hic Rhodus, hic salta!

CHAPTER 2

The Place of Money in Marx’s Theory of Capital Adriano Lopes Almeida Teixeira

Introduction Marx’s theory of money has been the subject of increasingly frequent debates among scholars of his work around themes such as the nature of inconvertible money, contemporary monetary forms, financialization, and so on. This interest is partly due to the search for a theoretical structure capable of accounting for the financial phenomena that have occurred since the Bretton Woods crisis, especially in relation to the 2008 crisis, and partly due to a curious attempt to rehabilitate Marx in the economic debate from perspectives that harmonize him with authors like Keynes and others, as if this procedure might confer on him the missing pieces of a monetary theory that could not be developed by him in its entirety. Regardless of the motives for recuperating Marx, it is common to find a procedure that is foreign to the scientific method that guides the process of exposing his theory in Capital. Marx is generally studied in a

A. L. A. Teixeira (*) Department of Economics, Federal University of Espírito Santo (UFES), Vitória, Espírito Santo, Brazil © The Author(s) 2019 G. M. de C. Mello, M. de S. Sabadini (eds.), Financial Speculation and Fictitious Profits, Marx, Engels, and Marxisms, https://doi.org/10.1007/978-3-030-23360-0_2

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sliced form, trying to isolate in his work a theory of money independent of other determinations or a theory of the state, or of art, or of history, and so on. In fact, the perspective of totality adopted by Marx in The Poverty of Philosophy is somewhat alien to the postulants of a positive science, who often make cuts and segment reality, storing each component in specific boxes. Hence, the mainstream mistakes on this theme. The Marxian critique of political economy as discussed in Capital will be the basis from which it will become evident that a rigorous understanding of the category of money in Marx must be made in the light of its concept of capital and its process of reproduction. This requires the linking, therefore, of the distinct levels of abstraction that constitute it, and the nexuses between its fundamental determinations (the “sphere of the essence”) and those specific to the phenomenal plane (the “sphere of appearance”) are investigated. In this sense, this chapter finds its core in chapter three of Capital, where Marx analyzes the determinations of money before the advent of capital, which occurs in chapter four of that work, although it is presupposed from the beginning. This choice underlies the central argument of this work that it is not possible to derive from Marx’s work a theory of money which is totally free from traces of capital.1 In the process of theoretical exposition, money imposes determinations on capital that, on receiving them, projects new determinations onto money. This argument is developed in the following three sections in two ways; firstly, by the description of Marx’s theoretical pathway regarding money, which occupies the first two sections, and secondly, by the analysis of money in Capital, in the last section, and followed by final considerations. In the next section we highlight the importance of money in Marx’s intellectual pathway through a brief description of the various moments and stages of his studies regarding that category. In Section “The Saga of Chapter Three: Money as the Antecessor of Capital”, we analyze what we will call the “Saga of chapter three,” which was Marx’s theoretical effort to construct a methodological bridge between money and capital before the publication of Capital. In the fourth and final section, we analyze how this saga finds its final terminology in the second section of Capital, and then, in a logical sequence, we neatly describe the contradictions proper to money that result in the category, capital.

2 THE PLACE OF MONEY IN MARX’S THEORY OF CAPITAL

Money in Marx’s Intellectual Pathway to Capital Marx’s research on money was not an end in itself nor was it an attempt to contest or perfect this constituent part of nascent economic science. His research on the subject was part of a larger project which was the understanding of the genesis, development, crises, and eventual collapse of capitalist society. Marx arrived in Paris in October 1843 intending to create a newspaper, the Franco-German Annals, in partnership with his friend Arnold Ruge. In that newspaper, Marx published a text, On the Jewish Question, early in 1844, in which money appears only as the raw material of a moral critique, still a long way from his future critique of political economy. During this period, as Bensaid (2010, p. 93) states, “he still did not conceive of money as the general equivalent of generalised mercantile exchange, as the supreme form of commodity fetishism, but only as a monetary fetish … money … is a concept waiting for its critical development.” At that time, under the influence of Engels, who had written Outline of a Critique of Political Economy, and of the philosopher Moses Hess, with his Essence of Money, his inferences about money had an ethical-moral tone and were closely related to a hostile view of capitalist social relations, formed during his time at the Rheinish Zeitung. In some works of that period, and therefore prior to Grundrisse, notably in Hegel’s Critique of the Philosophy of Law of 1843 and in the Economic and Philosophic Manuscripts of 1844, Marx’s relation to political economy was marked by deep animosity (Coutinho 1997). In them, money is also analyzed in the context of an ethical and moral critique of the alienation of labor and private property. Marx’s analysis was still hostage to his condemnatory view of the works of political economists, considered by him as the fruits of cynicism and as intending to provide a theoretical basis justifying the current order. When he analyzes James Mill’s writings on money in the 1844 Paris Manuscripts, Marx emphasizes the centrality of the subject of alienation: The essence of money is not, in the first place, that property is alienated in it, but that the mediating activity or movement, the human, social act by which man’s products mutually complement one another, is estranged from man and becomes the attribute of money, a material thing outside man. (Marx and Engels 1975, p. 212).

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To develop a theoretical concept of money itself, Marx would still need empirical elements. Philosopher in formation, he would spend the following years reckoning with the philosophy of his time. In addition to the texts on Hegel’s Philosophy of Right, Marx writes with Engels, between 1844 and 1846, The Holy Family and The German Ideology. It was only in The Poverty of Philosophy, 1847, that Marx would soften the hostile tone of the Economic and Philosophic Manuscripts, 1844, this being written simultaneously with the Paris Manuscripts, regarding the understanding that cynicism was not a personality trait of political economists, but a reflection of the scientific content of political economy, which had developed tools of analysis capable of illuminating essential aspects of the material relations of existence. Having been expelled from France, Marx arrived in Brussels on February 2nd, 1845, from where he was again expelled on March 3rd, 1848. He returned to France and, after a few months, left for Cologne, capital of the Rhineland, with the aim of founding a newspaper called Neue Rheinish Zeitung. In this, Marx published several articles on monetary, fiscal, and financial management issues. Being expelled again, he left for London, where he would live until the end of his life. He arrived in the English capital at the end of 1849 and had already begun his studies relating to money. The failure of the revolution of 1848 had awakened in Marx an interest in studying economic crises and other essential elements of the circulation process, money, and credit, the starting point of the London Notebooks (See Table 2.1). In his early years in London, Marx resumed journalistic activities, becoming familiar with the financial events of the time. During this period, as a correspondent for the New York Daily Tribune, he closely monitored the movements of the European economy, compiling data on the London Stock Exchange, bank balances, the labor market, industry, and so on. When he felt that a great economic crisis was approaching, Marx finally began to write what he thought was his magnum opus. In Grundrisse, written between 1857 and 1858, money is once again its opening theme, appearing shortly after the well-known Introduction of 1857, as seen in Table 2.2. Marx begins the analysis of money in Grundrisse with a discussion about credit, somewhat surprising when compared to the expository rigor of Capital. He then focuses on a discussion of the relationship between money circulation and balance of payments and goes on to discuss a highly complex topic, the relationship between the means of circulation and price

Table 2.1 London notebooks (1850–1853) Group Period 1st

2nd

3rd

Notebook

Principal themes and authors analyzed

Sept. 1850 I–VII to Mar. 1851

History and theories of economic crises, money and credit/Thomas Tooke, James Taylor, Henry Thornton, Adam Smith, David Ricardo Apr. to Nov. VIII Salaries, ground rent/David Ricardo, James Steuart 1851 IX–X Critical works on Ricardo/John Tuckett, Thomas Hodgskin, Thomas Chalmers, Richard Jones, Henri Carey XI The working-class condition—salaries, workers’ standard of living, strikes, child labor/J. Fielden, P. Gaskell, Thomas Hodgskina XII–XIII Agricultural chemistry—ground rent/Justus Liebig, James F. W. Johnston XIV Debate on the theory of population, pre-capitalist modes of production, colonialism/Thomas Malthus, Archibald Alison, Adolphe D. de La Malle, William H. Prescott. XV History of technology/Johann Poppe, J. gray XVI Diverse questions of economic policy/Bastiat, Proudhonb Apr. 1852 to XVII–XXIV Historical controversies about the Middle Ages, Aug. 1853 history of literature, of culture and customs.

Source: Musto (2010, pp. 81–88) Rubel (1974, p. 315) Rubel (1974, p. 318). Notebook written between October and November 1851

Table 2.2 Grundrisse (1857–1858) Notebook

Period

Content

23 August 1857 to the middle of September

I–II (first seven pages) II III IV V VI VII

October 1857a

Introduction of 1857 Chapter on money Chapter on capital

November 1857 29 November to the middle of December 1857 The middle of December 1857 to 22 January 1858 22 January 1858 to the beginning of February February 1858 The ends of February and March, the end of May and the beginning of June

Source: Marx (2007, pp. 02, 36, 176) a According to Musto (2010, p. 96), “the first draft of Notebook I, which contains Marx’s critical analysis of Banking Reform by Alfred Darimon, was written in the months of January and February 1857, not, as the editors of Grundrisse thought, in October”

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levels. Later, in his investigation of the genesis of money, he moderated his discourse, seeking a path of his own, with increasingly rare references to Darimon. In a sort of rehearsal of what would appear in Capital, his study of the genesis of money begins with commodity. From there the discussion takes another turn. Marx cites the properties of money, all of them arising from the determination which money possesses as exchange value, namely, “(I) measure of commodity exchange; (2) medium of exchange; (3) representative of commodities (hence object of contracts); (4) general commodity alongside the particular commodities […].” (Marx 1993, p. 146). Referring to this latter property, Marx anticipates another dialectical transition, which takes place between money and capital, the fact that the embodiment of the exchange value of all commodities happens through money, converts it into capital, “the form of capital’s appearance which is always valid” (Marx 1993, p. 146). As we can see, Marx’s analysis of money overlaps with his analysis of the nature of capital. Both in the Grundrisse and in subsequent works there are several attempts by Marx to establish the methodological bridge between money and capital. It is no coincidence that the theme of the “transformation of money into capital” appears in three works, namely, the Grundrisse, the Urtext, and the Manuscripts of 1861–1863, which were written by Marx for himself as research and not for publication (See Table 2.3). On the contrary, spurred by a contractual obligation to the editor, Marx began to reveal his findings in the Contribution to the Critique of Political Economy, written between November 1858 and January 1859 (Marx and Engels 1987a, p. 258), reserving the second chapter for the issue of money. Shortly before, between early August and mid-November, he had written a text that became known as the Fragment of the early version of Contribution (Urtext) (Marx and Engels 1987a, p. 548). In this, Marx reserves the greater part for once again analyzing aspects related to money (money as currency, functions of money, precious metals, etc.). Not having the elements necessary to enter into the theme of capital, Marx closed the Contribution to the Critique of Political Economy and, two years later, returned to the same theme, writing hundreds of pages in the Manuscripts of 1861–63 and those of 1864–65, and only in Capital did he feel ready to expose his criticism, in chapter four2 to be precise, entitled “The Transformation of Money into Capital.”

2 THE PLACE OF MONEY IN MARX’S THEORY OF CAPITAL

Table 2.3 From money to capital ●

● ● ● ● ● ●

Paris Manuscripts (1844) analyses of money Brussels notebooks (1847) London notebooks (1850-1853) Grundrisse (Chapter on money – Oct. 1857) transformation of money into capital Urtext (Aug. – Nov. 1858) transformation of money into capital Contribution to the Critique of Political economy theory exposition (Nov. 1858 – Jan. 1859) Manuscripts of 1861-1863 Transformation of money into (notebooks I to V – Aug. 1861 – Mar. (1862) capital Manuscripts of 1864-1865 analyses of the relation of money capital Capital (1867) Theory exposition (begins the book at chapter IV, the transformation of money into capital)

Source: Our own production

The Saga of Chapter Three: Money as the Antecessor of Capital Marx was never an economist strictu sensu. Analyzing economic categories was not the goal of his research, but an intermediate step in understanding the mode of being of capitalist society. For this reason, he clarifies in his foreword to the first edition of Capital: “What I have to examine in this work is the capitalist mode of production, and the relations of production and forms of intercourse [Verkehrsverhiiltnisse] that correspond to it” (Marx 1990, p. 90). In the preface of 1859, he had already indicated that his interest was to unravel the anatomy of bourgeois society (Marx and Engels 1987a, p. 262). In this project, which was at the same time intended to critique economy policy, the category capital would be central.3 In 1857, with an imminent economic crisis of great proportions looming, Marx found himself pressed to write his book on Economics. He wrote the famous Introduction of 1857 based on a long series of studies of the classical economists undertaken over the previous 15 years, in which he stated categorically: “Capital is the all-dominating economic power of bourgeois society. It must form the starting-point as well as the finishingpoint, and must be dealt with before landed property” (Marx 1993, p. 107).4 Capital, therefore, was long known to Marx, who had read the works of Adam Smith, David Ricardo, and others who identified capital with things such as machines, tools, installations, raw materials, and also authors with different perspectives, like Thomas Hodgskin—who was classified by

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some as a Ricardian socialist—who saw capital as much as the means of production as a coercive social relation (Hunt 2011, p. 171). Although familiar with the idea of capital, the problem lay in how to present it. A general idea of capital was not acceptable for an author who, having based his theory on a materialistic conception of history, insisted on taking a different path from the classical economists with their “Robinsonades.” Nor would he start with money. For this reason, Marx goes back in stages toward an earlier simpler idea, an abstraction, but which was at the same time concrete. He went back to value, a category that had already proved inadequate as a starting point in earlier works. Meanwhile, value and money were categories that also had to be deduced and explained. Differentiating himself from the classics, Marx went further and attained the idea of commodity. The classical method of plucking ready and finished categories of reality, as if the researcher had already reached all determinations, was simply not compatible with Marx’s methodology. Money, therefore, is a methodological link preceding capital. Considering that one must be deduced from the other, its antecedent, but appears to be a consequence, Marx would publish new determinations on money that would not appear in the first three chapters of Capital. How money transformed into capital was a real problem for Marx. From Fig. 2.1, it is possible to see how in various works he positions the categories so that capital appears as the result of a logical development. It is observed that capital never appears before money. In the Grundrisse, there are a series of mediations before arriving at capital, as he was still investigating both the determinations of the categories and the logical connections between them, but in Capital, capital appears immediately after the discussion about the money. In Grundrisse, Marx ends the chapter on money and begins that on capital with the following subtitle: “Chapter on money as capital.” Further on, in the section titled “Forms That Preceded Capitalist Production,” he turns to history to understand the transformation of money into capital,5 a process not evident in Capital when focusing only on chapter three. After citing various historical events that marked the beginning of capitalism, he emphasized that “all of these promoted on one side the dissolution of the old relations of production, sped up the separation of the worker or non-worker but able-bodied individual from the objective conditions of his reproduction, and thus promoted the transformation of money into capital” (Marx 1993, p. 508). Therefore, he was able to delineate the theme “It is inherent in the concept of capital, as we have seen – in its

2 THE PLACE OF MONEY IN MARX’S THEORY OF CAPITAL

MANUSCRITOS OF 1861/63 **

CAPITAL

Transformation of money into capital

Commodity

Exchange value

Absolute Surplus-Value

Value

Money

Relative Surplus-Value

Work

GRUNDRISSE

URTEXT

CCEP *

Money

Money as money

Commodity

Form of ownership Money: international means of purchase and of payment

(1857/1858)

Exchange value

(1858)

(1859)

(1867)

Money

Work Transition to capital

Capital

Cap. III – The capital A – Process of capital production 1 – Transformation of money into capital

Fig. 2.1 Ordering of categories in diverse works

origin – that it begins with money and hence with wealth existing in the form of money” (Marx 1993, p. 505) (Fig. 2.1). In early June 1858, Marx interrupted the Grundrisse but soon returned to writing. Already involved in the writing of the Contribution to the Critique of Political Economy, he wrote a letter to Engels dated September 21, 1858, saying, “For the same reason my manuscript is only now about to go off (in 2 weeks), but there will be 2 instalments AT ONCE. Even though I had nothing to do but correct the style of what had already been written, I might sometimes sit for hours before getting this or that phrase right” (Marx and Engels 1983, p. 341). Marx did not keep the promise and, at the end of October, wrote to Engels saying that he would need some weeks more (Marx and Engels 1983, p. 351). He had been busy during that time writing a text composed of three notebooks, of which only a part has been found, the Urtext. In it, Marx develops his study of money and trade and attempted to reveal, for the first time, the subject of the transformation of money into capital. There is also a chapter entitled

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“the manifestations of the law of appropriation in simple circulation,” which precedes the chapter in which Marx deals with the “transition to capital.” According to the “Note to the French edition” of the Contribution to the Critique of Political Economy, these notebooks “are still drawn up in philosophical language very close to the Hegelian vocabulary […] and in them we see Marx indulge in a deduction of the various determinations of capital, starting from the very concept of capital” (apud Marx 2011, p. 16). So, Marx arrived at capital, but he was not yet sure how to make the final exposition of his discoveries. In fact, he had finished the two chapters of the Contribution to the Critique of Political Economy but failed to advance to the third, on capital. He wrote a letter regarding this to Lassalle on November 12th, 1858, saying that the delay in sending the manuscript was mainly due to the following fact: “the material was to hand and all that I was concerned with was the form […]. My aim is not to produce an elegant exposé” (Marx and Engels 1983, p. 354). The difficulty for Marx was not, therefore, stylistic, but methodological. In a letter written between January 13th and 15th, 1859, Marx updated Engels as to the content of the Contribution to the Critique of Political Economy: “The manuscript amounts to about 12 sheets of print (3 instalments) and – don’t be bowled over by this – although entitled Capital in General, these instalments contain nothing as yet on the subject of capital.” Later, he declares himself hopeful, “If the thing is a success, the third chapter on capital can follow very soon” (Marx and Engels 1983, p. 368). When he finished writing the Contribution to the Critique of Political Economy, he writes a letter to Engels on January 21st, 1859, saying “The ill-fated manuscript is ready” (Marx and Engels 1983, p. 369). You can see that he was not enthusiastic about what he had done so far. Without the presence of its protagonist, capital, he had been brought to a halt. The saga of chapter three would advance with time. Marx felt the need for a methodological bridge linking money to capital, only after that could capital be presented. 1860 would be, in large part, spent on the publication of Herr Vogt, a book of around 200 pages in which Marx, in another of his political swipes, responded to the accusations made by Mr. Vogt. The resumption of studies for the writing of a “third chapter” would only take place in the following year, in the Economic Manuscripts of 1861–1863, in which Marx begins the first chapter, The Process of Capital Production, on the theme of “the transformation of money into capital.” The first five notebooks of this manuscript were written between August 1861 and March 1862, containing the sections on “transformation of

2 THE PLACE OF MONEY IN MARX’S THEORY OF CAPITAL

money into capital,” “absolute surplus value,” and “relative surplus value.” Notebooks VI to XV were written between March and November 1862, in which Marx formed new categories and deepened the issue of surplus value from a historical perspective, the greater part of which would be integrated into Book IV of Capital, edited by Kaustsky under the title of “Theories of Surplus Value” (Dussel 2008, p. 21). At last, Notebooks XV to XXIII were written between December 1862 and July 1863 (De Deus 2010, p. 13) and include part of the material corresponding to Book III of Capital (Notebooks XVI to XVIII), a study on machinery (Notebooks XIX, XX, and the last part of V), and the last three on various issues. The Economic Manuscripts of 1861–1863 seem to have given Marx the elements he needed to deal with the subject of the transformation of money into capital, especially, in relation to the first five notebooks.6 After completing these notebooks, Marx radically changed the subject of his studies, demonstrating that he had realized that, after a more judicious treatment of the category of surplus value, he could confront the great exponents of political economy in the following notebooks. The key to explaining Marx’s satisfaction with his progress appears to be in the first five books of the manuscripts and more specifically in the first part. In fact, he only advanced the analysis of relative and absolute surplus value after analyzing “the two components into which the transformation of money into capital is divided.” In this subsection, Marx seems to have found the methodological pathway, the missing link7 in his exposition, in the form of a double contradiction8: The whole movement that money performs to be converted into capital therefore falls into two distinct processes: the first is an act of simple circulation, purchase on one side, sale on the other; the second is the consumption of the purchased article by the buyer, an act which lies outside circulation, takes place behind its back. […] In this consumption process the buyer and the seller enter into a new relation with each other, which is at the same time a relation of production. (Marx and Engels 1988, p. 105)

As Dussel (2008, p. 73) points out, Marx, in Grundrisse, had advanced the matter of “two components” but rather slowly, “with frequent comings and goings, in the logical order of discovery” and with “few advances in the order of exposition.” This was the aforementioned saga, the need to find the proper way to explain the logical-genetic development of the object that starts with the commodity form and arrives at the money form

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(which he had already done), but which would have to arrive at the capital form by the same dialectical method. Marx had already discovered the surplus value in Grundrisse, as well as the role of working capacity in explaining capital. He had also shown that machines and equipment alone do not generate larger amounts of value. In simple circulation, in which commodities and money appear in the exchange process as C-M-C, there could be no appreciation, for they are exchanges of equivalents. For appreciation to occur some transgression in the equivalence of the exchanges is necessary. But how to justify the violation of the law of commercial appropriation, the advent of a time marked both by the exchange of equivalents and by non-equivalents, in which commodity and money appear in inverted form M-C-M’, with M’ greater than M? Marx explains as follows: The first act fully corresponds to the laws of commodity circulation, to which it belongs. Equivalents are exchanged for equivalents. The money owner pays out on the one hand the value of the material and means of labour, on the other hand the value of the labour capacity. […] The second act displays a phenomenon which in its result and its conditions is not only entirely alien to the laws of simple circulation but even appears to be at odds with it. […] There comes into being, outside the simple exchange process, a relation of domination and servitude, which is however distinguished from all other historical relations. (Marx and Engels 1988, pp. 105–106)

With the emergence of commodity “labour capacity,”9 the cycles C-M-C and M-C-M’ coexist. “The worker goes through the form of circulation C—M—C. He sells in order to buy. […] The capitalist, in contrast, goes through M—C—M. He buys in order to sell” (Marx and Engels 1988, p. 135). The emergence of the cycle of capital, M-C-M’, early in chapter four of Capital, cannot be considered as a mere epistemological resource or ideological ploy.10 Marx is just logically deriving the historical emergence of capital. The ontological direction, the quest for the mode of being of capitalist society is the motor of his analysis of that chapter: The circulation of commodities is the starting-point of capital. The production of commodities and their circulation in its developed form, namely trade, form the historic presuppositions under which capital arises. World trade and the world market date from the sixteenth century, and from then on the modern history of capital starts to unfold. (Marx 1990, p. 247)

2 THE PLACE OF MONEY IN MARX’S THEORY OF CAPITAL

It is important to take one last quote from Marx in the Economic Manuscripts of 1861–1863 in the final part of the section on the two components. We started out of circulation in order to come to capitalist production. This is also the course of events historically, and the development of capitalist production therefore already presupposes in every country the development of trade on another, earlier production basis. We shall have to speak of this in more detail. What we have to consider more closely in the following is the development of surplus value. (Marx and Engels 1988, p. 136)

An historical moment stands out in the above quote. The identification of surplus value in Grundrisse marked a fundamental step in the understanding of capital, but it was left to Capital for Marx to deliver a full exposition, to find a way of articulating in one dialectical unit both the aspects of the equivalence of exchange (circulation) and non-equivalence (production). The studies he had undertaken in Grundrisse and Urtext had given him the keystone: historical circumstances had created a new social class, salaried workers, freed from lacking the means of production but possessing a new commodity capable of creating value, the workforce. In the following two years, Marx wrote the Economic Manuscripts of 1864–1865, with themes that would go on to form Book III of Capital, and a version of Book I that was lost, leaving only the unpublished chapter four. In these manuscripts, he was already able to discuss the determinations of money after the advent of capital. Therefore, it goes into themes such as commodities, commercial capital, money capital, interest-bearing capital, fictitious capital, among others. If when finishing the Contribution to the Critique of Political Economy Marx felt dissatisfied with the “wretched manuscript,” Capital seemed to recover his reputation. In its first part, Marx demonstrates satisfaction with what he had achieved in the Contribution to the Critique of Political Economy. He testifies that his analyses of commodity and money, as well as the categorical ordering in which they are regarded as antecedents to capital, although it is predicted by them, were enough for his propositions of that moment. For this reason, in the preface to the first edition of Capital he wrote: The substance of that earlier work is summarized in the first chapter of this volume. This is done not merely for the sake of connectedness and completeness. The presentation is improved. As far as circumstances in any way

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permit, many points only hinted at in the earlier book are here worked out more fully, while, conversely, points worked out fully there are only touched upon in this volume. The sections on the history of the theories of value and of money are now, of course, left out altogether. (Marx 1990, p. 89)

Only in the second edition would Marx revise the format of chapter one to divide it into three chapters, incorporated in section I of the book. In the prologue to the second edition, dated January 24th, 1873, he informs us that such modifications were made for didactic reasons at the suggestion of his friend Kugelmann. On the relevance of the modifications, Marx says: “It would be pointless to go into all the partial textual changes, which are often purely stylistic” (Marx 1990, p. 94). In fact, Marx began to write Book I using the same format adopted in the Economic Manuscripts of 1861–1863, for “the transformation of money into capital,” and only in 1867, in the year in which it was published, did he remove the first chapters of the book and based it on that which he had already written in the Contribution to the Critique of Political Economy, of 1859. In this sense, it is quite significant that Dussel (1990, pp. 22–23) had indicated that Marx had started Book I with precisely the chapter where surplus value appears, chapter four, giving the impression that he had few doubts about what might precede it. Marx could only have begun Capital with chapter four precisely because he had already dealt with money, in all its opacity, in previous works and studies.

The Category Money in Capital In the two previous sections, the aim was to demonstrate the place of money in Marx’s theory of capital by analyzing his intellectual pathway on the theme, highlighting the various moments in which he stopped to investigate monetary issues pari passu with the evolution of his economic thinking, as well as his attempts at unraveling the categories of money and capital. In Capital, his artistic all11 (Fig. 2.2), he found the proper explanatory order of categories,12 seeking to restore theoretically the real process of the formation of the capitalist mode of production. In section I of Capital, in the first three chapters, Marx reveals simple circulation, which is the first appearance of the system. There is no talk here of profit and capital. The analysis begins with commodity, which already contains within it a basic contradiction between the use of value and value. It then analyzes the dual nature of labor in capitalist society,

2 THE PLACE OF MONEY IN MARX’S THEORY OF CAPITAL

Money Form

CHAPTER 1

CHAPTER 2

CHAPTER 3

Process of exchange

Money or the circulation of commodities

Fetichismo da mercadoria “Our perplexity may perhaps have arisen from conceiving people merely as personified categories, instead of as individuals."

“Commodities cannot themselves go to market and perform exchanges in their own right."

"The commodity-form ... It is nothing but the definite social relation between men themselves which assumes here, for them, the fantastic form of a relation between things."

Fig. 2.2 The artistic whole (section I of Capital). (Source: Our own production based on section I of chapter one of Capital. ∗ C = commodity, V = value, W = work, M = money)

concrete and abstract work, and then demonstrates the dialectical development of forms of value until it arrives at money. In chapter one, Marx arrives at money, but does not end it without first introducing a small but dense analysis of the fetishism of the commodity. Only then does he move on to the next chapter, about the exchange process, where he removes any doubts about the real starting point of the exchange. The exchanges happen not because the goods go alone to the market, but because their owners take them (Marx 1990, p. 178). The money form results from a process of value becoming autonomous (Fig. 2.3), in which it continually seeks to surpass the limits imposed by the materiality of use value, which halted any attempt by Marx to interpret money in a conventional way. The simple or fortuitous form of value denotes the gateway to this category in the relationship between producers, since it is the most elementary form of expression of value. Although with different use values, they are even because they have a common substance, constituting the first form of solution of the contradiction between value and use value. The extensive form is constituted by the generalization of exchanges, the relation between two commodities ceases to be a casual fact, and a given commodity will be able to express its value within a group of other commodities.

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The simple or fortuitous form of value denotes the gateway to this category in the relationship between producers since it is the most elementary form of expression of value. Although having different use values, they are equal because they have a common substance, constituting the primary form of solution of the contradiction between value and use value. The extensive form is constituted by the generalization of exchanges, the relation between two commodities ceases to be a casual fact, and a given commodity will be able to express its value in a group of other commodities (Fig. 2.3). The contradiction between value and use value continues, the first seeking to be independent of the second until it arrives at a time when the contradiction, a contradiction between the private character and the social character of the works, finds a new resolution in the general form of value, in which a commodity is more frequently accepted by all and becomes a kind of general equivalent. But at this moment, use value—in this case, of the most accepted commodity—continues to hamper the process of value autonomy until a commodity, whose value of social use is expressing the value of all others, appears as money and becomes the general equivalent

The Genesis of Money Theoretical moments Simple Form

Extensive Form

General Form

Money Form

xA x= wB

xA = w B =zC xxxx =kD =uE

wB=xA zC = kD = uE =

wB= y z C = ounces of kD= u E = gold

Price Form ($)

(germ of the money)

“The simple expression of the relative value of a single commodity,

such as linen, in a commodity which is already functioning as the money commodity, such as gold, is the price form." (Marx, 1990, p.163).”

Fig. 2.3 Development of forms of value

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of the value of all other commodities. On a continuing basis, the price form is the expression of the value of commodities in the form of money. In the third and final chapter of the section, Marx deals with the determinations or functions of money, with the suggestive title “Money or the circulation of commodities.” In fact, the theoretical environment is still that of circulation. If in the study of the genesis of money, a happy ending was reached, Marx will go on in chapter three to show how that apparently resolved tension will continue into the realm of money itself. So, there is a barrier in the path between the genesis of money and capital. As already said, what were two chapters became three, and the desired chapter three, that of the transition to capital, became the fourth, of such importance that Marx reserves the whole of section II solely for it. The question then becomes understanding whether the background or the missing link for the arrival of capital is chapter three, the chapter immediately before capital’s appearance, or whether it resides in chapter four itself. Against the first option is the fact that Marx had said that he had already developed the essentials of money in the Contribution of 1859, which raises the following question: if the missing link is in chapter three, and if Marx already had it in 1859, why would it take so long to deal with the transformation of money into capital? Or, if chapter three completely solves the question of transition, why did Marx not call chapter four simply “capital”? Against the second option is the fact that Marx introduces the category of capital right at the beginning of chapter four, apparently without mediations,13 which does not seem proper to an author who did not present his categories before demonstrating the logical development that led to them, since, in his own words, “it seems to me confusing to anticipate results which still have to be substantiated” (Marx and Engels 1987a, p. 261). We defend a third alternative that, because there is a logical-genetic and historical nexus between them, chapters three and four cannot be dissociated, making the search for the link alone in one chapter or another pointless.14 Chapter three, although imbued with history,15 is principally the presentation of the theoretical instance of circulation, with its prime focus on the logical development of the contradictions internal to money. It is certain, as we shall see later, that capital, though not quoted in chapter three,16 is presupposed, but in chapter four, referring to the emergence of capital, Marx clarifies that “The historical conditions of its existence are by no means given with the mere circulation of money and commodities” (Marx 1990, p. 274). Simple circulation, meanwhile, as a theoretical

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moment developed in the first three chapters of Capital, does not ignore the logical and historical developments of chapter four, where capital, as a value that self-appreciates, appears as a value extracting power. This power stems from the advent of the commodity, workforce, and is the background to the exchange of non-equivalents, as we describe further on. It is no coincidence that the passage below appears at the very end of the Grundrisse chapter on money, shortly before Marx enters into the chapter on capital, whose first section deals with the transformation of money into capital: As we have seen, in simple circulation as such (exchange value in its movement), the action of the individuals on one another is, in its content, only a reciprocal, self-interested satisfaction of their needs; in its form, [it is] exchange among equals (equivalents). Property, too, is still posited here only as the appropriation of the product of labour by labour, and of the product of alien labour by one’s own labour, in so far as the product of one’s own labour is bought by alien labour. (Marx 1993, p. 238)

Similarly, without circulation as a theoretical moment prior to capital, it would not be possible to understand the emergence of a special commodity, the workforce, since it is in circulation that its buying and selling take place. This third alternative, which does not consider it possible to find the dialectical genesis of capital in either one chapter or other in isolation, is certainly related to Marx’s method of exposition. In Grundrisse this junction is explicitly presented since Marx is investigating and articulating several categories at the same time, without concern for the dialectical exposition of theory, whereas in Capital he sought to organize the exposition, discarding elements that were necessary to the research and which were not obliged to appear there.17 The same can be said when comparing Capital with Contribution when Marx (1990, p. 89) makes points in the preface to the first edition of Capital that had only been indicated and developed in Contribution and that the reverse had also happened, in addition to pointing out that the part on the history of the theory of the value and the money had been eliminated. In this sense, while in Grundrisse, written without rigorous theoretical exposition, the categories are articulated in a more measured and explicit way, in Capital, the exposition demanded that Marx separate, apparently abruptly, simple circulation (exchange of equivalents) from the next section in which, as its antithesis, would appear as the exchange of non-equivalents.18

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Chapter four, then, supplies the fundamental historical ingredient required for the emergence of capital, the workforce. It is necessary, then, to demonstrate how the contradictions of money described by Marx in chapter three engender the development of categories that allowed him to dialectically derive capital from the functions or determinations of money19 As a general equivalent, money resolved, albeit temporarily, the basic contradiction of capitalism between use-value and value, which found its resolution in exchange. But this contradiction, which is also the contradiction between the private and the social character of work, never finds a definitive solution. The contradiction of money always tends toward temporary solutions that produce even sharper contradictions. When it appears as the general equivalent, the commodity money, which has its material representation in gold, has the attribute of measuring the values of all commodities, and it does so because it has value in its concreteness. With this function or determination,20 that of measure of value, money still faces the complex contradiction between the private and the social character of work. This is because money functions as a measure of value but cannot measure the value of commodities because what gives substance to value, abstract labor, is only realized at the time of exchange. Furthermore, commodity money itself may vary in value, causing difficulties for the measurement of various other commodities—hence the requirement that values be expressed through prices, and that money, in its function of value measurement, must appear as a price standard, forming the first contradiction, as indicated in Fig. 2.4. In Marx’s words: As measure of value, and as standard of price, money performs two quite different functions. It is the measure of value as the social incarnation of human labour; it is the standard of price as a quantity of metal with a fixed weight. As the measure of value it serves to convert the values of all the manifold commodities into prices, into imaginary quantities of gold; as the standard of price it measures those quantities of gold. (Marx 1990, p. 192)

Money as a price standard, therefore, resolves the problems of money as a measure of value, both by allowing the flexibility required by value in its social form21 and by deciding the variability of value, rather than a fixed weight of metal. When operating as a price standard, conditions are established for money to function as a means of circulation because for goods to circulate it is necessary that their prices can be expressed in the same

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FROM MONEY TO CAPITAL 2nd Contradiction

1st Contradiction

...

Money as the General Equivalent

measure of value x price standard

chapter I

measure of value x means of circulation

3rd Contradiction

chapter III

Simple Circulation (C – M – C) Section I

means of circulation x treasury / means of payment

Processing Contradiction

capital

...

chapter IV (M – C – M’) Section II

Fig. 2.4 The contradictions in motion

way, in the same element. This opens the doors to the next contradiction between money as a measure of value and as a means of circulation (arrow b in Fig. 2.4), since, as Marx (1990, p. 221) says, “Money takes the shape of coin because of its function as the circulating medium.” As the goods express their value in fixed weights of gold, circulation will reduce the coins through natural wear and tear, which together with the frauds and forgeries that have occurred historically, will promote the process of dissociation between the material content and the actual content of the currency. Hence, the contradiction in which “The weight of gold fixed upon as the standard of prices diverges from the weight which serves as the circulating medium, and the latter thereby ceases to be a real equivalent of the commodities whose prices it realizes. […] Their function as coins is therefore in practice entirely independent of their weight, i.e. it is independent of all value” (Marx 1990, pp. 222–223), allowing gold to be replaced by metal codes or symbols. Up to this point, Marx had not presented capital. It arises as a result of the unfolding of these internal tensions of money. The next contradiction, the third contradiction in Fig. 2.4, is that between money as a means of circulation and money in its third determination, as treasury and as a means of payment.22

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In this third determination, new contradictions manifest themselves, propelling money out of circulation. In Capital, Marx said, “Instead of being merely a way of mediating the metabolic process [Stoffwechsel], this change of form becomes an end in itself” (Marx 1990, p. 228), but the passage that correlates to Grundrisse is even clearer: “M-C-C-M; in which money appears not only as medium, nor as measure, but as end-in-itself, and hence steps outside circulation” (Marx 1993, p. 215); he further added: “The third attribute of money, in its complete development, presupposes the first two and constitutes their unity” (Marx 1993, p. 216). The path to the advent of the capital category is being paved, but it is significant that Marx indicates that this third determination “already latently contains its quality as capital” (Marx 1993, p. 216). If in this third determination, analyzed by Marx in the third chapter of Capital, capital appears only in a latent form, we shall look in the next chapter for the nexuses that bring capital out of its latent state. Because of this, we have previously argued that the internal contradictions of money analyzed by Marx in chapter three, become new contradictions, which he would only investigate in chapter four, although it is already possible to extract from the determinations of money as treasury and as means of payment those elements latent to building the process of transition from money to capital.23 In the treasury and means of payment functions, money moves away from circulation. If the cycle that places money as a measure of value and as a means of circulation was the C-M-C, in its third determination the circuit becomes the M-C-M′. As Marx points out in the previous cycle, C-M-C, whose purpose was value in use, the possessors of commodities arrived at the moment of exchange bearing equivalents of value; in the circuit M-C-M′, in which money becomes an end in itself and becomes autonomous from circulation, the objective is the acquisition of money at an enlarged scale. In fact, historical conditions have spawned this process, and they must be summoned to illustrate the next steps of category development. So, Marx (1990, pp. 232–233) states that “But with the development of circulation, conditions arise under which the alienation of the commodity becomes separated by an interval of time from the realization of its price,” and further on, referring to the function of means of payment added, “the relation between, creditor and debtor does have the form of a money-relation – was only the reflection of an antagonism which lay deeper.” The fundamental contradictory relationship from which the

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transition can be presented resided in what Marx had already discovered in the Manuscripts of 1861–1863, when he points out a singular relation of purchase and sale, “a new relation with each other, which is at the same time a relation of production” (Marx and Engels 1988, p. 105). So, value continues along its path of becoming autonomous toward a stage in which it will acquire the conditions of self-appreciation as capital. Before that, Marx indicates only the contradictions of money as money. As for money as treasury, he says that the impulse to hoard has no limit, imposing from there the contradiction between what is qualitatively infinite and what is quantitatively limited. The first, because it is the general representative of wealth and can be exchanged for any other commodity; the second, for having to appear as a definite and limited sum of money. “This contradiction between the quantitative limitation and the qualitative lack of limitation of: money keeps driving the hoarder back to his Sisyphean task: accumulation […] The more he produces, the more he can sell” (Marx 1990, p. 231). Money as a means of payment also has the tendency to become autonomous from circulation: There is a contradiction immanent in the function of money as the means of payment. When the payments balance each other, money functions only nominally, as money of account, as a measure of value. But when actual payments have to be made, money does not come onto the scene as a circulating medium, in its merely transient form of an intermediary in the social metabolism, but as the individual incarnation of social labour, the independent presence of exchange-value, the universal commodity. This contradiction bursts forth in that aspect of an industrial and commercial crisis which is known as a monetary crisis. (Marx 1990, pp. 235–236)

As Paulani (2011, pp. 60–61) reminds us, either as a treasure or as a means of payment, money is absent from the effective circulation. The “golden chrysalis” arrives at money by these two determinations. It is the moment when the sphere of production begins to appear more often in this evolving category. As a treasury, the solution is to produce more and, in this sense, “hoarding […] presses to surpass itself” (Reichelt 2013, p. 223). In a related section in Grundrisse, Marx (1993, p. 460) makes the issue explicit: “But the hoard is transformed into capital only by means of the exploitation of labour.” It appears, or ideally forms, as a means of payment, in compensations or effectively in the payment of balances, the solution is the adoption of speculative practices that enable the conclusion of the cycle, that is, the

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purchase and sale of goods, at a moment in which the greater objective is no longer the acquisition of use-value but value. Credit-money, which originates directly from the function of money as a means of payment, is the vehicle within the credit system for the rehabilitation of this functionality, and thus, “the function of money as a means of payment undergoes expansion” (Marx 1990, p. 238). By making the purchase of merchandise feasible by someone who had not yet sold his interest emerges, which in its turn will be paid with part of the surplus generated in production. Once again, production makes its entrance on the stage as the locus of the generation of surplus value in such magnitude that it exceeds the payment of interest. However, “Credit-Money on the other hand implies relations which are as yet totally unknown, from the standpoint of the simple circulation of commodities” (Marx 1990, p. 238). This warning from Marx refers to what is essential in the argument developed here. Although, as mentioned, capital is already latent in the third determination of money, its full emergence is not to be found there. Just as for credit-money, the emergence of speculative practices from money as a treasury and as a means of payment, while reaffirming the antediluvian forms of capital, belongs to a later point in the exposition to be developed in Book III. The necessary mediations in the transition from money to capital are articulated throughout chapter three, but advance and find their final term only in chapter four, where production appears as original source of surplus. On this theme, Marx (1990, p. 266) points out: It can be understood, therefore, why, in our analysis of the primary form of capital, the form in which it determines the economic organization of modern society, we have entirely left out of consideration its well-known and so to speak antediluvian forms, merchants’ capital and usurers’ capital.

Following his analysis in chapter three, Marx points out that the form of manifestation of money makes no difference (Marx 1983, p. 116). What matters is the generation of new value, of surplus value, and as such, it cannot arise in simple circulation, an environment in which the exchange of commodities of equivalent value predominates, because “If equivalents are exchanged, no surplus-value results, and if non-equivalents are exchanged, we still have no surplus-value. Circulation, or the exchange of commodities, creates no value” (Marx 1990, p. 266). The logical unfolding of the categories found its limit24 in an indication that the success of the logical exposition that transformed value into

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money would not be repeated in the transformation of money into capital. On “the limits of the dialectical form of exposition,” Reichelt’s observation (2013, p. 17) is quite illuminating as far as a self-criticism made by Marx is concerned, “In this statement Marx refers to the existence of the working class, whose emergence cannot, itself, be developed from the concept.” It was necessary, therefore, to seek what was specific to capitalist society, a time to call upon history.25 In Grundrisse, Marx (1993, p. 460) gives a succinct explanation of this process: On the other side, much more important for us is that our method indicates the points where historical investigation must enter in, or where bourgeois economy as a merely historical form of the production process points beyond itself to earlier historical modes of production.

Although Marx points out the importance of identifying moments of history, this does not appear conspicuously in chapters three and four of Capital. This apparent abandonment of the dialectical method, as recognized by Bidet, seems more to be related to the difficulty of the exposition. Only at the end of chapter four, with the advent of the commodity workforce is history explicitly “summoned.” However, the workforce, as a commodity, is already the product of capital, which shows that capital was presupposed from the beginning, and that Marx did not, therefore, abandon the dialectic in the transformation of money into capital but only respected the limits of the method. The fact that the concept of capital could not be explained previously made the method remain hidden26 (Reichelt 2013, p. 17). It is interesting to note that Marx’s entire exposition in Capital on the autonomy of value and the role of the workforce in developing the theoretical-methodological bridge between money and capital had already appeared in Grundrisse, in a nascent form, in the chapter on money, on the relation between exchange value and wage labor. Referring to the value of exchange, Marx says that historically it was not the nexus rerum and only became possible in capitalist society under one condition: wage labor. “Labour must directly produce exchange value, i.e. money. It must therefore be wage labour” (Marx 1993, p. 224). The term still used is exchange value, not value; here Marx is already signaling that in the process of value becoming autonomous it is imperative to consider the advent of wage labor in the commencement of a period when money, as the “material representative of universal wealth,” became the ultimate goal.

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In summation, Marx, who in Capital had already advanced the analysis of the dialectical transitions of commodity to value and from value to money, followed this with the demonstration of the transition from money to capital, for which surplus value would be essential to the fundamental explanation of surplus. This was implied in new determinations for value. If at first the value was an attribute of commodities, it was necessary to show how this value becomes substantive, becoming the subject of a process in which it acquires the capacity to self-appreciate, a requirement already contained latently in the third determination of money. This explanation would have to confront two contradictions, without which surplus value could not be demonstrated and which, in our view, was the cause of Marx’s delay in finding the proper form of exposition for chapter four, the one we have called here the “Saga of chapter three”: firstly, the fact that it has to arise within and outside of the circulation; and secondly, the need to explain it as capable of accepting the exchange of equivalents and non- equivalents at the same time. In the first subsection of chapter four, Marx says: “The value originally advanced, therefore, not only remains intact while in circulation, but increases its magnitude, adds to itself a surplus-value, or is valorized [verwertet sich]. And this movement converts it into capital” (Marx 1990, p. 252). Unlike those who explained surplus as stemming from a swindle in trade, Marx demonstrated in the following subsection that “The formation of surplus-value, and therefore the transformation of money into capital, can consequently be explained neither by assuming that commodities are sold above their value, nor by assuming that they are bought at less than their value” (Marx 1990, p. 263). Circulation is the fundamental sphere of realization of value that has been generated in production. Explaining surplus value based on the assumption that goods should be exchanged for their values was completely original: We therefore have a double result. The transformation of money into capital has to be developed on the basis of the immanent laws of the exchange of commodities, in such a way that the starting-point is the exchange of equivalents. The money-owner, who is as yet only a capitalist in larval form, must buy his commodities at their value, sell them at their value, and yet at the end of the process withdraw more value from circulation than he threw into it at the beginning. His emergence as a butterfly must, and yet must not, take place in the sphere of circulation. (Marx 1990, pp. 268–269)

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So, as already mentioned, in section I of Book I, Marx expounds simple circulation, which is the immediate appearance of the system. He made section II prominent given the importance and centrality of matter. Section II contains only chapter Four, unlike the other sections or parts of Book I, which are composed of several chapters. Marx used section II solely for developing and presenting surplus value in a sort of antithesis of the former. Section I deals with simple circulation, in which all individuals are owners of commodities and free to buy and sell in a world where equality of conditions and equivalence prevails in trade. Without cancelling out, suppressing or discarding the equivalence dimension that prevails in the sphere of circulation, section II introduces the view of the loss of property by some, inequality and non-equivalence. The second section is not a pure rejection of the first.27 The second section confronts the first, to shock it, so that the appearance, as a manifestation of reality, is incorporated into the whole. To understand the genesis of capital, it was necessary to abandon the sphere of circulation, but now immune to the illusions which this sphere presents at first sight, descend into the subterranean world of production, and to turn our eyes to circulation as the surface of the system. In the first section of Capital, equality and freedom reigned; in the second Marx sought to unveil the essence and showed how these attributes are transformed into their opposites. Only there does surplus value appear as the antithesis to that laid out in section I. Marx left the world of circulation and entered that of production to redeem surplus value. He discovered the workforce, a commodity resulting from a historical development that alienated the worker from the means of production. In this, the worker gives the capitalist the value of his labor and receives the value of his workforce. The excess is the surplus value. Therefore, by calling upon the category of totality within which the isolated parts are linked, Marx, who had traveled through the environment of simple circulation, summoned the opposite pole, that of inequality, that of the transgression of the law of mercantile appropriation, which had the exchange of equivalents as its principle: The exchange of equivalents, the original operation with which we started, is now turned round in such a way that there is only an apparent exchange, since, firstly, the capital which is exchanged for labour-power is itself merely a portion of the product of the labour of others which has been appropriated without an equivalente. (Marx 1990, p. 729)

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If, from the point of view of the exchange value, the equivalence of values has been maintained, now, from the point of view of use-value, the transgression of that equivalence occurs. Contradictions, therefore, do not demarcate specific cases\ but integrate the constitutive logic of being from which the advent of capital can be understood.

Final Considerations It is quite common to illustrate Marx’s method by the constant inclusion of the development of the forms of value in subsection III of chapter one of Capital. There, shunning the ahistorical impulses of the method of political economists like Ricardo, he describes the logical evolution from value to its autonomous form, money. The odyssey of capital exposed in his most famous work may be even more representative of his style of doing science by a method that at every moment advocates the subject’s dependence on the internal determinations of the object being investigated. It was necessary to leave money willingly, as happened with commodity, to accompany it in its “metaphysical subtleties and theological niceties” (Marx 1990, p. 163), and only then, by following its contradictions closely, unravel the determinations that led to capital as a defining element of a new sociability. Money is embedded in the universe of social relations of a new time. It is not possible to remove it without the building, the artistic whole, collapsing completely. As he stated in the foreword to the first edition of Capital, what Marx set out to research was the capitalist mode of production, which has capital as a central element and which subsumes all previous social forms. However, bearing in mind Marx’s warning about the difference between the method of investigation and the method of exposure, money must appear as antecedent to capital, to determine it and be determined by it. This is a requirement of the exposition process, although money has also historically predated capital. In this way, we can say that there is no theory of money in Capital. In his critique of political economy, clarifying the form of being of capitalist sociability, the category of money is seen by Marx as a moment, one of the dimensions of social life, an element subsumed by capital, whose forms of existence are the fetishized expression of relations of capitalist production. Possibly, the search for a theory of money in Marx, and by Marxists, stems from the very fetishism that surrounds it. This error is made more serious when that attempt is made by only exploring the famous chapter 3

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of the first volume of Capital. In this volume, the concern is with the process of capital production, for which its genesis is a fundamental element. The advent of a time when money became an end in itself, demarcated the protagonism of capital in the set of social relations that, assuming such a centrality, lifting money to an even higher level of mystification and at the same time giving it new determinations. In the continuity of his work, Marx reconfigured the role of money in the dynamics of capital accumulation, whether in the sphere of circulation (Book II) or in the multiple capitals in the universe of competition (Book III). In it, capital began to present itself as a contradiction in process, moving continuously through the change of its forms, of which one is money, in the form of money capital. With the functional forms of capital (money capital, productive capital, and commodity capital) becoming autonomous and with the explicit appearance of credit in Book III, Marx advanced to the study of what he had just quoted in Book I, Credit- Money, and also to what he calls the most fetishized form of capital, interest-bearing capital, in which money appears to be capable of generating more money. In this way, monetary capital becomes autonomous in the form of interest-bearing capital, which becomes a commodity with a specific use-value, that is, the generation of value. Interest-bearing capital is, therefore, a category derived from monetary capital, which, as money acting in the credit system, will give rise to a mass of securities as a right to future income, which constitutes the category of fictitious capital. We observe that all these developments of money, in Books II and III, cannot deny the expression of capital which, as Marx pointed out, was already latent in the third determination of money.

Notes 1. This claim confronts two problems: on the one hand, it may sound like a truism to those already familiar with Marx’s work, but, on the other, may seem to be incoherent to the proponents of alternative theoretical currents, even, and perhaps most importantly, for those considered heterodox, who, unaffected by the dialectical method, recognized (or only heard) how much Marx had delved into the subject of money. 2. In all the Brazilian translations of The Capital and in the renowned Spanish translations of the Siglo XXI and of Fondo de Cultura Económica, section II is composed only of chapter four, unlike the one published in English by Penguin Books, in which section II is distributed in three chapters.

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3. We will not here track the evolution of Marx’s theoretical thought which culminated in the election/discovery of the category of capital as the center of his analysis nor will we attempt to indicate the various stages in which category appeared in Marx’s work until it found relative maturity in the Grundrisse. What is in focus here moves away from the period of the young Marx to find a place in the time that begins with The Introduction of 1857, passes through the Grundrisse (1857/1858) and the Contribution to the Critique of Political Economy (1859), and ends with the definitive choice of commodity as the starting point in Capital. 4. This quote is taken by some as proof of the methodological rupture between the Marx of Introduction and the Marx of Capital since the latter has commodity as the starting point. 5. Later, we will also highlight how in Capital history plays a fundamental role in the passing of money to capital, although the categorical ordering of this work seems to give history a lesser weight, a mere accessory, given the vigor and prominence of the logic of the exposition. It is in this sense that Marx (1990, p. 102), in postponing it to the second German edition of Capital, that Marx advertised the moment for revealing the results of his research: “if the life of the subject-matter is now reflected back in the ideas, then it may appear as if we have before us an a priori construction.” 6. Although not widely studied, even by Marxists, these manuscripts are regarded by authors, such as Heinrich (1989, p. 64), as the vital link between the Grundrisse and Capital. According to Dussel (2008, p. 18), “the Economic Manuscripts of 1861–1863 are to be considered as parts of Chapter III.” 7. Medeiros and Leite (2018) use the term “missing link” to indicate the categorical development from which capital can appear in Marx’s work. 8. In Grundrisse, Marx (1993, p. 274) began to deal with this double contradiction, but at the time he referred to labor, not to labor force, as the commodity owned by the worker: “If we consider the exchange between capital and labour, then we find that it splits into two processes which are not only formally but also qualitatively different, and even contradictory: (I) The worker sells his commodity, labour, which has a use value, and, as commodity, also a price, like all other commodities (…).” 9. Marx changed the term labor capacity to labor force in Capital. 10. Referring to the transition from money to capital made by Marx in Grundrisse, Bidet writes (Bidet 2010, p. 115): “this dialectical attempt is not therefore conclusive.” Just as Marx’s formulation in the Economic Manuscripts of 1861–1863 bears similarities to the production of Grundrisse, it is possible to say that same applies to Grundrisse, and that only in Capital does “Marx therefore proceed in a totally distinct manner (…) starting from the ideological formulation of every holder of money who makes capitalist use of it.”

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11. In a letter to Engels dated July 31st, 1865, Marx says “(…) the advantage of my writings is that they are an artistic whole, and this can only be achieved through my practice of never having things printed until I have them in front of me in their entirety” (Marx and Engels 1987b, p. 173). 12. We will refer to Grundrisse when the development of the category appears more clearly in it. 13. We do not agree with a possible objection to this question, when some say that this should be merchandise, because Marx would have started his work with category, only to explain it later, since in this case it was the ground zero of that starting point, a debate that would take us away from the subject of this chapter. 14. Specifically discussing the transformation of money into capital, Campbell (2013) makes a thorough analysis of Marx’s argument throughout chapter 4, section II of Capital and stresses the importance of that chapter in understanding the transition. 15. “The economic categories already discussed similarly bear a historical imprint” (Marx 1990, p. 273). 16. References to capital in chapter three are made by Marx only in footnotes and are unrelated to the discussion of capital in its general form. 17. “It would therefore be pointless to counterpose the later, ‘more realistic’ seeming version of the solution in Capital to the more ‘metaphysical’ one in the Rough Draft. Both are the product of Marx’s dialectical method, and should therefore be accepted or rejected by the same token. The difference lies only in the method of presentation” (Rosdolsky 1977, p. 189–190). 18. Marx will be dealing with a methodological problem that runs through the causal relationship between the first constitution of a market within which the purchase and sale of the merchandise “workforce” operates, and the very role of the workforce for the constitution of a society of capital. 19. We recognize here the influence of the arguments of Leda Paulani (2011). 20. We will not enter into the debate that seeks to distinguish between the functions and determinations of money. 21. “The possibility, therefore, of a quantitative incongruity between price and magnitude of value, i.e. the possibility that the price may diverge from the magnitude of value, is inherent in the price-form itself. This is not a defect, but, on the contrary, it makes this form the adequate one for a mode of production whose laws can only assert themselves as blindly operating averages between constant irregularities” (Marx 1990, p. 196). 22. Following a common procedure, we chose not to deal with the role of world money in the movement from money to capital. In Marx’s concept in Capital, world money must appear in its material form, as gold money, a kind of synthesis of the other two functions, namely, treasury and means

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of payment: “World money serves as the universal means of payment, as the universal means of purchase, and as the absolute social materialization of wealth as such (universal wealth)” (Marx 1990, p. 242). Therefore, the analysis of the two functions, which together with world money constitute the third determination of money, seemed to us satisfactory for the purposes of the section. 23. Considering Marx’s dialectical method, it seems almost redundant to claim that it is possible to extract from Marx’s analysis the elements for understanding the process of transforming money into capital. But, the repetition of the term “latent” here was not accidental, for we wish to emphasize that, even though it is possible to rebuild the logic of the genesis of capital from chapter three, we do not understand that Marx intended to confine all elements of the “transition” to that chapter, regardless of theoretical developments throughout chapter four. 24. The incomprehension of this limit led authors like Bidet (2010, 113) to consider that, in the passage from money to capital, Marx would have given up dialectics and break with, “the course of an explanation that we could qualify until present as dialectical-systematic (…) That is why it is impossible, in this sense, to “pass dialectically” from money to capital.” A similar position is held by Saad-Filho (2002, p. 13) who, while vindicating Ilyenkov’s materialistic dialectic, states that “Marx does not derive the concept of capital from the concept of commodity (…) He uses materialist dialectics to investigate a ‘real fact’ – the fact that the money placed in the capitalist circulation, passing through all its metamorphoses, brings a return: surplus value.” Saad-Filho seems to confuse research with exposition, and thus the dialectics he invokes is guided by purely epistemological motivations and can be “applied” to investigate the real, without accounting for the role of history (already investigated) in Marx’s mode of exposition. 25. As Luporini (1974, p. 25) points out, “In Capital, the genetic-formal – that is, the systematic development of ‘forms’ or figures – is only possible through the insertion of the genetic-historical into certain points.” The same author, in a later passage, transcribed Marx’s well-known passage on the transformation of money into capital and concluded “The presence of such a variable, that is, the presence of the historical-genetic component is what makes the systematic construction of the model possible” (Ibid., p. 33). 26. Regarding this issue, Rosdolsky (1977, p. 189) clarifies: “It can be seen that this is the same solution to the problem which we have already encountered in Volume I of Capital; except there the solution is present in its finished form, with the intermediary stages left out, whereas here, we can observe it, as it were, in statu nascendi.”

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27. It should be noted that section II continues to address a fundamental aspect of the appearance, that is, the buying and selling of the workforce. On this, Campbell (2013, p. 151) develops as follows: “Because circulation is a permanent process, but it is incapable of recreating itself, it presupposes capital. By this, our conception of circulation is transformed: what was formerly conceived as simple circulation, now reveals itself as the sphere of circulation, a phase of the circulation of capital and ‘simple circulation’ – the conception of commodity exchange, independent of capital – is recognised as the appearance of the capitalist mode of production.”

References Bensaid, D. (2010). Posfácio – ‘Na e pela história’: reflexões acerca de Sobre a questão judaica. In K. Marx (Ed.), Sobre a questão judaica (pp. 75–119). São Paulo: Boitempo. Bidet, J. (2010). Explicação e reconstrução do Capital. Campinas: Editora Unicamp. Campbell, M. (2013). The transformation of money into capital. In R. Bellofiore, G. Starosta, & P. D. Thomas (Eds.), Marx’s laboratory: Critical interpretations of the grundrisse (pp. 149–175). Leiden/Boston: Brill. Coutinho, M. (1997). Marx: notas sobre a teoria do capital. São Paulo: Editora Hucitec. De Deus, L. G. (2010). Apresentação. In K. Marx (Ed.), Para a crítica da economia política. Manuscrito de 1861–1863 (Cadernos I a V. Terceiro capítulo – O capital em geral) (pp. 09–19). Belo Horizonte: Autêntica Editora. Dussel, E. (1990). El último Marx (1863–1882) y la liberación latinoamericana. Cidade do México: Siglo Veintiuno Editores. Dussel, E. (2008). Hacia un Marx Desconocido. Un comentario de los Manuscritos del 61–63. Cidade do México: Siglo Veintiuno Editores. Heinrich, M. (1989). Capital in general and the structure of Marx. Capital & Class, 13(2), 63–79. Hunt, E. K. (2011). History of economic thought: A critical perspective. New York: M. E. Sharpe. Luporini, C. (1974). Dialética marxista e historicismo. In C. Luporini & E. Sereni (Eds.), El concepto de formación económico-social. Buenos Aires: Siglo XXI. Cuadernos Pasado y Presente, 39. Marx, K. (1990). Capital. A critique of political economy (Vol. 1). London: Penguin Books. Marx, K. (1993). Grundrisse. London: Penguin Book. Marx, K. (2007). Elementos Fundamentales para la Crítica de la Economía Política (Grundrisse) (Vol. 1). Madri: Siglo Veintiuno Editores. Marx, K. (2011). Nota da edição francesa. In K. Marx (Ed.), Contribuição à crítica da economia política . São Paulo: Martins Fontes.

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Marx, K., & Engels, F. (1975). Collected works (Vol. 03). London: Lawrence and Wishart. Marx, K., & Engels, F. (1983). Collected works (Vol. 40). London: Lawrence and Wishart. Marx, K., & Engels, F. (1987a). Collected works (Vol. 29). London: Lawrence and Wishart. Marx, K., & Engels, F. (1987b). Collected works (Vol. 42). London: Lawrence and Wishart. Marx, K., & Engels, F. (1988). Collected works (Vol. 30). London: Lawrence and Wishart. Medeiros, J. L., & Leite, L. M. (2018). Em busca do elo perdido: sobre a gênese dialética da categoria capital. Outubro, 31, 45. Musto, M. (2010). The formation of Marx’s critique of political economy: From the studies of 1843 to the Grundrisse. Socialism and Democracy, vol. 24, n. 2 (July 2010) 66–100. Paulani, L. M. (2011). A autonomização das formas verdadeiramente sociais na teoria de Marx: comentários sobre o dinheiro no capitalismo contemporâneo. Economia, 12(1), 49–70. Reichelt, H. (2013). Sobre a estrutura logica do conceito de capital em Karl Marx. Campinas: Editora da Unicamp. Rosdolsky, R. (1977). The making of Marx’s ‘Capital’. London: Pluto Pres. Rubel, M. (1974). Les cahiers d’études de Marx. In Marx: critique du marxisme (pp. 301–359). Paris: Payot. Saad-Filho, A. (2002). The value of Marx. London: Routledge.

CHAPTER 3

Speculative Capital and the Dematerialization of Money Reinaldo Antonio Carcanholo

Introduction The discussion around the current economic globalization of capitalism and the emphasis that many authors have placed on the idea that the international dominance of financial capital is one of its most important characteristics has focused us on this concept and its relationship to Marxist thinking. Our main concern is to relate it to Marx’s theory of value, seeking to find precisely the nexuses he presents, along with the relevant categories developed on them. Our efforts have led us to the conviction that, at least from a point of view derived from Marx’s theory of value and capital, the concept of financial capital is entirely vacuous, as has been exposed in a previous work

This chapter was originally published in Portuguese with Revista da Sociedade Brasileira de Economia Política, 8, pp. 26–45, in 2001, and was translated into English by Kenton James Keys. R. A. Carcanholo (*) Department of Economics and Post-Graduate Programme in Social Policy, Federal University of Espírito Santo (UFES), Vitória, Espírito Santo, Brazil © The Author(s) 2019 G. M. de C. Mello, M. de S. Sabadini (eds.), Financial Speculation and Fictitious Profits, Marx, Engels, and Marxisms, https://doi.org/10.1007/978-3-030-23360-0_3

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(Carcanholo and Nakatani 1999). This conclusion has been met by some disagreement, but no substantive arguments have been presented so far to support the employment of that category.1 It is possible that they will appear soon, and perhaps, some elements presented here may facilitate this dialogue. It is also necessary to recognize that the concepts of speculative capital and parasitic speculative capital, presented for the first time in the work mentioned above, are not easy to grasp, as they stem from concepts such as industrial capital and fictitious capital developed by Marx only after numerous determinations, the wider understanding of which is often impaired by insufficient knowledge of his work. We made a significant effort in that previous work to make it as educational as possible, but we accepted that difficulties would still exist. Our objective here is to present some refinements to these concepts to clarify our point of view, to facilitate the understanding of certain aspects proposed in that text, and to discuss some of the objections that have arisen. In the second part of this work we will discuss aspects related to the concept of speculative capital, in particular (a) the redundancy implicit in this term, as speculation is an inherent part of capital, which takes something from the concept that we intend to explain, (b) an inexactitude that remains in the previous work regarding the contamination of productive capital by speculative logic, (c) greater detail around the idea of the fictitious remuneration of parasitic speculative capital, and (d) the apparent exaggeration of the conclusions presented in our previous work. In the final part, we will analyze the theoretical inconsistency apparent between the concepts of speculative capital and parasitic speculative capital and Marx’s ideas on the identity of money and gold.

On the Concept of Parasitic Speculative Capital Redundancy, Contamination, and a New Concept There are at least two senses in which the term parasitic speculative capital may have appeared to be redundant. One, because speculation has been a constituent of the logic of capital since its inception, and two, because speculative activity is always parasitic, in the strict sense that the profits of speculation necessarily result from surplus-value produced by others. To consider this term exclusively is, however, to fixate on it, without taking into consideration the theoretical determinations investigated that revealed

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the phenomenon, with its two dimensions, appearance, and essence, to which we applied the term. It is true that, by its very nature, capital has and always has had a speculative dimension. Speculation has never ceased to be one of its hallmarks. However, it would be correct to say that, within the concept of industrial capital, the dialectical synthesis of the circulation of autonomous functional forms and the logic of production is dominant. But what happens when productive logic is superseded by speculative logic, as in the current phase of capitalism? We made explicit in our previous work that the dominance of speculative logic over productive logic occurs because of an excessive growth of fictitious capital, which transforms it into a new entity—that we have termed parasitic speculative capital. It redefines industrial capital, inasmuch as it becomes the dominant pole, acting as its opposing force within the contradiction. But, why call this new entity parasitic speculative capital and not simply speculative capital? The issue is that the latter term is now reserved to be the new name for the contradictory junction of two capitals, industrial capital and the parasitic speculative capital. Having established this explanation and precision regarding the terms used, it is necessary to state that in our previous work we left something somewhat superficially suggested. We said that speculative logic also contaminated productive capital.2 In fact, if we are working on a level of abstraction in which all functional forms are considered as autonomous, that statement is inappropriate. The functional form of productive capital can be subordinated and even redefined, and this is what happens when it is an aspect of redefined industrial capital, but it can never be understood as being contaminated by speculative logic.3 In fact, what we intended to say is that, at an even more concrete level of analysis, companies or corporations that were fundamentally productive began to operate primarily in a speculative way because of the effects of speculative capital and the dominance of parasitic speculative capital. We confused different levels of abstraction. Nevertheless, we wanted to refer to this reality which is undoubtedly present today. While the term speculative capital is, in our terms, reserved for denominating the contradictory union in which industrial capital—now defined by the dominance of speculative logic—appears as the dominant pole, the term parasitic speculative capital is intended to denominate the opposite

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pole of this union. In other words, parasitic speculative capital is fictitious capital itself, redefined by the conditions of the dominance of speculation. In conclusion, the terms chosen to denominate the new forms of capital may, perhaps, lead to the idea of redundancy, a pleonasm. We believe, however, that they are more than justified, especially as they appropriately emphasize decisive characteristics of the phenomena to which they refer. Pleonasms are, after all, legitimate forms of language when consciously used for emphasis. They may even, and this was our intention, directly suggest our critical and questioning stance regarding them. We would be as guilty as Marx when he chose the terms exploitation, rate of exploitation, and so on, which clearly demonstrate his critical position. Another objection that could arise from a superficial reading of the subject is that to create new concepts within Marxist theory is not justified. Let us leave the discussion on this idea to another occasion as the concepts of speculative capital and parasitic speculative capital are not wholly new concepts. They are old concepts modified by new determinations. This is what occurs in Marx’s Capital, for example, when value took its place in the concept of capital; this is the same concept of value but further developed by new determinations. Exaggerated Conclusions, Speculative Capital and Fictitious Remuneration Some may consider the conclusions we presented in the previous paper to be exaggerated; on that occasion we basically concluded that –– the dominance of parasitic speculative capital is not capable of sustaining a new era in the history of capitalism that is capable of surviving for decades with a new international division of sustainable labor and with satisfactory economic growth; –– this period of dominance will be marked by deep and recurring financial crises; –– such dominance never radicalizes the polarization of wealth and poverty; and –– the end of the period of parasitic speculative capital domination is inevitable. It seems to us that these conclusions on contemporary capitalism derive necessarily and directly from the theoretical and methodological perspec-

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tive from which we begin: the Marxist theory of value. Within this theory, and by examining the implications of the dominance of parasitic speculative capital and the consequent subordination of productive capital within the contradictory synthesis, these conclusions seem to us totally unavoidable and free from exaggeration. There is one aspect that we placed little importance on previously and which seems fundamental to understanding periods of apparent tranquility in the functioning of the system, periods that might lead some to consider those conclusions absurd. The fact is that parasitic speculative capital can be satisfied with fictitious remunerations for quite prolonged periods of time. This is possible because this type of capital is real fictitious capital, within an adequate understanding of the term. Such remunerations allow growth in the value of parasitic speculative capital and its consequent expansion as accumulation without putting acute pressure on the surplus produced by society. It is an attenuating factor of the immediate manifestations of the contradiction of production/accumulation. It undoubtedly postpones the problems derived from speculative logic but does so only by amplifying opposition and antagonism within capitalist society itself. Fictitious remuneration is, however, only acceptable within certain limits. A portion of speculative gains is intended to increase equity in the form of the purchase of real assets, and this reduces the capacity of the mitigating factor, the parasitic speculative capital, within the contradictory relationship. A considerable part of what appears to be a growth in the real assets of those who appropriate speculative profits is simply a fictitious valuation of the price of these assets, a result of the speculation itself. The mitigating factor also encounters limits because the growth of parasitic speculative capital, to the detriment of productive capital, implies an increase in unproductive expenditures, and especially because it expands unproductive labor at the expense of production. The broad stratum of new unproductive workers servicing the needs of parasitic speculative capital demands a higher degree of appropriation when compared to that obtained by productive activities, whilst contributing nothing to the production of surplus or even to the production of their own wages. Our conclusions were a direct consequence of the basic contradiction of capitalism between production and appropriation, which may be understood, from another angle but from the same theoretical point of view, as the over-accumulation of capital.4 A less pessimistic view of the fate of parasitic speculative capital is possible, but it necessarily implies an aban-

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donment of the more fundamental principles of Marxist value theory. Furthermore, pessimism about the future of the dominance of speculation and of capital may be the only possible optimism about the future of society itself.

On the Nature of Money There may be a theoretical inconsistency between the concept of speculative capital (still more, parasitic speculative capital) and the idea, attributed to Marx, that money necessarily identifies itself with gold. While the concepts of speculative capital and parasitic speculative capital, especially the latter, presuppose a high degree of immateriality as regards the nature of capitalist wealth, Marx is a hostage to excessive materiality when he equates money with gold, or even when it is identified with merchandise. It is not difficult to support the thesis that the Marxist idea of money necessarily being a commodity, and specifically, gold, has been overturned by the history of capital, so that money today is wholly and completely immaterial and devoid of intrinsic value. Appearances, at least, tend to suggest this.5 The easiest way to resolve this question of incompatibility between the concept of speculative capital and that of money being equal to gold would be if Marx’s theory had been overturned. That is not our idea. To support the overturning of Marx’s theory of money presupposes ignoring his study of the development of the credit system in capitalism and disregarding the concept of credit money presented by him in Volume I of Capital. This concept of credit money, which is fundamental to the understanding of Marxist theory of money in capitalist times, has been discussed in a very broad way by Germer6 and so spares us the effort of repetition. We will start from the analysis developed by Germer, which more easily presents our perspective on some aspects that we consider fundamental. Money and Credit Money It is important to remember, as Marx points out on several occasions, that credit money is a specific creation of capital that has the function of being the means of making payments of money, and which, as the basis of the credit system, is indispensable to the functioning of the capitalist economy.

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Once capitalism has been established, credit money comes to fulfill many functions that were proper to money; at minimum the means of circulation and of payment. However, for Germer, ultimately, money, real money, in Marxist theory, cannot be detached from its commodity materiality7 and necessarily identifies itself with gold. Gold for him is, and will always be, money. In his opinion and for that reason, credit money is not real money. Let us see in what sense one might think this way. In all its functions, except one, gold-money can come to function, as today, through a representative of itself: through a sign, through forced circulation paper currency, or even through a derivative form such as credit money. The material presence of gold is not necessary; and this was true even before the development of capitalism and what we can properly call credit money.8 With the development of the credit system, this possibility is much more real and widespread: [W]ith the development of capitalism the functions of money (= gold) in circulation, are taken on by forms derived from it, to the point of being entirely removed from circulating [...]. Thus, in the function of circulation, money can be replaced, firstly, by signs of value, as indicated above. But in capitalism money is replaced in this function, predominantly by credit titles, as commercial credit spreads as a result of the expansion of the mercantile character of the economy. With this, the role of means of payment becomes increasingly important and predominant. The function of money is also replaced by the cancellation of reciprocal debts, with money (= gold) covering only the remaining balances. The banking system then develops and assumes the functions of money trading and administrator of the money- capital balances of the capitalists, which are balances in gold, and converts them into banknotes, which are used in place of money (= gold) to cover the debit balances. (Germer 1998, p. 572)

The development of the credit system and, with it, the banking system, creates a true hierarchy of credit titles and increasingly developed forms of credit money: In this way, there are successive forms of credit money in an ascending hierarchy, firstly commercial credit bonds, whose debit balances are covered by money (= gold); then, from this base, the banknotes of the individual banks, which replace money in the payment of debit balances of commercial securities, the debit balances between banks being covered with money (= gold).

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Finally, the central bank’s notes replace money in the coverage of debit balances between banks, leaving the money to cover debts owed to foreign trade. Thus, an ascending hierarchy of credit titles replaces money as the means of payment, constituting the axis of what Marx called the credit system. (Germer 1998, p. 572)

One thing is indisputable in the process of commodity circulation, and even more so in capital value: gold ceases to circulate as money, and in its function of means of circulation, it is never physically present; it circulates only through its representative or derivative forms: [T]he hypothesis of the complete withdrawal of gold from circulation assumes the full development of the credit system. On the other hand, Marx’s proposition is strictly delimited: it refers to the withdrawal of gold from the functions of means of circulation and payment, in which it is replaced by various forms of credit money. (Germer 1997b, p. 337)

Credit Money and Measures of Value There would, according to Germer, still be a single function that goldmoney, gold, would fulfill directly. The only function that he does not accept it as being replaced and would require it to be bodily present is the measure of values. In fact, in one of his works, Germer seems to indicate that there are two functions that must be fulfilled by gold through its physical presence: the function of measurement of values and that of monetary standard. “But the functions of measurement of value and monetary standard are exclusive to commodity-money, so that gold cannot be substituted in these functions” (Germer 1997b, p. 337). However, in other passages, perhaps referring to a still more developed stage in the history of capitalism, Germer seems to admit that the current currencies of international circulation, such as the dollar, euro, and so on, are true monetary standards. In any case, one thing is certain, for him, only gold fulfills the function of measuring values, and must so directly. It is precisely because it lacks the power to exercise the function of measuring values that credit money for him is not real money (Germer 1997a, p. 112). Regarding functions directly linked to circulation, there is not much discussion among authors regarding the fact that, at the national level, within the boundaries that define the power of a national state, credit money functions without major difficulties during normal times. For Germer, this is not a problem:

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The definition of money as a commodity that functions as the general equivalent of value, which in capitalism became gold, necessarily implies that, given the current configuration of the credit system, money itself no longer circulates in national spaces, although it continues to play an important reserve function and international payment method. In national spaces there is no circulation of money, but of its representatives, and furthermore, in 1971 gold was formally abandoned as the official basis of the price standard. Current monetary standards appear to have no intrinsic value or objective standard, converting money into an entirely symbolic category. (Germer 1997a, p. 120)

As regards the international sphere, some discussion might exist, especially as Marx, in his time and in Volume I of Capital, suggested that the function of world money could only be fulfilled directly by gold (and by silver) (Marx 1990, pp. 240–4). However, currently and increasingly, it seems indisputable that the credit system has spread and that we can undoubtedly talk about international credit money. If this were not so, we would not be able to imagine the presence of so-called financial capital, widely generalized in the world, and the concept of parasitic speculative capital would not make sense. Germer himself has no doubts and is rigid about the existence of international credit money: Marx himself observed that with the spread of the banking system and credit money, the circulation of metal could be entirely replaced by credit money in internal circulation. Although he did not refer to an equivalent phenomenon at the international level, the substitution of money in international transactions—which is also already a reality—is compatible with his theory for the same reasons that justify it within countries. (Germer 1997a, pp. 121–122)9

For Germer, the dollar and other currencies have international power and operate as money for certain functions. He does not, however, concede that they can fulfill or come to fulfill the function of measuring values. Which arguments lead us to this view regarding Germer? Clearly, he could not adequately satisfy himself because he could not find references, by Marx, to this possibility. But the arguments suggested do not seem sufficiently developed. For him, the existence of a structure of relative prices presupposes the existence of something physical that supplies material for the measurement of values (1997a, p. 112). Moreover, only something with value could serve as a measure of values:

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First, if one assumes that credit money no longer has an objective standard, then one of two consequences necessarily follows, both unsustainable within Marx’s system. Maintaining the theory of labour value, this assumption would mean explicitly conceding that the function of value of money can be realised by an immaterial and purely symbolic unit, that is, something that has no value would be capable of measuring value. It is the same as admitting that an object that does not have weight can serve as a standard of weight measurement. (Germer 1997a, p. 122)

The dollar, the pound sterling, the euro, and so on, which constitute price standards, would not, in themselves, have the capacity to function as measures of value: The function of value measurement can only be performed by the general equivalent or money, that is, gold. The price standard is set by the state based on the measure of value or money. [...] The dollar is not state forced paper currency, but central bank note, that is, credit money. [...] If the State does not fix the value of the dollar on the basis of commodity money, it does nothing but fix its name, which is economically irrelevant. Consequently, the pricing standard requires a measure of material value as its base. (Germer 1997a, p. 126)

Also: “But the dollar, the euro etc. are monetary units, therefore, they express price standards, that is, certain quantities of commodity-money” (Germer 1997a, p. 123).10 Reformulating the Thesis The thesis analyzed could perhaps be reformulated in such a way as to maintain that, currently, with all the developments of the international credit system, international currency appears capable of fulfilling the functions of measurement of values only because it refers to gold and finds its measure in gold. Gold is physically present in determining the value of the international currency and it relinquishes its functions to international currency only because it continues behind the scenes, measuring its value.11 Perhaps the only argument to support the suggested thesis, with any conviction, is the one put forward by Germer: to measure the value of a commodity it is necessary to have something of value. At first glance, it seems to be indisputable: an object that does not have weight cannot serve as a standard of measure of weight!

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It is necessary to say that for Marx the true measure of value is not made up of money or by its general equivalent. For him, the immutable measure of value is work, because it is its creative ingredient. Quantity of labor (time) is the true and inherent measure of value. The quantity of socially necessary labor determines the value of a commodity, and working time is its measure. In practice, however, such a measure is useless. In the day-to-day operations of the various economic agents, working time cannot even serve as an approximate measure of the value of the various commodities. Thus, value does not find a direct and practical measure, but expresses itself, manifests itself. It does not measure itself; there is no practical measure of value; it expresses itself. Its expression is the value of exchange. Price, and its counterpart, money, are not direct measures of value but rather forms of the manifestation of its magnitude, and as such, the social economic practice is satisfied. It is quite true that the value of exchange appears, at first glance, as the equalization of two commodities of the same value, but this is pure appearance as there is nothing that demands this perfect equalization.12 To measure temperature, we use one of the properties of the object, that of modifying its volume; we can use the expansion of a column of mercury to calculate ambient temperature. In a similar way, because we are interested in a practical measure, we can measure the magnitude of the value of a commodity by its manifestation. We do not need to calculate the abstract amount of work. Let us now see how Marx treated the concept of money. From the Simple Equivalent to Money in Marx There is no doubt that Marx, in his exposition, maintains that the general equivalent, which can be any commodity, converts into money when gold performs its functions. This is clear from Chapter I of Capital. It is also true that in Chapter II, he calls money the pre-existing form of the general equivalent (Marx 1990, p. 181), and this presents no great difficulty if we think of it as a reference to the embryonic form of money. It would be like calling capital the antediluvian forms of commercial capital and lending, or even, the value-added or surplus that occurs in non-capitalist social forms. For Marx, money is not only commodity, but necessarily identifies with gold. Although this is apparent from the author’s words, there are issues that need to be addressed.

R. A. CARCANHOLO

When one reads Marx’s study of the forms of value,13 one encounters a difficulty that seems to be either an author’s mistake or a translation error. It is a passage referring to the general form of value, the form C, in which, for example, linen functions as a general equivalent, he says: [T]he value of every commodity is now not only differentiated from its own use-value, but from all use-values, and is, by that very fact, expressed as that which is common to all commodities. (Marx 1990, p. 158)

Why does Marx now assert that, generally, the value of each commodity is not only distinguished from its own use-value, but from whatever it itself is? Should not it say that it is distinguished from any use-value except the use-value of the general equivalent itself (the linen, in this case)? Later the reader will understand that the statement is not only correct but very profound (Carcanholo 1993, pp. 32–33). The equivalent commodity appears, in this case, in the relationship of exchange, not as commodity, not for its use-value. Its presence is explained as being the pure representation of value or pure form of value. In other words, in the expression of exchange, although it is the actual use-value of the equivalent commodity that is present-embodied, the seller who exchanges his own commodity for the equivalent, does not want it for its use-value, but because it is the representation of value; it is accepted as if it were the value itself. This equivalent works in exchanges by being unconditionally accepted by all other possessors of commodities. It becomes the social representation of value; becomes the general equivalent. So, in the exchange relationship, the use-value of the general equivalent is dialectically p resent and absent at the same time. This absence is what determines the true nature of the general equivalent. It is fundamental to understand, and this is not trivial, that Marx’s analysis of the development of forms of value, culminating in the emergence of money, reveals a basic characteristic of this development: it is the search, by value, for its increasing differentiation from use-value. From another point of view, the development of the commodity, which is the other side of the development of the form of value,14 consists precisely of the development of the value/use-value contradiction, which initially presents itself as a simple differentiation between them. This value/use-value differentiation, one of the facets of the development of the contradiction between these two poles present in the commodity, implies increasing domination of the first over the second. This

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means that capitalist society is always and increasingly dominated by the logic of value and less by use-value. The commodity itself is becoming more and more value and less and less use-value, and this trend continues until the commodity relationship necessarily disappears. Does this mean that with the continual development of the contradiction that makes up the commodity, use-value will disappear completely, leaving value to reign alone? This cannot happen, since the disappearance of use-value is the disappearance of the human being himself, and therefore, of the social relations in which it is summarized and on which value is sustained. Capitalist wealth, commodity, becomes more and more value, and less and less use-value. There is a process of dematerialization of wealth at the same time as the value transformed into capital becomes increasingly substantive.15 It may be possible to affirm that the dematerialization of capitalist wealth is the reverse face of capital-value substantiation. The dematerialization of wealth shows itself more radically and more visibly in the equivalent. Its use-value, its materiality, loses ever more relevance, insofar as it passes from the simple form of value, to the total and to the general.16 It is true that in the first section of Capital the general equivalent is material; it is certain that money, in Capital, is gold. But we are in a theoretical moment prior to that in which Marx studies the conversion of value into capital; before, therefore, of the substantiation of value. With it and after it, wealth becomes increasingly something in the process of dematerialization and so does money: it has materiality, but it becomes increasingly dematerialized. We can say that the development of the form of value is a process of gradual dematerialization of the e quivalent, until the value reaches its purest and most abstract representation. In the words of Corazza (1998), it is a process of liberation from materiality. What conclusion can we draw from all this? For Marx, money is commodity, but it is not something that defines itself once and for all. Above all, however, commodity is not its material determination. It is a contradictory development process that implies an ever-greater dominance of value over use-value. Merchandise is decreasingly a material commodity, for it is increasingly a form, increasingly a pure social relationship, so, can we continue to maintain the eternal “definition” that money = gold? Money and Gold We agree entirely with Germer (1997b, p. 337) that Marx’s theory was not overtaken by the development of capitalism. Our position is, however,

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somewhat different from his in some ways. We agree that money is commodity, but not that it is necessary and eternally to be confused with gold. Germer suggests an interesting scheme to describe the different forms of money, explicitly based on Brunhoff (1985): This structure (of the credit system) can be represented by a pyramid, in which money (= gold) is present at both ends, at the base and the apex. It appears at the base of the pyramid functioning as a measure of value, and at the top, functioning as a means of final payment. Between them, forming the body of the pyramid, there is a succession of levels corresponding to the various forms of credit money, in ascending hierarchy. (Germer 1998, p. 577)

The difference between the two, for Brunhoff, is that it is effectively a hierarchical structure of forms of credit money (Brunhoff 1985, pp. 42–45), at the base of the pyramid is what he calls “private money” (formed in transactions between banks and companies). Above, would be, successively, national currency (of the Central Bank) and international currency.17 Germer adds two further instances: at the bottom, below all forms of credit money, gold appears as a measure of value; at the top, gold appears again as a means of final payment, above all forms of credit money. Germer’s scheme seems better to us. Gold, even in the present day and despite all the dematerialization suffered by the general equivalent, seems to play some role in the international (ultimately) reserve of value, and therefore, still fulfills, to some extent, the function of final payment means, to use Germer’s expression.18 But there is nothing to assure us that it will not continue to gradually lose its function, as has been occurring, until one day, save in circumstances of financial crisis, it completely loses it.19 The thesis that we maintain, of a progressive and tendential dematerialization of money, and therefore of the nature of capitalist wealth, would thus be upheld. Our thesis, for reasons that we will go on to explain, refutes the idea that gold is ultimately totally and completely irreplaceable in the function of measurement of values. Let us depart from a fixed structure of relative prices of all commodities in the system. Such a structure is dependent on parameters defined by technology and current appropriation criteria.20 Among these commodities is, of course, gold.21 Let us also assume that the monetary standard in this society is the dollar.

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For some reason, which we will not discuss here, the dollar will establish a fixed exchange relationship with all commodities including gold. We can call this relationship, the purchasing power of the monetary standard. What is not accepted is that the monetary standard must be backed by gold, physically, so that its purchasing power can be defined. It is incomprehensible that before anything else can happen, an exchange ratio with gold must be established before it gains purchasing power. What gives gold the miraculous power of physically touching the monetary standard to establish its purchasing power? There seem to be no arguments for this. To accept the existence of such power can only be the result of a submission to the fetish of gold, which still exists in our society and of which we are all victims. For the monetary standard, it is enough to establish its purchasing power in relation to any commodity in the system, X or Y or the gold itself, it will then be able to measure the value (or rather, express the magnitude) of any commodity in the system. Given the structure of relative prices and the “relative price” of the monetary standard for any of the commodities, their purchasing power is determined. As such, the reformulated thesis above, is not sustainable, in the sense that international currency (as a form of credit money) would only appear able to fulfill the functions of measurement of values by referring firstly to gold. In conclusion, our thesis is that gold, though ultimately able to continue to function as an international means of payment, has already ceased to be necessary as a measure of values, at least in the normal functioning conditions of the capitalist economy.22 We maintain the existence, throughout the development of value—of capital and capitalist society— of a gradual process of dematerialization of the equivalent, and ultimately, of money. This dematerialization is, in fact, the reverse side of the development and dominance of parasitic speculative capital. With the considerations presented above, the idea that Marx is hostage to a vulgar materialist concept, when he identifies money with gold, would be definitively removed. There is no theoretical inconsistency between the concepts of speculative capital and parasitic speculative capital on the one hand and money on the other, between the immateriality which they presume in relation to the nature of capitalist wealth and the supposed extreme materiality implicit in the Marxist concept of money.

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Notes 1. Alves Pinto’s (1997) excellent article seems to suggest more the idea of financial capitalism as a stage of capitalism than that of financial capital as a concept of Marxist value theory. The more theoretical determinations of the concept are not specified, although he relates it to that of fictitious capital. 2. We recall that productive capital is the functional form or autonomous functional form of industrial capital. 3. If it were so, it would not be autonomous. 4. We understand that the over-accumulation of capital takes on, under present conditions of capitalism, the form of parasitic speculative capital dominance. The simple reference to overaccumulation, although not incorrect, has the disadvantage of not highlighting the dominant character of speculation. The idea that parasitic speculative capital originated from the surpluses of value from the normal circulation of industrial capital, and particularly of productive capital, does not seem satisfactory to us. These leftovers would be the result of the normal difficulties, due to natural and technological limitations, of harmonious circulation and the cycle of capital. Circulation and the cycle of capital, masterfully analysed by Marx in Volume II of Capital (1992) and by Hilferding (1973), necessarily produce inactive money capital. The sums derived therefrom should coalesce and should operate, according to them, in the sphere of speculation. We believe that this is not enough to explain the current phase of capitalism, the dominance of parasitic speculative capital and the subordination of the logic of production. 5. Germer is one of the authors who has most seriously and intensely discussed the Marxist theory of money and who, in several of his works, criticizes this thesis, although he acknowledges that, with the development of capitalism, the bond of money with gold has become increasingly distant: “With the progressive development of the banking system, throughout the development of capitalism, especially after World War I, the bond of the monetary standard with gold became more and more distant, until, through a succession of events that culminated in 1973, it appeared to have completely disappeared…” (Germer 1998, p. 564). Nevertheless, he maintains the idea of the indispensable materiality of money: “… in Marx’s theory, there is no immaterial money, only forms derived from money to carry out some of its functions, such as credit money” (Germer 1997a, p. 109, footnote). 6. By several other authors too, see the bibliographical references. 7. See Germer (1997a, p. 109, footnote).

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8. “In the functions of the circulating medium, money has been replaced by two instruments of circulation, derived from two of its functions, on the one hand, state paper currency of forced circulation, which is a form of sign of value and which has its origin in the function of the means of circulation of money (OC I, page 108) and, on the other hand, credit money in different forms. Credit money, whose most developed forms are the bank note and the central bank note, are spontaneously born of the function of money payment medium (OC, I, p. 117), which in turn has its origin in the emergence of a new economic relationship, commercial credit, or the creditor/debtor relationship, which overlaps with the relationship of value, that is, of seller/buyer” (Germer 1997a, p. 121). 9. Cf. also Germer (1998, p. 574). 10. Cf. also Germer (1997b, p. 344). For the author, gold must necessarily fulfil the “original and irreplaceable function of money” (1997a, p. 112). He also relies on Brunhoff (1978, p. 88), who holds the same view. 11. We do not know whether the above-mentioned authors, particularly Germer, would agree on the suggested reformulation, but this does not matter much for our purposes. It would be a reformulation but would continue to be characterized as a theoretical perspective on capitalist social relationships and a prisoner to the physical materiality of the general equivalent. It is, perhaps, a little less radical but, in all ways, it sustains the inevitability of gold as a measure of ultimate values. We cannot agree with such a perspective, which is also a prisoner of a material conception of the nature of capitalist wealth. 12. The theory of production prices shows that, in capitalism, this equalization occurs only by chance. 13. In Volume 1, chapter 1, section 3, of Marx (1990). 14. The development of the commodity, the development of value, the development of forms of value, the development of commodity relationships and, therefore, of commercial society are, in fact, different faces of the same development (Carcanholo 1993). It not only reaches back to the birth of capitalism but goes beyond it. Market development has not been interrupted by the emergence of capitalism but proceeds more rapidly than ever before. 15. In order to understand the concept of value substantiation, see: Carcanholo and Nakatani (1999). 16. Cf. the following passages of Marx. The first, referring to the simple form of value: “In order to inform us that its sublime objectivity as a value differs from its stiff and starchy existence as a body, it says [the linen – RC] that value has the appearance of a coat” (Marx 1990, p. 144). The following passage refers to the total or unfolded form: “Form B distinguishes the value of a commodity from its use-value more fully than the former”

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(1990, p. 155). For a broader discussion on the subject, see: Carcanholo (1993, pp. 26–28). In addition, Corazza expresses in a synthetic and very clear way the question: “The succession of forms of manifestation of the value of goods always goes in the direction of a liberation from materiality, toward ever more independent, autonomous and free forms of materiality, that imprison immaterial value, as a straitjacket, a boundary, a barrier to the social, abstract, and expansive nature of value. In many passages Marx emphasises this aspect” (Corazza 1998). 17. Here is a difficulty: for it should be gold as an international or universal currency. The pyramid would not properly represent the scheme of credit money. It is not, however, gold found here but the dollar that cannot really replace it in that role (Brunhoff 1985, p. 45). 18. Here is a difficulty: for it should be gold as an international or universal currency. The pyramid would not properly represent the scheme of credit money. It is not, however, gold found here but the dollar that cannot really replace it in that role (Brunhoff 1985, p. 45). 19. This thesis could be contested, saying that when that day comes, the torments will be so frequent that gold will continue with its function. We tend to agree with this argument. 20. A simpler example of criterion, at a more abstract level of theory, would be that of salary equal to the value of the labor force and uniformity of the rate of profit. 21. Assuming that gold is simply a commodity of luxury consumption and is, therefore, an input of the main commodities of the system, technological changes in its production (as it is not difficult to understand) will not alter the structure of the prices relative to other commodities to each other. The only thing that will change is the set of its relative prices in relation to other commodities. 22. Clearly, in conditions of capitalist crisis, especially those determined by speculative logic, when credit conditions and confidence in the normal functioning of the system fail, the role of gold and, to a lesser extent, that of other less dazzling commodities such as silver, copper, and so on, as real wealth, regains its key importance.

References Alves Pinto, N. P. (1997). O capitalismo financeiro. Crítica Marxista, 5, 9–26. Brunhoff, S. de. (1978). A moeda em Marx. Rio de Janeiro: Paz e Terra. Brunhoff, S. de. (1985). Estado e capital: uma análise da política econômica. Rio de Janeiro: Forense Universitária. Carcanholo, R. A. (1993). A dialética da mercadoria: guia de leitura/O capital: ciclos, circulação e rotação: roteiro de estudo. Cadernos Ange, 4.

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Carcanholo, R. A., & Nakatani, P. (1999). O capital especulativo parasitário: uma precisão teórica sobre o capital financeiro, característico da globalização. Ensaios FEE, 20(1), 284–304. Corazza, G. (1998). Marx e Keynes: sobre dinheiro e economia monetária. XXVI Encontro Nacional de Economia. Anais. Vitória: Anpec. Germer, C. M. (1997a). Componentes estruturais da teoria do dinheiro no capitalismo. Revista da Sociedade Brasileira de Economia Política, (1). Rio de Janeiro: Sette Letras. Germer, C. M. (1997b). O dinheiro de crédito e as funções do dinheiro no capitalismo. XXV Encontro Nacional de Economia. Anais. Recife: Anpec. Germer, C. M. (1998). O conceito de padrão-ouro e os equívocos da economia política. III Encontro Nacional de Economia Política. Anais. Niterói: SEP/UFF. Hilferding, R. (1973). Finance capital. A study of the latest phase of capitalist development. London: Routledge & Kegan Paul. Marx, K. (1990). Capital: Critique of political economy (Vol. I). London: Penguin Books. Marx, K. (1992). Capital: Critique of political economy (V. II). London: Penguin Books.

CHAPTER 4

Crypto-Currencies: From the Fetishism of Gold to Hayek Gold Paulo Nakatani and Gustavo Moura de Cavalcanti Mello

Introduction In Book I of Capital, Marx accurately illustrates the fetishism of money when he deals with hoarding as one of the consequences of the development of commodities. He demonstrates that circulation becomes the great social retort into which everything is thrown, to come out again as the money crystal. Nothing is immune from this alchemy, the bones of the cannot withstand it, let alone more delicate res sacrosanctae, extra commercium hominum [“consecrated objects, beyond human commerce”]. (Marx 1990, pp. 229–230)1

This chapter was originally published in Portuguese with Crítica Marxista, 47, in 2018, and was translated into English by Kenton James Keys. P. Nakatani (*) • G. M. de C. Mello Department of Economics and Post-Graduate Programme in Social Policy, Federal University of Espírito Santo (UFES), Vitória, Espírito Santo, Brazil © The Author(s) 2019 G. M. de C. Mello, M. de S. Sabadini (eds.), Financial Speculation and Fictitious Profits, Marx, Engels, and Marxisms, https://doi.org/10.1007/978-3-030-23360-0_4

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Money has become increasingly fetishized throughout the development of capitalist production and, dominated by capital, has become the chief expression of wealth as a fetish, even by covert capital. From its very beginning, wealth autonomized as money has taken on various forms,2 as coins and commodities whose ultimate materialization occurred in the form of gold coins. The diversity of currencies and monetary standards, as well as the fundamental contradiction between their nominal content (their name) and their actual content (the amount of gold), opened the way for their replacement by representatives, symbols of value. The history of coins is extremely rich in the descriptions of these contradictions and the problems created by them. The devaluation resulting from the natural wear and tear of coins and counterfeiting in the process of their minting has been discussed and criticized since Nicole Oresme (2004) in 1355 to the present day, along with the problems of controls and determinations on the national “value of coins”. In 1526, Nicholas Copernicus (2004) wrote a short text, “On the coin”, that dealt with a proposal for “monetary reform”, in which he emphasized that the problems around the variety of names and monetary standards were not only due to devaluation and counterfeiting but also to the enormous confusion that arose from their coexistence. In order to reduce circulation costs and increase safety, together with the intensification of the number of market transactions, gold storage sites were developed. Against these deposits, goldsmiths, and later money traders and banks, began issuing certificates,3 one of the forerunners of convertible paper currency and, subsequently, forced paper currency (on the seigniorage gains arising from such operations, see Note 20). From the outset, those holding these gold deposits issued more certificates than the amount of gold held, thus creating interest-bearing capital which multiplied, on paper, the quantity of gold in deposit because these certificates were loaned with interest charges.4 The history of banking is also rich with descriptions of the currency crises that arose from bank competition as they began to issue or create paper money or bank notes beyond their means, with or without gold reserves. These banking crises evidence the contradiction between the quantity of gold deposited and the quantity of certificates or banknotes issued.

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The confusion created by the different systems, with recurrent crises, bank collapses, and bankruptcies, led some banks, because of their economic and political power in their respective countries, to exercise functions that are currently assigned to the Central Banks.5 These functions were assigned by the different governments to private banks that have been successively nationalized over time, most between the late nineteenth and early twentieth centuries. One exception is the Federal Reserve System (FED), which remains private to this day. The history of money is long, varied, and extremely troubled. It is private by nature, contrary to what one might imagine or currently defend, because it is the expression of the value of commodities within a singular commodity. The contradictions of this commodity have led it to be replaced by fictitious representatives, unrelated to gold reserves, including that part which appears as printed paper and the more recent version that appears as electronic signals in the accounts of companies or banks. In addition to personal and private ownership, they have all been replaced by special non-interest bearing and non-maturing securities in the form of State paper currency (a development of credit money). These securities have been given the names of their respective national currencies and are created through credits by the private or public commercial banking system.6 It is fictitious money,7 which becomes general with the end of the convertibility, in fact and right, of the dollar into gold with the collapse of the Bretton Woods system. More precisely, the strong wave of the internationalization of production, on a “Fordist” and financial bases, and the emergence of the Euromarkets, in particular, led to an overaccumulation of capital that manifested itself as “stagflation crises” capitalism, whose reproduction is based increasingly on promises of a future accumulation of value, in the form of bearing interest capital and fictitious capital. With this, the unrestrained character of capital has been reinforced and is expressed in the proliferation of economic crises that characterize contemporary capitalism.8

Crypto-Currencies It is in this context that crises of capital have sharpened and made explicit the contradictions inherent in currencies and which surged with crypto or virtual currencies, characterized by extreme instability and a volatility of exchange rates that greatly heighten foreign exchange risks.

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The first of them, called bitcoin, was created and launched in 2009 by a fictional individual named Satoshi Nakamoto, at least this is how it was disseminated, but whose real identity or identities, as it may well be a group, currently remains unknown. One of the expectations is that bitcoin will become a world currency, as the number of people and companies that accept it as currency increases. To do so, however, it must fulfill the conditions required to function as a measure of value, standard of prices, means of circulation, means of payment, means of hoarding, and finally, of money-capital subject to the fundamental determinations of production, actualization of capital and appropriation of the surplus value produced. In short, it would need to reproduce the elementary determinations of money as money, and hence its functions, as well as those of money as the form of capital. Given this, it again becomes evident that money can only be truly understood as the moment of the conception of capital.9 After the successful launch of bitcoin, hundreds of other virtual currencies were created in a decentralized network created from a technology called blockchain. On 3rd January 2019, a list of more than 2000 crypto- currency markets10 were to be found on the Crypto-currency Market Capitalisations website,11 which are joined by others almost daily, and whose total market capitalization amounted to just over US$130 billion (at the end of 2017 this amount reached US$600 billion). In addition to bitcoin, which accounted for more than half of this capitalization, Ethereum (totaling around US$15.3 billion) and Ripple (Xrp) (US$14.6 billion) stood out. Most of them were launched as means of circulation or payment between different national currencies. Its specificity is that it allows a direct contact between a creditor and a debtor, avoiding the centralized mechanisms of the world banking system and, more importantly, the various national tax systems. In 2015 Hayek gold was launched, which proposed convertibility into gold, but is not listed in this market of cryptocurrencies—which shows that new fetishes cannot escape the golden fetish, as will be seen.12

The Creation and Circulation of Bitcoin Firstly, one should make explicit the nature of these virtual currencies, based on the question of the nature of money. All virtual currencies are private by nature, and by the way in which they are put into circulation, they remain fictitiously created credit money, even if their production has costs.

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The creation of bitcoin is based on an extremely sophisticated, complex, and global-scale process of networked data processing called, not by chance, data “mining”.13 Here, we find an analogy with the ancient foundations of metal coins, the mining of gold and silver. But instead of seeking material wealth in nature itself through work, this process is accomplished through the solving of complicated mathematical algorithms that require increasingly sophisticated machines. According to Nakamoto’s (2008) article, which revealed the idea of bitcoin a few months before its launch, the challenge was to establish a means of circulation and payments that did not depend on the regulation and trust of a central authority. In addition to voluntary acceptance, it would be necessary to ensure decentralized mechanisms for the issuance of currency and surveillance of the system to avoid fraud, and in particular, “double spending”, that is, use by a malicious individual of the same virtual currency in more than one transaction. Without entering into technical minutiae, the solution was to create a peer-to-peer network, where each “point” or each computer constituting it is both client and server, as in the torrent network, for example, used for the sharing of music, movies, and so on. Such a network is connected around an open-source software and each member receives two keys, one “public”, known throughout the network, and another private. When transferring bitcoins, an encrypted record is created consisting of the public key of the receiver and the private key of the receiver, which legitimizes the transaction—made “public”—without, however, connecting it to the receiver. The secrecy of identities is thus preserved, which makes operations with bitcoins conducive to the practice of money laundering and illicit payments.14 Each transaction must be verified by the network and registered in a “block”,15 and to verify its authenticity, the user (“miner”) needs to solve a complex cryptographic problem (the “stress test”). The first to succeed receives, as a reward, new bitcoins (currently 25 per test solved) as well as a transaction fee. This solves two problems at once: the issue of the crypto- currency and the decentralized zeal for maintaining the system, supposedly through “free competition”. After this, the checked block inserts itself into the blockchain in a chronologically defined order, receiving a single encrypted code (hash). The introduction of a new block presupposes the verification of that code. So, the blockchain is an immense record of all crypto-currency transactions, held not by an institution but by each member of the network.16

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In its initial configuration, each block should be published every ten minutes; it happens that the longer the network, the greater its processing power, and in that sense, the bitcoin algorithm was designed to progressively increase the complexity of the “stress test”. This makes it increasingly difficult to “mine”, thus simulating actual mining and depletion of deposits. The system foresees the exhaustion of these “virtual deposits” around the year 2140, with a total production of 21 million bitcoins (on 3rd January 2019, just under 17.5 million bitcoins had been mined). So, by analogy, we can associate the creation of bitcoin with the antiquated production of gold and silver metallic goods, which, when they enter the circulation of goods and that of capital too, come to function as money and as currency in its unique forms of existence. As such, it meets one of the main requirements of the old quantitative theory of money. The creation of bitcoins implies a cost of production resulting from equipment wear and energy consumption in addition to the working time of each “miner”. This currency is priced according to the same standard currently used by all national currencies, the decimal number system, which replaced the weight measure of the metal, gold, or silver contained in each coin. The mechanism for putting it into circulation, without which it does not acquire an existential status, is the same as any other currency, either through the purchase of goods or services, loans or debt repayments. Since all these things are listed or denominated in their respective national monetary standards, such as the dollar, a certain exchange rate must be established between bitcoin and its national currencies. When it began, the production cost of each bitcoin was quite low, rising as larger quantities were mined.17 As demand for them rose, this difference also rose, reaching stratospheric levels, impelled by speculative demand. According to the Blockchain website (https://blockchain.info/charts), from their creation in 2009 until the beginning of 2011, the bitcoin was worth cents.18 From 2011 until the beginning of 2013, its price rose to a few tens of dollars, achieving significant appreciation, and went on to be worth a few hundred dollars. Then, from the second half of 2016, a strong rise began. To give an idea, from $995.00 on 1st April 2017, each bitcoin was worth $19,499.00 on 15th December 2017, a 20-fold increase. As a result of this rise, and further reinforcing this trajectory, on 10th December 2017, bitcoins began to be traded in the futures market, the powerful Chicago Board Options Exchange and the Chicago Mercantile Exchange, which had a significant repercussion on the current price. Notwithstanding, on 29th December 2017, bitcoin price fell to US$13,216, and its total

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capitalization fell to US$221.6 billion, and, on 6th February 2018, the quotation fell below US$6000, which corresponds to a drop of more than 70% compared to the peak of 2017. On 3rd January 2019 bitcoin was priced at US$3822.00 and its total capitalization was US$66.9 billion. In any case, the discrepancy between the price of bitcoins in dollars and the volume of transactions is striking. The difference between the cost of production and the price, in dollars, reached by bitcoin, is like the old seigniory in the coin minting process or the printing of paper money notes.19 This difference may be one of the explanations for the stimulus to bitcoin mining, due to the frenetic development of its market.

Can bitcoin Assume the Functions of Money in Capitalism? Measurement of Values The primary function of money, as a measure of value and price standard, has already been resolved and developed in its own contradictions by national currencies. All commodities, debts, and contracts are already denominated in these currencies. As the accumulation of capital developed, and because of its own tendencies and contradictions, the money form has been withdrawing. Today, the world currency is the US dollar, which, despite all its challenges and its own contradictions, still occupies the role. So, considering that an exchange rate between bitcoin and each currency exists, in which all economic transactions would be denominated in bitcoin, this process could see national currencies being replaced by bitcoin (in the same way that the euro replaced all the national currencies in the Eurozone). As the measurement standard for both is decimal, the exchange would occur with the change of name and the value would be converted by the respective exchange rate. The greatest difficulty arises in determining if this conversion rate stems from the spectacular growth of the exchange rate or the market price of bitcoin, as well as its volatility and its instability, all typical of an essentially speculative market. So, even if these special virtual commodities, crypto-currencies, could take on and replace the role of money as a measure of value and price standard, the volatility and instability in determining their prices, or

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exchange rates, would be generally transferred to the daily prices of goods and services. There would be enormous upheaval and confusion, because rather than reflecting the relative variation in the productivity of the different products, both domestic and international, it would carry with it the speculation of the fictitious virtual currency market. In the few years of its existence, in which the price of a bitcoin went from a few cents to more than US$19,000, all prices of goods and services, quoted in dollars, would have suffered brutal deflation. In the same way, all products previously quoted in dollars, as well as the company revenues, the amount of profits and State tax income would all have suffered the same falls. Means of Circulation Available information indicates that bitcoin has been used with increasing frequency and on a worldwide scale20 as means of circulation and means of payment, that is, it participates in the final conversion of capital, of commodity into virtual money. But as a means of circulation, the world of commodities requires that there be a certain amount of money21 arising from the prices of commodities to be transacted. Just as the creation of bitcoin simulates the mining of gold, its quantity has a pre-set limit and its use has been, so far, very limited. The development of capital in the period of the gold standard accelerated the emergence of new forms of credit in place of the limits imposed by the production of gold or silver money. It follows that this is the pathway that bitcoin, as virtual (fictitious) credit money, will also have to tread. Credit money, as a private creation between banks and corporations and sanctioned by State credit money, is fundamental and determinant in today’s capitalist world. This credit money is an imaginary, fictitious creation that expresses commodity values using a decimal standard of measure. Its existence is ephemeral, determined by the terms of contracts in which they have their origin and is cancelled as soon as the term expires. In the circulation of capital, that is, in its continuous metamorphosis, the entire gigantic mass of wealth in circulation is represented through debit and credit registers in companies and banks. “Money serves here as money of account and expresses the values of the commodities in their prices but does not itself confront the commodities in a material shape” (Marx 1990, p. 259). In this way, fetish money as credit, whether it bears the name gold, dollar, sterling, or bitcoin, becomes a purely ideal and idealized representation of wealth, money of account, or fictitious money. That is, from

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the denomination of the values to the circulation of them, there is a need to create credit, either in bitcoin or any other or all crypto-currencies, totally free of any restriction or regulation, as it currently occurs. Their exchange rates should be determined in virtual markets with thousands of currencies. Money Itself Money, as money, has the functions of hoarding,22 of serving as a means of payment, and of world money. In this way, all owners of bitcoins, whether miners or buyers, can keep their wealth in this form as a negotiable asset in a highly developed virtual market through global computerized networks, which allows point-to-point trading, from one owner to another, without any intermediation and outside national tax systems. The hoarding of bitcoins has implications, as it can only be obtained through mining or purchase from other owners. This means that a miner can only realize his wealth through its metamorphosis, that is, through the purchase of goods or through conversion into a conventional currency, dollars, euros, pounds, yens, and so on. There is no other form of realization, usufruct or expansion of this fictitiously created wealth, except the overcoming of the hoarding of bitcoin. Currently, the difference between the cost of production and the market price is a form of transfer of wealth accumulated in any of the currencies into bitcoins. In the early days of capitalist production and as already seen in previous modes of production, hoarding played an important role in the accumulation of wealth. With the development of capital and, particularly, its autonomous form of interest-bearing capital, hoarding has been replaced by the new determination that money has acquired in becoming money- capital. A banking and credit system has developed, which gathers together all surplus and accumulated wealth in the form of money, mainly the idle part of it, under the banner of interest-bearing capital. Furthermore, we have witnessed the credit system begin to produce credit money autonomously, a fictitious form of wealth. The current exacerbation of the alienation resulting from the fetish in which all money acquires a mysterious property of generating more money,23 as is the appearance of bitcoin quotations, stems from this production. Nowadays this occurs daily within the banking system but also in the markets for currencies, debt, or property titles, developed and accelerated by the accumulation of capital, no matter what the specific national currency. It is in this process that bitcoin and all

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other crypto-currencies arise and develop yet more alternative forms for the accumulation of fictitious wealth. A miner who creates bitcoins and accumulates them without ever converting them into commodities or capital, is outside of the circulation and global reproduction of capital. He can become a fictitious billionaire and never take advantage of the best things capitalism has ever produced, those special commodities produced for the more privileged strata of the international bourgeoisie, such as spectacular properties, yachts and jets, and private airplanes. The only way forward is to overcome the fetish of hoarding and move them into the global circulation of capital. Other functions, such as means of payment and world money could be exercised by bitcoin, or any other virtual currency, under the condition that their exchange rates with all other currencies maintain some stability so as not to cause excessive fluctuations and accelerate currency exchange risks. In this case, the system would tend to replace it with currencies whose market prices tend to be more stable. Money as Capital In the dynamic, continuous, and global process of the general reproduction of capital, money functions only as money at two points in the metamorphosis of capital: first, in the conversion of money into commodities, and again, at the end in the reconversion of new commodities into money. As capital accumulates and advances, capital becomes autonomous in its forms of money-capital, productive capital, and commodity capital. In its accumulation, under the autonomous form of money-capital, it acquires a new property, that is, it becomes capital-money—a new special commodity whose value of use is to be capital and whose value is determined by its expression of quantitative value in terms of socially necessary working time. But in its most developed form, bearing-interest capital, its value will be determined by capitalizing its income, the portion of surplus value that it appropriates in the form of interest capitalized at a current or average rate of interest. This form of capital is not money even if it appears as if it were. Interest-bearing capital accumulates, fundamentally, and in its greatest quantity, as credit money, in all its most varied forms, and as debt securities. The main and fundamental question is how virtual currencies would replace current currencies, including the dollar, which still functions as world currency, in the dynamics of circulation. This hypothetical crypto-

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currency would have to exercise the functions of money as money and money-capital on a daily and increasingly generalized basis, supplanting the roles played by existing national currencies. It would be a process not dissimilar to the monetary reforms in countries that replaced the monetary standard, including the name of the national currency, as occurred with the creation of the euro. The fundamental condition would be the acceptance and incorporation of the crypto-currency into the social imagination, as the new fetish. To do this, it would be necessary for most private capital units and nation-states to replace their currencies, whether as cash, credit money, or as a means of payment, not only in their territories but also in the world market, in such a way that the new currencies would be sanctioned and accepted as such. Associated with this, the blockchain networks, that produce, circulate, and control these virtual currencies, would have to surpass the central banks and replace the current credit system, the interconnectivity of credit markets, and even the banking system, as this system does not have a share of the global process of capital circulation. In addition to the difficulties already mentioned, such developments would run counter to possible resistance from State bureaucracies, which would be against the subsequent limitation of their monetary policies. More importantly, they would face economic and geopolitical difficulties stemming from the United States’ interest in preserving the dollar as the world currency, and from other countries that might eventually aim for that position. In addition, as explained above, the fragmentation and multiplicity of crypto-currencies’ conflicts with the demand for unification and monetary standardization, driven by competitive capitalist dynamics, as well as with the increasing mobilization of the State to push forward financial markets and prevent the collapse of production of fictitious capital.24 In fact, the trend toward concentration and centralization inherent in capital also occurs in the crypto-currency markets. The three most important “mining pools”, all Chinese in origin, are BTC.com, AntPool, and F2Pool, which on 3rd January 2019 held 14.3% 11.9%, and 10.7% of the bitcoin market, respectively. In fact, among the ten largest world pools, eight are Chinese, accounting for approximately 80% of the known production.25 Regarding the possession of bitcoins, the numbers vary a lot, but a recent estimate estimates that 0.1% of the computer addresses connected to the bitcoin system concentrate 62% of the total offer.26 One of the mechanisms propelling this centralization, and which also opens loopholes for all sorts of frauds, is so-called cloud mining, which consists of outsourcing the bitcoin generation service. Instead of investing

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directly in the necessary equipment and inputs, a contract is signed with a supplier, defining the mobilization of certain computational capacity for a certain period. In theory, by paying a fee, the supplier would use the means corresponding to the capacity contracted, and the investor would receive the bitcoins generated. Finally, online portfolio services are available from companies that pay interest on deposits held in crypto-currencies, so that ownership and control of these assets is transferred there. Soon, despite the devout yearnings of the ultraliberals, and as the young Engels (1981, p. 69) observed, monopolization will tend to dominate competition, which, in turn, tends to intensify competition among ever more monolithic capitals. Such a dynamic, therefore, tends to undermine one of the pillars of virtual currencies, decentralized production and control, which would otherwise guarantee them the advantage over national currencies. As we know, very different visions have emerged around crypto- currencies, ranging from utopians who saw in the technologies an instrument for building egalitarian relationships with voracious speculators. As transactions with crypto-currencies intensify, prices swell, and people become millionaires overnight, as was particularly the case in 2017, so- called harmony collapses, and the true nature of these markets becomes manifest, sans phrase. The technocratic logic of considering the production of money as a purely technical issue, conceived in strictly mathematical terms, collapses in the face of inescapable truth; money is a social form, a moment of capital form, fraught with contradictions and a tributary of the turbulent dynamics of capital accumulation.27 Let’s take a closer look at these issues.

The Crypto-Currencies, Their Theological Mantras, and Their Ideological Underpinnings As mentioned, hayek gold, launched in 2015, originally called hayek coin, differs from other crypto-currencies. Strictly speaking, despite being based on blockchain technology, hayek gold cannot be considered a virtual currency; it is rather, a derivative of gold; a title quoted in gold, where each hayek gold is equivalent to a gram of gold, guaranteed by the reserves of a company specializing in gold trading, Anthem Vault.28 So, it functions as an asset, whose price is linked to the gold market, valuing or devaluing according to the price of gold. But it could be, supposedly, a return to commodity-convertible currencies, as some nostalgics have suggested.29

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Here we have an explicit return to the gold fetish, leading to the paroxysm of the mysticism and irrationalism inherent in the ultraliberal creed that drives the apologists of crypto-currencies, as is shown in this “homage” to Friedrich August von Hayek, the main figure of the “Austrian School” along with Ludwig von Mises. In a context in which money becomes autonomous from its substance, it becomes fictitious, and to a large extent, virtual; it is intended to re-establish a kind of gold ballast, in the case of hayek gold, or to mimic (virtually) the production of precious metals, a chimera, of course, but quite significant. Underlying it is a certain intuition that making money autonomous, in relation to the general equivalent commodity, undermines an elementary determination of money, that of measure of value. If this so-called autonomization is in line with the prominence assumed by the financial markets and the fictitious forms of capital in the last decades, which is at the same time the product and nourishment of this trend, it softens the regulating character of value and enhances the excessive character of the current and increasingly turbulent and explosive dynamics of capital accumulation (Prado 2016). Far from understanding the roots of this dynamic, which entails employing a critical and historically grounded view to penetrate the core of capitalist social forms and confronting its barbaric nature, many crypto-currencies ideologues react by reasserting the dogmas that derive from an aesthetic view of the surface of economic phenomena in the sphere of capital circulation. They understand money primarily as a means of circulation, mediating an economic metabolism that goes no further than a sophisticated barter economy, and attributes the contradictions inherent in money form to pernicious State interventions that hinder the operation of market regulation mechanisms. In summary, society appears merely as the sum of the actions of individuals carried out according to their supposedly immutable nature, that of “welfare maximizers” or “of utility”, whose initiative in a freely competitive environment would be the means of guaranteeing that which would come close to being the “common good”. In complex societies, the nexuses established would be essentially mercantile, and the means of communicating with others and acquiring the information necessary for their rational actions, in accordance with their will and “preference structures”, would be the price system that emerges from repeated exchanges. Because consumption is seen as the ultimate purpose of all economic action and individuals are regarded as fully cognizant “economic agents” (atomized monads) who are remunerated in line with what they have dedicated to production, and because money is merely

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an instrument of trade or, as the Austrians would have it, a sign of “temporal preferences” through interest rates, a “metaphysical balance” between supply and demand is supposed, as Marx (1969, p. 493) denounced in his critique of “Say’s law”. The dissonant notes in this idyllic picture are almost always attributed to the State, which by its arrogant and autocratic nature extends its functions and manipulates the money supply by changing the general price level and disrupting the relative price system, thereby compromising mercantile harmony. In countering the evils of State arbitrariness, the cult of technocracy is reinforced, creating mechanisms and technical rules based on strict criteria of efficiency and effectiveness and devoid of any political or ideological influence. In defense of the crypto-currencies, there is a common resonance in some infamous economic theses that have gained strength in the wake of the stagflation crises of the 1970s and the ensuing crisis of Keynesianism. To cite just two, it is worth recalling Hayek’s pamphlet on the “denationalization of money”, in which he proposed the abolition of State monetary authorities and the full privatization of money (Hayek 1976), or Friedman’s “monetary rules” in works such as Capitalism and Freedom (Friedman 1985), which proposes a constant increase in the monetary base at a fixed rate, and later proposes replacing the FED with a computational algorithm (Friedman 1994). Unsurprisingly, ultraliberals (Ulrich 2016) roundly applauded the proposal for a currency that was produced and “managed” in a supposedly decentralized way, immune to the discretion of a “monetary authority”, that would guarantee individual privacy and that would be produced and marketed by means of strict technical rules, supposedly based on unbridled competition and economic rationality (teleological), and which would even determine a maximum issue limit, thus defusing the inflationary and disturbing tendencies of the relative price system so feared by monetarists and the “Austrian school”. So, in the ultraliberal idyll, everything appears to be inverted and simplistic: an anarchic and inherently unbalanced production dynamic, which repeatedly produces disastrous crises (which are the negative of capital itself, following each step of the concept, according to Grespan 2008) and to which are attributed mystical self-regulating powers; the State, which is the political form of capital, reproduces its haughty, excessive, violent, and authoritarian character, is understood as the source of all evils, and analyzed in a dualistic way, as an institutional and normative framework cleaved from the economy; this, whose foundation, engine, and purpose is the tautological valorization of value, appears to be structured around the satisfaction of individual needs and desires.

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This is the crux, a highly speculative financial asset which guarantees programmers and pioneer producers an exorbitant power and advantage, whose production and management are heavily concentrated and oligopolized, which is crossed by a strongly ideological conception, and which is highly expensive in energy terms, is presented by apologists as being at the same time a mere currency and as a prodigy of technology, politically and ideologically “neutral”, a bulwark of economic rationality and free competition, and, therefore, an instrument of individual freedom, the foundation of all freedom (Varoufakis 2013; Dodd 2017).

Final Considerations From what we have seen, at first glance, any crypto-currency could become a new national currency and even replace the dollar and other currencies as world money. However, the role played by the dollar as the main world money stems fundamentally from the power of the US economy. But no longer as money, but as money-capital. Strictly speaking, there is no impediment to the substitution of national currencies and world money for any virtual private currency in the dynamics of reproduction and expansion of capital provided they meet the requirements of the general laws of money circulation under the determinations of capital and the general laws of the capitalist accumulation. But the conclusion that cannot be avoided is that the full and complete domination of fetishism over the production, circulation, and appropriation of capitalist wealth has reached unimaginable limits. Contemporary capitalism is solving the craziest dreams of the alchemists, of producing wealth, even if fictitious and at the same time real, through the gigantic social retort that allows us to create money from the air and turn paper into gold. These are the great fetishes of our time, far beyond the golden calf. In criticizing the fetishism of money, Marx also managed to grasp elements that counter-indicate the possibility of building social relationships that are uncensored and not demeaned by the steamroller of capital, in which everything seeks to subject itself to the tautological movement of expanded reproduction. In his words: [G]old and silver do not possess only the negative character of superfluous objects, with no practical use; their aesthetic qualities make them the natural matter of luxury, adornment, sumptuousness, Sunday clothing, in short, the positive form of superabundance and wealth. In our eyes they appear as the

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virginal light torn from the bowels of the earth: the silver reflecting all the luminous rays in their original mixture, the gold reflecting only the highest power of the colour, the red. Now the sense of colours is the most popular form of the general aesthetic sense. The etymological connection of the names of precious metals with the names of colours in the different Indo- Germanic languages was demonstrated by Jacob Grimm. (See his History of the German Language). (Marx 1994, p. 211, modified translation based on Romano 2004, p. 16)30

Not even this can be said of the fetishism proper to crypto-currencies, which restores the fetishism of gold as a mere simulacrum. Its potential technological and technical innovations are necessarily subsumed to speculative fever, felt particularly acutely in contexts such as the present one, marked, on a global scale, by immense quantities of overaccumulated capital and by a lurching enlarged reproduction. Far from being an outlet for the contradictions of contemporary capitalism, crypto-currencies are, at one and the same time, their product and sustenance. More frightening than the Sphinx, it is not enough to decipher the riddle of these stunted social forms; until we overcome its foundations, we will continue to be devoured.31

Notes 1. Gold? Yellow, glittering, precious? ... Thus much of this, will make black, white; foul, fair; Wrong, right; base, noble; old, young; coward, valiant. … What this, you gods? Why this Will lug your priests and servants from your sides, Pluck stout men’s pillows from below their heads; This yellow slave Will knit and break religions; bless the accursed; Make the hoar lebrosy adored; place thieves, And give them title, knee and approbation, With senators on the bench; this is it, That makes the wappen’d widow wed again: … Come damned earth, Thou common whore of mankind (SHAKESPEARE, Timon of Athens apud Marx, 1990, pp. 229–230). “Gold is a wonderful thing! Its owner is master of all desires. Gold can even enable souls to enter Paradise”. (Columbus, in his letter from Jamaica, 1503, apud Marx 1990, p. 229)

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2. Agreeing with Marx, we consider money as an abstract category and coins as forms of the existence of money that have arisen historically in different kingdoms and territories and which were later centralized by kingdoms, rulers, and nation-states. “Money takes the shape of coin because of its function as the circulating medium. […] The business of coining, like the establishing of a standard measure of prices, is an attribute proper to the state. The different national uniforms worn at home by gold and silver as coins, but taken off again when they appear on the world market, demonstrate the separation between the internal or national spheres of commodity circulation and its universal sphere, the world market” (Marx 1990, pp. 221–222). 3. These certificates were debt securities that became a means of circulation and a means of payment, as if they were money. Whenever the certificates were redeemed for gold on deposit, initially with goldsmiths and/or money traders, they were cancelled. 4. This is also the origin of what Marx called fictitious banking capital. Nowadays, an analogy can be made between gold deposits and cash deposits in banks. “In as much 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 form additional – even if fictitious – capital for it, to the nominal value of these fiduciary notes. And this extra capital yields an extra profit” (Marx 1991, p. 675). Regarding the concept of Fictitious Capital, cf. Chaps. 5 and 6 of this book. 5. The Riksbank of Sweden, founded in 1668, and the Bank of London, founded in 1694, are considered the first Central Banks. The latter, whose origin is private, gradually began to exercise, through regulatory laws, the functions of financier of the government, monetary issuer and guardian of reserves, and later of rediscount and lender of last resort. In 1946 it was nationalized. Most capitalist countries created their Central Banks in the first half of the twentieth century (Freitas 2000). 6. Thus, notwithstanding its private nature, the constitution of money and its specifically capitalist forms of manifestation are inseparable from the modern State. As Marx demonstrates in his earlier account of the concept of money in the first chapters of Capital, therefore, before its subsumption to the concept of capital, the State already plays a decisive role in the constitution of money as currency, as regards the definition of the price pattern and the unit of account, as well as the minting of coins (Marx 1990, p. 222), which presupposes the construction of a legal, technical, and institutional framework. 7. It is, according to Prado (Prado 2016, p. 139), “a form of value that “does not have value, because it only represents it”; when presenting this category, the author establishes an analogy with the concept of fictitious capital, “a nominal representation of non-existent capital”, because “even though it is not really real, the fictitious capital is negotiable as if it were, that is, it

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usually circulates as capital-value” (Prado 2016, p. 148). Its fictitious nature, its historical process of production and generalization, and the fact that this money is unconvertable (it does not give right to any type of ransom) and does not yield interest, evidences that it is not simply credit money, but a specific social form that justifies a particular categorical treatment, which is not explicit in the expository structure of Capital. 8. Cf. Chap. 7, of this book. 9. Cf. Chap. 1 of this book. 10. The great difficulty, perhaps even the impossibility, of counterfeiting bitcoin has, in a free market, led to the creation of other virtual currencies, in a process like that in the US, in the period referred to in the following note, where, in counterfeiting of existing dollars, counterfeiters started to create their own dollars on behalf of phantom companies. Currently, anyone with the proper equipment and knowledge of software development can create their own crypto-currency and multiply it through “mining” or other mechanisms. 11. Cf. https://coinmarketcap. com/all/views/all/. This accelerated spread of crypto-currencies resembles the uncontrolled creation of US dollars in the nineteenth century, where each bank could print and issue its own dollar bills, as well as large companies such as railways and mines. See: https://www.mdig.com.br/?itemid=10519 12. Nick Szabo is frequently referred to as the progenitor of crypto-currencies, having launched the idea of “bit gold”, seeking to “mimic in cyberspace, as faithfully as possible, the security and confidence characteristic of gold, and especially the fact that it does not depend of confidence in a central authority” (Szabo apud Pech, 2012). Orlieb (2017) also has Marx’s critique of political economy as a reference and analyzes crypto-currencies in the light of the fetishism of commodity and money, maintaining important points of convergence with this text. 13. “Bitcoin mining is very much like a giant lottery in which you compete, through your mining hardware, with everyone on the net, aiming to earn bitcoins. Faster mining hardware is able to perform more attempts per second to win this lottery, while the bitcoin network adjusts itself every two weeks or so to maintain the hash rate of one winning block in ten minutes” (Estevão 2017). The advantages of using more powerful and sophisticated machines reveal that this lottery is flawed. It should be added, however, that not all crypto-currencies are liable to be mined, that is, they must be created and put into circulation by a specific agent. 14. “The public can see that someone is sending an amount [of bitcoins] to someone else, but without the information linking that transaction to someone else” (Nakamoto 2008). According to Bonneau (2014), this confidentiality is fragile, since the crossing of a set of information can lead to the revelation of the identity of a good part of those who engage in

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negotiations with bitcoins. Nevertheless, it is known that crypto-currencies were catapulted when used in the transactions of Silk Road, a virtual space outside any State regulation, which became known as an instrument for the commercialization of drugs, weapons, and all kinds of illicit activities (Christin 2012). 15. That is designed to have a maximum size of 1 megabyte, which is equivalent to about seven transactions per second. This limitation serves to prevent the proliferation of false transactions (spam) and to allow verification by home computers, in order to preserve the decentralization of the system. 16. Despite the sophistication of the system, it is far from being impregnable. On the contrary, a series of frauds have already been reported: to cite just a few: (a) the disappearance, on 21th November 2017, of US$31 million from Tether, the company that manages the virtual currency USDT; (b) the theft, in April 2017, of more than R$15 million in crypto-currency and, in December 2017, of 17% of its digital currencies, from Youbit, a South Korean company that bought and sold crypto-currencies and that led to its failure and which had repercussions for prices of other cryptocurrencies on the Asian markets (the Bitcoin, for example, fell 15%; see https://brasil.elpais.com/brasil/2017/12/20/internacional/1513760990_056377.html); (c) the theft, on 6th December 2017, of US$60 million from the mining platform NiceHash; (d) in July 2017, US$32 million in Ethereum was stolen from the company Parity; (e) the theft, in August 2016, of 120,000 bitcoins, worth US$72 million, from the exchange house Bitfinex; (f) the theft, in January 2015, of 19,000 bitcoins, worth US$5.1 million, from Bitstamp, a type of crypto-currency share; (g) the theft, in March 2014, of US$473 million in bitcoins from MtGox, who at the time processed more than 70% of world bitcoin transactions; (h) in August 2010, still in its infancy, Bitcoin Core developer Jeff Garzik realized that a hacker had made a transaction of 184 billion bitcoins in just one block. Worth mentioning is the US$101 million Ethereum theft in June 2016, which caused Ethereum creator and CEO Vitalik Buterin (who was only 19 when he created the crypto-currency in 2015) to reboot the system, going back in time to the moment before the robbery. With this change in the blockchain itself, which until then had been understood as definitive and impregnable, the notion that crypto-coins are immune to the designs of any kind of monetary authority has been shaken. For these and other robberies, see, for example, https://portaldobitcoin.com/ os-maiores-roubos-de-criptomoedas/ 17. Incidentally, one of the alleged advantages of crypto-currencies, a supposed lowering of transaction costs, thanks to its decentralized character, does not seem to hold up, at least in the short term. According to Malmo estimates (2015), in 2015, a bitcoin transaction consumed 5000 times

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more electricity than a credit card transaction, and the electricity equivalent spent daily, on average, for one and a half US households. According to Roberts (2017), “bitcoin mining is already consuming more computing power than Ireland’s annual electricity consumption”. With current technology, this expense will tend to increase strongly with the passage of time. By mid-November 2018, total energy consumption in the production and circulation of bitcoins exceeded 73 terawatt-hours (by comparison, total electricity consumption in Brazil in 2017 was 467 terawatt-hours, according to the Statistical Yearbook 2018), which corresponds to the emission of more than 36 megatons of CO2 (see https:// digiconomist.net/bitcoin-energy-consumption). Still regarding energy expenditure, a single bitcoin transaction is equivalent to almost 270,000 transactions made through the Visa network, and the way it is configured the bitcoin system can perform at the most the derisory number of seven transactions per second, while the Visa system can reach 56,000 transactions per second. 18. The first deal involving bitcoin took place in the second half of 2009, at a rate of 1 BTC = 0.0007 US$, which would be its estimated cost of production when the computational capacity and energy then required for both are taken into consideration. 19. If, for example, the cost of printing a $100 bill was $1.00, seignorage would be $99.00 because the issuing agent could buy goods and services or pay off debts and loans at the nominal value of the printed note. Presently, seignorage is estimated through an average interest rate on public debt securities, as the creation of money around the world is basically performed through the records of accounting operations between the banking system and the rest of the economy. 20. The list of persons and companies that accept bitcoin as a means of circulation or payment can be seen at: https://coinmap.org/#/ world/29.53522956/-19.33593750/2. For example, recently, a Brazilian construction company, Valor Real Empreendimentos Imobiliários started accepting payment in crypto-currency in real estate of the “Minha Casa, Minha Vida” Programme. See: https://infomoney.com.br/mercados/ bitcoin/noticias/7144657/construtora-brasleira-aceita-pagamento-criptomoedas-imoveis-minha-casa-minha-vida 21. The modern credit system was able to overcome all these demands of the movement of commodity-capital. 22. Hoarding in the form of metallic money or banknotes, besides serving as a form of accumulation of wealth, also played an important role in regulating the necessary amount of money to establish the value of commodities in the process of capital circulation. Each time money circulation demanded more money, a portion of the treasured money was discharged into the

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process of conversion of wealth. All excess money, unnecessary for circulation, returned to the particular treasuries of wealth owners, banks, businesses, or families. 23. “Money as such is already potentially self-valorising value, and it is as such that it is lent, this being the form of sale for this particular commodity. Thus, it becomes as completely the property of money to create value, to yield interest, as it is the property of a pear tree to bear pears. And it is as this interest-bearing thing that the money-lender sells his money. Nor is that all. The actually functioning capital, as we have seen, presents itself in such a way that it yields interest not as functioning capital, but rather as capital in itself, as money-capital” (Marx 1991. p. 516). 24. See Paulo Nakatani (2017). 25. Cf, https://www.blockchain.com/pools 26. See: https://bravenewcoin.com/insights/numbers-that-count-debunkingthe-fundamentals-of-btc-money-flow 27. In this respect, it is worth remembering Hebert Marcuse (1998, p. 132): “the concept of technical reason is perhaps in itself ideology. Not only its application, but already the technique itself is methodical, scientific, calculated and calculating domination (about nature and about man). Certain ends and interests of domination are not granted to technique only ‘subsequently’ and from outside – they are inserted already in the very construction of the technical apparatus”. 28. After hayek gold, another company launched bitgold. See: https://www. anthemvault.com/;https://bitcoinmagazine.com/articles/hayekgoldanthem-vault-represents-physical-gold-bitcoin-blockchain-1433455153/ and https://www.bitcoinmining.com/bitgold-goldmoney-review/ 29. Recently, China announced that its payments on the oil account would be in renminbi convertible into gold, in a complex piece of financial engineering. See: http://resistir.info/eua/roberts_18out17.html 30. As Romano (2004, p. 16) commented: “Under the merciless mechanism and intellect, there are living bodies, souls that feel and vibrate with the beautiful and the true. Bodies that, if they could, would wear luxurious cosmetics with a lot of ornaments and sumptuous Sunday clothes, souls that would unfold in the reverie of dreams awakened by the five senses in all the arts, but capitalism prevents the somatic and soul-feast, and produces its opposite”. 31. As written elsewhere (Nakatani and Mello 2018), “the deification of gold, which has led to extermination, slavery and to the torture of millions throughout the history of capitalism, and which in some places continues to catalyse military conflicts, genocide, and the subjection of multitudes to degrading conditions of work, such deification, we said, reappears here as a farce, a pseudo-nostalgia, an ode to fetishism, which assumes the most unfortunate forms of manifestation”.

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References Bonneau, J. (2014). Mixcoin: Anonymity for bitcoin with accountable mixes. In N. Christin & R. Safavi-Naini (Eds.), Financial cryptography and data security. Heidelberg: Springer. Christin, N. (2012). Traveling the silk road: A measurement analysis of a large anonymous online marketplace. Computers and Society. https://doi. org/10.1145/2488388.2488408. Copérnico, N. (2004). Sobre a moeda. Curitiba: Segesta. Dodd, N. (2017). The social life of bitcoin. Theory, Culture & Society, 35(3), 35–56. Engels, F. (1981). Esboço de uma crítica da economia política. In F. Engels (Ed.), Política. São Paulo: Ática. Estevão, P. (2017). What is bitcoin mining? Weusecoins. https://www.weusecoins. com/en/mining-guide/. Accessed 27 Oct 2017. Freitas, M. C. P. D. (2000). A evolução dos bancos centrais e seus desafios no contexto da globalização financeira. Estudos Economicos, 30(3), 397–417. Friedman, M. (1985). Capitalismo e liberdade. São Paulo: Nova Cultural. Friedman, M. (1994). Do We Need Central Banks? https://miltonfriedman. hoover.org/friedman_images/Collections/2016c21/HKMA_1994.pdf. Accessed 13 Nov 2018. Grespan, J. (2008). O Negativo do Capital. São Paulo: Expressão Popular. Hayek, F. A. (1976). Denationalization of money: An analysis of the theory and practice of concurrent currencies. London: Institute of Economic Affairs. Malmo, C. (2015). Bitcoin is unsustainable. https://motherboard.vice.com/en_ us/article/ae3p7e/bitcoin-is-unsustainable. Accessed 17 Oct 2018. Marcuse, H. (1998). Industrialização e Capitalismo na obra de Max Weber. In H. Marcuse (Ed.), Cultura e Sociedade II (pp. 113–135). São Paulo: Paz e Terra. Marx, K. (1969). Theories of Surplus Value, part II. London: Lawrence and Wishart. Marx, K. (1990). Capital: A critique of Political Economy (Vol. 1). London: Penguin Books. Marx, K. (1991). Capital: A critique of political economy (Vol. 3). London: Penguin Books. Marx, K. (1994). A contribution to the critique of political economy. Chicago: Charles H. Kerr & Cia. Nakamoto, S. (2008). Bitcoin: A peer-to-peer electronic cash system 2008. https:// bitcoin.org/bitcoin.pdf. Accessed 13 Oct 2018. Nakatani, P. (2017). Porque os economistas erram tanto em suas previsões. In Revista Cult (Vol. 229, pp. 30–31). Nakatani, P., & Mello, G. M. C. (2018). Não o sabem, mas o fazem: o segredo das bitcoins. Nuestra America XXI Desafios y Alternativas, 15, 2–3. Oresme, N. (2004). Pequeno tratado da primeira invenção das moedas. Curitiba: Segesta.

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Orlieb. C. P. (2017). Do dinheiro digital e outros falsos: O que o curso dos bitcoins revela sobre o meio dinheiro. https://eleuterioprado.files.wordpress. com/2018/01/do-dinheiro-digital-e-outros-falsos.pdf. Accessed 6 Jan 2018. Pech, M. E. (2012). Bitcoin: The crypto-anarchists’ answer to cash. Disponível em: https://spectrum.ieee.org/computing/software/ bitcoin-the-cryptoanarchistsanswer-to-cash. Accessed 10 Jan 2018. Prado, E. F. S. (2016). From gold money to fictitious money. Brazilian Journal of Political Economy, 36(1), 14–28. Roberts, M. (2017). Blockchains and the crypto craze. https://thenextrecession. wordpress.com/2017/09/17/blockchains-and-the-crypto-craze/. Accessed 23 Feb 2018. Romano, R. (2004). Apresentação. In M. C. B. Moura (Ed.), Os mercadores, o templo e a filosofia (pp. 11–23). Porto Alegre: EDIPUCRS. Ulrich, F. (2016). Bitcoin: a moeda na era digital. São Paulo: Instituto Mises Brasil. Varoufakis, Y. (2013). Bitcoin and the dangerous fantasy of ‘apolitical’ money. https://www.yanisvaroufakis.eu/2013/04/22/bitcoin-and-the-dangerousfantasy-of-apolitical-money/. Accessed 11 Nov 2018.

CHAPTER 5

Financialization and the Contradictory Unity Between the Real and Financial Dimensions of Capital Accumulation Paulo Nakatani, Adriano Lopes Almeida Teixeira, and Helder Gomes

Introduction Several scholars of the contemporary phenomenon conventionally known as financialization have returned to Marx to seek elements that clarify the causes that culminated in the economic crisis of 2008. This has inexorably led them to the famous Section V of Volume III of Capital.

P. Nakatani (*) Department of Economics and Post-Graduate Programme in Social Policy, Federal University of Espírito Santo (UFES), Vitória, Espírito Santo, Brazil A. L. A. Teixeira Department of Economics, Federal University of Espírito Santo (UFES), Vitória, Espírito Santo, Brazil H. Gomes Post-Graduate Programme in Social Policy, Federal University of Espírito Santo (UFES), Vitória, Espírito Santo, Brazil © The Author(s) 2019 G. M. de C. Mello, M. de S. Sabadini (eds.), Financial Speculation and Fictitious Profits, Marx, Engels, and Marxisms, https://doi.org/10.1007/978-3-030-23360-0_5

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From there, a series of new challenges arise. Volume III is organized in a very different way from that in Volume I. After the treatment of the production and circulation processes in Volumes I and II, respectively, Volume III raises the expectation that it will function as a synthesis of the preceding ones, “the actual production process, the unity of the immediate production process and the process of circulation” (Marx 1991, p. 967). It tears down simplifications, introduces new variables and new determinations, such as profit, interest, land rent, credit, competition, and so on, and should contain a final and decisive treatment of the financial aspects of capitalist production. But that’s not what we find. Despite the importance of Section V, with rich digressions and insights from Marx, those questions are dealt with in the form of a tangle of pointers, quotations, statistical data, and general assumptions that are more effective in creating new questions than in resolving those that were already under investigation. These are issues that, as Heinrich (1989) points out, conflict with Marx’s own analysis of the content of Volume III: In presenting the reification of the relations of production and the autonomy they acquire vis-à-vis the agents of production, we shall not go into the form and manner in which these connections appear to them as overwhelming natural laws, governing them irrespective of their will, in the form that the world market and its conjunctures, the movement of market prices, the cycles of industry and trade and the alternation of prosperity and crisis prevails on them as blind necessity. This is because the actual movement of competition lies outside our plan, and we are only out to present the internal organisation of the capitalist mode of production, its ideal average, as it were. (Marx 1991, pp. 969–970)

However, a light must be seen in the shortcomings of the section, as Marx did not write it for publication and there is no point in reproaching Engels because he did no more than revise the manuscripts and publish them. The inaccuracies of the text cannot be put down to the fact that the text was not organized by Marx,1 but to the very complexity represented by the real movement of capitalist society. By introducing competition analysis, Volume III becomes an invaluable resource for those seeking to understand the financial phenomena of today. Indeed, if Marx’s pathway of studies was marked by disruptions, it is still possible to see indications of answers that he found in the course of his investigations, which, as something inherent in a research process, could not follow an exact timeline. This can even be observed in the order in which Marx produced Volumes II and III, since the latter was drawn from

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a manuscript written in 1864–1865, whilst the former was from texts written between 1868 and 1881 (Heinrich 2014, pp. 19–20). Although he had already dealt with capital in its diversity in the Manuscripts of 1864–1865, he understood that further studies on the process of circulation of capital were necessary. This chapter intends to show how we can use Marx’s Capital for the understanding of contemporary capitalism, not only from Volume III but from a perspective that reaffirms the importance of Volume II. First, let us discuss the relationships between capital in general and individual or private capital; capital in general as a totality in movement, at a higher level of abstraction, and individual capitals as the forms of existence and manifestation of capital in general,2 at a more concrete level. We will start from the functional forms of industrial capital, namely, monetary capital, commodity capital, and productive capital, in the cycle of capital and then seek the links between the theoretical and historical by introducing the relationships between capital and the State in its historical and concrete movement. Our reading has the process of circulation of capital as one of the main foundations, as dealt with by Marx in the first four chapters of Volume II, and particularly, the advances in the development of the monetary form of capital and its unfolding into interest-bearing capital and its fictitious forms of capital in Volume III. With this, we also seek to overcome the critique of the dichotomy between real and monetary accumulation, between what critics call industrial and financial capital, with which we do not agree since they are not categories that Marx develops. Industrial capital is capital in its entirety, and financial capital, mistakenly used in some translations of Capital, is a category developed by Hilferding. The concrete movement must show not only a link between the functional forms of capital but its continuous metamorphosis from one form to another, even though in their concrete manifestation, they appear to be separate. Many readings on Capital deal with the categories developed in Volumes I and III as if they were a sequence moving from the more abstract to the more concrete, our view is that this should is not be the case and that the categories he develops are dealt with from more abstract levels to more concrete levels throughout Capital. They continue to receive new determinations in which the level of abstraction is modified. In this process, for example, categories and determinations—which do not appear and are not developed in Volume I—are already presupposed, and their more concrete determinations are only considered later. As a more

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precise example, in the study of money in the first three chapters, the concrete determinations of the credit system and credit money were not considered, although the existence of the latter was indicated by Marx. He supposes that money is gold, but at that point, money in its concrete forms as national currencies, as well as credit, was already fully developed. Forced State paper, or unconvertible,3 currency already existed concretely, though it was not yet dominant, which had already been pointed out by Marx in Volume I of Capital: One thing is necessary, however: the symbol of money must have its own objective social validity. The paper acquires this by its forced currency. The state’s compulsion can only be of any with that internal sphere of circulation which circumscribe by the boundaries of a given community. (Marx 1990, p. 226)

By means of our proposed approach, we intend to highlight the limits and misunderstandings of some relevant analyses on financialization, a term that lacks conceptual density and has been misused in designating an excessively wide and heterogeneous range of phenomena.4 It may be possible to partially agree with some propositions of heterodox authors, who mobilize the term, “to refer to the growing importance of financial activities as a source of profits in the economy” (Krippner 2011, p. 27), or refer to the, “increasing role of financial motives, financial markets, financial actors and financial institutions in the operation of the domestic and international economies” (Epstein 2005, p. 3), but it will become clear that financial phenomena are incomprehensible without the Marxian critique of value and the subsumption of labor to capital. It is necessary to consider financialization in the light of the global dynamics of capital accumulation as a whole. In doing so, we can avoid the misunderstanding of Krippner’s wellknown definition, according to whom financialization is, “A pattern of accumulation in which profits accrue primarily through financial channels rather than through trade and commodity production” (Krippner 2005), as well as the error of understanding the phenomenon exclusively from the dynamics of class and class fractions and from the expressions in State administration that they tend to sustain (Palley 2013) (Crotty 1993), and within the critique of political economy (Duménil and Lévy 2010).5 In the same way, interpretations of financialization as a historical aberration, or financial markets as the, “locus of all deviations” (Duménil and Lévy 2010, p. 281) will be banished, as well as the proposition that, “financialisation is

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a historical outcome of the persistent malfunctioning of real accumulation over the last four decades” (Lapavitsas and Mendieta-Muñoz 2016). On the contrary, the prominence gained by interest-bearing capital and the fictitious forms of capital will prove to be a necessary extension of the evolution of capitalist social formations and an expression of their contradictory character and of the structural crisis in which they find themselves. Therefore, although it maintains some affinity with approaches, such as Fine (2013), Sotiropoulos et al. (2013) and Chesnais (2016), among others, this analysis intends to enrich the understanding of contemporary capitalism, and more specifically, of financialization, from the perspective of the critique of political economy.

Capital in General and Individual or Private Capital The first author to highlight the category of capital in general was Rosdolsky in The Making of Marx’s Capital, first published in German in 1968 (Rosdolsky 1977). He pointed out that the category of capital in general is at a level of abstraction that excludes competition between individual capitals and the credit system, which Marx himself explains in Grundrisse and elsewhere.6 Rosdolsky’s interpretation generated a controversy between capital in general and competition (many capitals) in the 1970s and 1980s. For some, Marx seemed to abandon the category of capital in general (Heinrich 1989); for others it was maintained (Moseley 1995) or reconfigured (Fineschi 2013). Heinrich criticizes Rosdolsky and argues that the category of capital in general can no longer be sustained by his interpretation of Marx’s texts, “Capital can no longer be understood in terms of the previous distinction between ‘capital in general’ and ‘competition’: the concept of ‘capital in general’ is shattered” (Heinrich 1989, p. 75). For Moseley, Heinrich makes a mistake in his interpretation of capital in general and proposes an alternative, “I re-examine Heinrich’s arguments and conclude that they are based on a mixed definition of capital in general and that Marx maintained the distinction between capital in general and competition in the final version of Capital” (Moseley 1995, p. 16). Fineschi, for his part, asserts that, “‘Capital in general’ should be the first part of the first book. However, with the development of the theory the plan underwent significant though not radical changes” (Fineschi 2013, p. 75). We agree with Moseley’s interpretation, but we will not develop this debate,7 not least because there are other philosophical and methodological

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readings of the logical relations between categories in Marx and Hegel, as detailed in (Dussel 2012) and Moseley and Smith 2014). What interests us is to show capital as a totality, an abstraction in motion, and its concrete manifestation. We will use as the main text Volume II of Capital. In this volume, Marx refers to capital, in general, twice. First, when he is studying the period of circulation and made a critical remark on the political economy, “But what political economy sees is only the appearance, i.e. the effect of the circulation time on the accumulation process of capital in general. It conceives this negative effect as positive, because its results are positive” (Marx 1992, p. 204, our attribution), and second, when discussing Adam Smith’s theories on fixed and circulating capital: Here Adam Smith clearly asserts that the property of being capital cannot be attributed to things as such and under all circumstances but is rather a function with which they are or are not endowed according to the given conditions. But what is true of capital in general is also true of its subdivisions. (Marx 1992, p. 281. Our attribution)

In Volume II, as Rosdolsky asserts in his analysis of Rosa Luxemburg’s criticisms, that Marx is still analyzing within the limits of capital in general, “The main difference is rather that the first two volumes do not go beyond the analysis of ‘capital in general’ whereas the third volume does and therefore represents the transition to the analysis of, ‘many capitals and their interaction with one another’” (Rosdolsky 1977, pp. 65–66). Volume II includes the category of social capital in the title of Section III, the reproduction and circulation of total social capital. However, it appears from Chapter 1, in the cycle of money capital, “M … M′ can be the first circuit of the capital, it can be its last; it can be taken as the form of the total social capital” (Marx 1992, p. 140, our attribution).8 According to Heinrich: The methodical importance of this distinction between individual capital and total social capital is systematically developed for the first time in manuscript II, and later in a retrospective reference to volume I. Only on the basis of this unity can we investigate the “total process” in Volume III of Capital: not as a succession of categories, but as a reference of capital to oneself. But in order to analyse the latter, capital must first be determined as a unit that makes this self-reference in general possible. (Heinrich 2014, p. 18)

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The Metamorphoses of Capital and Its Cycles The interdependence of Volumes I and II is notorious. Volume I adopts simplifications, for example, that the value produced will be realized, that is, that all goods produced will be sold. Volume II sets out to incorporate the difficulties of circulation but adopts the opposite simplification. In it, the process of the production of surplus value happens smoothly. Capital, which appeared in Volume I in essence, is now investigated by Marx as a process in motion, with continuous change between its functional and material forms. After studying the process of capital production, Marx begins Volume II by analyzing what he calls “cycles of capital”: that of money capital, of productive capital and of commodity capital. The first three chapters analyze each cycle, and in the fourth, Marx analyzes them together in an integrated way. The treatment of the issue is always restricted to the technical aspects of circulation, without discussing the division of specialized functions that would take place among capitalists themselves in which some would concentrate their activities in the monetary sphere and others in the productive or commercial sphere. It always highlights, however, how the movement of capital in general, as an abstraction, is concretely realized through individual capitals. Marx’s analysis focuses on the successive and continuous changes of form that capital undergoes in its three consecutive phases,9 which in the end will return to its primitive form. That is, it studies the cyclical movement of social capital that occurs through metamorphoses. The only way to understand the movement of social capital is through its continual change of form. In each phase, capital value assumes a form which is related to its function in the valuation process. Social capital does not, and cannot, move, except through its change of form and each of the forms must have the necessary properties to perform its respective function. They are the functional and autonomous forms of capital, constituted by the monetary, productive, and commodity forms of capital. Here, unlike many interpretations, we consider these forms to be autonomous, as abstractions at the level of capital in general. These three forms constitute moments of the metamorphosis or the cycle of industrial capital M ...C ... M′,10 and are, therefore, at the same level of abstraction. Marx chose to begin with the analysis of the cycle of money capital, although he could have taken any of them as a starting point, given the cyclical nature of the valuation process. The above-mentioned cycles can be illustrated as follows:

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(I) Cycle of monetary capital: M−′C ... P ... C′−′M′ (II) Cycle of productive capital: P...C−′M′−′C ... P (III) Cycle of commodity capital: C′−′M′−′C ... P ... C′ Together, the cycle of industrial capital in continuous movement can be expressed in the following way:

mp mp M − C  … P … C′ − M ′ … M − C  … P … C′ − M ′ … M − C L L mp  … P … C′ − M ′ … L

In the cycle of monetary capital, M–C...P...C′-M′, money is capital not because it is money, but because it is inserted in the circulation process in which specific goods will be purchased, aiming at a future accumulation of value: “only in a different mode of existence, i.e. capital value in the state or form of money – money capital” (Marx 1992, p. 112). In the functional form of monetary capital, it fulfils the functions proper to money, namely means of circulation and means of payment: “the capital value in its monetary state can perform only monetary functions, and in others” (Marx 1992, p. 112). In the first phase, M–C, the capitalist buys specific commodities, the labor force (L) and the means of production (mp), which will be used in the productive process P. At that moment, capital assumes the functional form of productive capital. In this phase, the material elements of capital will be consumed in the process of creating new values of use, with an added value. It can be seen that if there was no change in the magnitude11 of value during the metamorphosis of money capital into productive capital, there will be a shift from productive capital to commodity capital. So, we arrive at the last phase, C−M′, in which capital takes the commodity form, which must be sold to have its value realized. Therefore, there are three phases, of which the first and the last, M−C and C′−M′ phases belong to circulation, and the intermediate, C ... P ... C′, refers to production. In the cycle of productive capital, P...C′-M′-C...P, the phases are inverted and represent their continuous renewal. While in the cycle of monetary capital, the phases corresponding to the circulation appeared at the beginning and at the end M−C and C′−M′, in the cycle of productive

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capital appears as intermediary phases. The capital P, made up of commodities, labor power, and means of production, takes on the functional form of productive capital. “It signifies that the function of the industrial capital that exists in its productive form does not take place once and for all, but is periodically repeated, so that the new beginning is given by the point of departure itself” (Marx 1992, p. 144). In the production cycle, we can see what was not evident in the cycle of money capital, namely: (1) the uninterrupted nature of the capitalist production process, since it does not make sense to start at P, return to P and then stop, because capital only comes into its productive form because its aim is to initiate another process of accumulation, whereas, in the monetary capital cycle, the capitalist could interrupt at M′and hoard it for some time; (2) the origin of capital is evidenced, since the initial P is the result of the previous work carried out by the working class, and the initial M could be considered a result of the capitalist’s own work. It should be noted, however, that the movement of social capital undergoes continuous interruptions in each of its cyclical forms. In the monetary form, the interruptions occur as hoarding, the productive form interrupts the movement of the monetary form of capital.12 In commodity form, interruptions in circulation occur either through capital stock in the productive form or in the form of finished goods. All these disruptions mean that a portion of capital is accumulating as one or other of these forms, but without functioning as capital. So, when we consider the concrete movement of capital, the cycle M-C...P...C′-M′ is occurring at the same time in the individual units of capital, in parallel and superimposed.13 The last cycle, and we could say the last perspective, on the analysis of the point of departure and arrival of capital in its process of movement is the cycle of commodity capital, C′-M′-C...P...C′. The already valued commodity, including added value, is at the beginning of the cycle, which differentiates it from the two previous cycles which started from M and P and are still lacking in value.14 In this cycle, it becomes even more evident that the origin of capital lies in the worker’s prior work. The sale of the goods must take place at the beginning, as indicated by the first phase C′-M′. Note that M and P as starting points cannot necessarily be considered capital, since the material form in which they appear does not define their nature, unless M becomes the commodity workforce and means of production and P is in operation. C′, in turn, already appears at the beginning as a result of an earlier valuation process:

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C′ ... C′ is the only circuit in which the capital value originally advanced forms only a part of the extreme that opens the movement, and in which the movement in this way proclaims itself from the start as a total movement of industrial capital; a movement both of the part of the product that replaces the productive capital and of the part that forms surplus product and is on average partly spent as revenue, and partly has to serve as an element of accumulation. (Marx 1992, p. 177)

Therefore, the metamorphoses that capital goes through in these cycles is what characterizes the process of accumulation in movement.15 Hence, Marx will define capital as the dialectical unity of the three cycles. Monetary capital, in its continuous movement, runs through the other two cycles, as well as productive capital and commodity capital. Marx develops the industrial capital category as follows: The two forms that the capital value assumes within its circulation stages are those of money capital and commodity capital; the form pertaining to the production stage is that of productive capital. The capital that assumes these forms in the course of its total circuit, discards them again and fulfils in each of them its appropriate function, is industrial capital – industrial here in the sense that it encompasses every branch of production that is pursued on a capitalist basis. (Marx 1992 p. 133)

Social Capital and Individual Capitals In fact, it is not true that a certain individual capital must altogether abandon a certain functional form, and from there, move to the other form. It exists simultaneously in all three forms, “Thus industrial capital in the continuity of its circuit is simultaneously in all its stages, and in the various functional forms corresponding to them” (Marx 1992, p. 182). In the same way, each part of the individual capitals is simultaneously in one of these functional forms, “In reality, however, each individual industrial capital is involved in all three at the same time. The three circuits, the forms of reproduction of the three varieties of capital, are continuously executed alongside one another” (Marx 1992, p. 181). With the mode of production fully developed, the first metamorphosis M-C represents the sale that one capitalist makes to another, from the point of view of individual capitals. One is the seller and the other is the buyer. At this point, the seller has one of the components of C and is completing its global cycle M-C...P...C′-M′, while the buyer is initiating its cycle of the commodity form C′-M′-C...P…C′:

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C-M on the part of the commodity possessor is M-C on the part of the purchaser; the first metamorphosis of the commodity in C-M is the second metamorphosis of the commodity which steps forth as M; conversely with M-C. What was previously demonstrated, concerning the intertwining of the metamorphoses of a commodity at one stage with those of another commodity at another stage, therefore holds good for the circulation of capital, in so far as the capitalist is buyer and seller of commodities, and his capital accordingly functions as money towards others’ commodities, or as a commodity towards others’ money. This intertwining, however, is not by this token alone an entwining of the metamorphoses of capitals. (Marx 1992, p. 193)

Thus, total social capital, as an abstract, moves concretely through the individual, or private, capitals that function in an intertwined way. From this point of view, the multiple individual capitals are functionally dependent. Each individual capital at the beginning of its cycle, M-C, depends on a variety of other capitals. It needs to find in the market of means of production all the raw materials and other materials for it to progress to the second moment of the cycle. It also needs to find in the market the commodity labor force appropriate to the concrete form that its capital must assume as productive capital.16 The greater the magnitude of individual capital and the more complex the commodity produced, the greater the diversity and variety of suppliers it needs.17 If capital at its highest level of abstraction is described as a process in continuous motion, then at the concrete level of individual capitals, it is undergoing continual interruptions. Marx elaborates on this question in the chapters on circulation period and the rotation of capital, but he is already advancing this point in Chapter IV of Volume II: The various stages here constitute an equal number of interruptions. […] the total capital exists and functions simply as money capital. Once it is transformed into productive capital, it functions neither as money capital nor as commodity capital. Its entire circulation process is interrupted, just as on the other hand its entire production process is interrupted as soon as it functions in one of the two stages of circulation, whether as M or as C’. Thus the circuit P ... P would present itself not only as a periodic renewal of the productive capital, but equally as an interruption in its function, the production process, until the circulation process had been completed; instead of taking place continuously, production would be pursued only in spasms and be repeated only after periods of time of accidental duration, according to whether the two stages of the circulation process were accomplished quicker or more slowly. (Marx 1992, pp. 181–182)

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And in the same vein; This is in fact true for each individual portion of capital in motion, and all portions of the capital go through this movement in succession. […] The circuit of capital is a constant process of interruption; one stage is left behind, the next stage embarked upon; one form is cast aside, and the capital exists in another; each of these stages not only conditions the other, but at the same time excludes it. (Marx 1992, p. 182)

These interruptions during the cycle of industrial capital create quantities of capital that are not in motion, that is, they are not appreciating. Each unit of capital needs a greater or lesser stock of raw materials and other materials to maintain regular production. This stock is still in the form of merchandise and does not contribute anything to the production of surplus value. At the other end of the cycle, finished goods are held in stock as required to meet the final demand for the product. If an individual producer does not have enough inventory to serve their customers, they risk losing market share to their competitors. Moreover, he can produce it but cannot sell it, which Marx called the mortal leap of the commodity. Each unit of capital must continuously carry out the cycle M-C...P...C′-M′. Every day every capitalist receives a part of his capital- value in the form of money and keeps it to meet his payment commitments. Part of this capital value, if it is intended for expanded accumulation, requires an amount that is necessary according to the concrete requirements of its production process, “The surplus-value thus builds up into a hoard, and in this form it latent money capital. Latent, because as long as it persists in the money form, it cannot function as capital” (Marx 1992, p 158). On this question, Marx goes on to say; Thus, the accumulation of money, the formation of a hoard, appears here as a process that temporarily accompanies an extension of the scale on which industrial capital operates. Temporarily, because as long as the hoard persists in its state as a hoard, it does not function as capital, does not participate in the accumulation process, but remains a sum of money that grows only because money available to it without any effort on its part is cast into the same coffer. (Marx 1992, p. 163).

He concludes this point on the accumulation of money as follows:

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Here we take the accumulation of money in its original real form, as a real hoard of money. It can also exist merely in the form of favourable balances, of sums owed to the capitalist who has sold C′. As far as concerns the other forms, in which this latent money capital may in the interval exist in the actual shape of money which breeds money, e.g. as interest-bearing deposits in a bank, bills of exchange or securities of one kind or other, these do not belong here. In that case, the surplus-value realised in money performs particular capital functions outside the circuit of the industrial capital from which it arose; functions which have nothing to do with that circuit as such, and assume the existence of functions of capital distinct from the functions of industrial capital, which have not yet been developed here (Marx 1992, p. 164).

Throughout Volume II, Marx is assuming that all money is metallic money, he does not consider symbolic money or credit money, even though he advanced this form in Chapter 3 of Volume I.18 He also does not consider the existence of the credit system, which will only be studied in Volume III with the most concrete determinations of the reproduction of capital. But, as we have already mentioned, we must not forget that the manuscript of Volume III predates Volume II. Next, we set out to integrate these new determinations into the cycle of capital, necessary for understanding the functioning of fully developed, monopolized, and globalized capitalism in its contemporary phase. We have explored the development of the credit system and the transformation of metallic money into credit money in the context of globalized capitalism and in the periodic crises of overaccumulation since the 1970s.

The Movement of Capital in the Twenty-First Century As it was in the nineteenth century, we can also represent the cyclical movemp ment of capital in general through the sequence, M − C  … P … C′ − M′, L in its continuous metamorphoses, through the autonomous forms of money capital (M), commodity capital (C), and productive capital (P). The production of new wealth through the exploitation of the workforce remains the same, although there have been profound changes resulting from new inventions and technologies that have produced an enormous increase in labor productivity.

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The cycle of individual or private capitals also remains the same and can be represented in the same way. However, the structuring of these individual capitals has been profoundly modified and is extremely complex, especially with the wholesale development of the credit system. The initial advance of capital (M), in the form of a continuous action proper to the process of capital appreciation since the dawn of capitalism, was modified through the process of monopolization of the economy and the development of credit. Thus, private capital units were developed not only by small family groups of shareholders in Anonymous Societies but also by thousands of individual shareholders in the same unit without excluding other forms of organization of individual and family capitalist units. Large corporate corporations now have cross, or reciprocal, participation and equity controls in the form of affiliated or controlled companies forming giant conglomerates. A unit of this type of monopoly capital can control dozens of others at the same time in the same branch of activity or many different ones. These gigantic corporations have become globalized and operate frequently on every continent. A few hundreds of them command most of the production in various economic sectors like aviation, petroleum, chemistry, electronics, and computer science. Even without acting directly, some of them can control production and marketing, particularly in agriculture, while controlling the supply of the means of production and inputs and the purchase of the final product. The development of investment funds, mutual funds, and pensions, as well as the transformation of commercial banks into universal or multiple banks,19 has further diversified and modified the origin of the initial M. It has allowed the accumulation of huge amounts of interest-bearing monetary capital. We are in a phase of capitalism where the cycle mp M − C  … P … C′ − M′ has not only been modified by the more conL crete form that Marx presents with the introduction of the credit system, “The movement is thus: M-M-C-M′-M′” (Marx 1991, p. 461), but with the diversification and complexity of the enormous number of agents that provide the initial capital M as credit or equity. The main modification in this process, however, has been the emergence of private capital units in the late nineteenth and twentieth centuries, which came to have the participation and sometimes the control of investment funds, mutual funds, pension funds, and banks.20 Volkswagen, for example, which operates in more than 150 countries and competed for first place with Toyota as the largest automobile seller in

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2016, controlled the following brands: Volkswagen, Audi, Seat, Skoda, Bentley, Bugatti, Lamborghini, Porsche, Ducati, Scania, and MAN. For the development of the individual cycles of this mass of capital, it also operates in the financial and banking area. The control of this corporation, that was almost a family affair, was fought over by the entrance of new shareholders. But in this new phase of capitalism, which we call speculative and parasitic, it became much more than about control, the dispute moved into the field of stock value. Firstly, a minimum requirement of a distribution of dividends at 15%21 and, secondly, a continuous increase in the price of shares in the stock exchange, that is, the stock value.22 This dispute included the transfer of the speculative, short-term, and highly alienated logic of the M-M′ cycle of interest- bearing capital to the sphere of the productive form of capital, with demands on the use of the labor force that had to become multipurpose, available, and dispensable at the same time. As for the autonomization of the forms of industrial capital, sectors have also been developed specific to agriculture, commerce, industry, services, banks, and finances. Many Marxist authors have associated these sectors with fractions of the bourgeoisie with distinct or even opposed interests as farmers, industrialists, merchants, or bankers, resulting from competition for the appropriation of surplus value. If, from the point of view of capital in general, we can affect this separation, we consider that this is not possible at the more concrete level of individual capitals. Each company, small, medium, or large, daily reproduces the cycle of capital, mp M − C  … P … C′ − M′. No single unit of capital, be it commercial, agriL cultural, industrial, service, or financial, can move and reproduce without the continuous metamorphosis of money into commodity, productive capital, new commodity, and once again into the form of money. This cyclical, continuous, day-to-day movement of individual units must take place through a continuous interweaving between an individual capital and a variety of others, as well as the ongoing relationship of its final buyers, whether consumers, governments, or other units of capital. This entanglement does not exclude the intense competition between multiple capitals, either for the control of sources of raw materials, their acquisition or financing, or in the competition for markets, price competition, or product diversification, always in search of greater participation in the value produced.

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The production and appropriation of surplus value cannot be considered or explained only at the level of individual capitals.23 It occurs at the level of global social capital, and at the same time, at the level of individual capitals. The debate on the production and appropriation of surplus value, considered solely at the level of individual capitals, for us, has become sterile. In the current stage of global integration of production chains, it is increasingly necessary to deepen the study on production and transfers of surplus value between national states. In contemporary capitalism, with the full integration of banking networks in mediating the form of money in its functions as means of circulation and means of payment, most operations in the process of the circulation of social capital must pass through the banks. Increasingly, the concrete unconvertable State currency has lost its importance as a means of circulation and means of payment, being replaced, even in the smallest purchase and sale transactions, by debit or credit cards. The explosion of virtual currencies24 and the integration of every individual directly into the banking networks through microchips or smartphones has led many authors to conclude the end of money.25 Here we must emphasize that technological developments can surpass the concrete and historical forms of currencies that we know. However, money as an abstract social form cannot disappear if the mode of functioning of the production and circulation of wealth is based on the commodity form. The movement of the c ommodity form, within the cycle of capital in general, necessarily requires the existence of the money form, through which it effects its metamorphosis and the dynamic movement of capital.

The State in the Dynamics of Capital The question is how all these more recent transformations happened and were possible in contemporary capitalism. As we have seen, the money form is fundamental to the movement and dynamics of the circulation of capital. Without it, continuous changes of form would be impossible. The building of commodity and money as social forms was constituted throughout the long historical process of humanity, thousands of years old. Trade, as one of the foundations of capital form, is the starting point for the understanding of, “antediluvian forms, merchants ‘capital and usurers’ capital” (Marx 1990, p. 266).

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In the period of transition from feudalism to capitalism, the minting of coins in Western Europe was specifically assigned to the prince of the region. According to Oresme, in a text from 1355: It was formerly determined [...], to prevent fraud, that no one should be permitted to manufacture money or to print a figure or image on the gold and silver of his property; but, on the contrary, it was ordered ... to be done by a public person, with the delegation of a large part of the community. (Oresme 2004, p. 43)

So, since ancient times, coin minting was centralized by some type of government, but the large number of small kingdoms made a large variety of coins with different denominations and different weights. Since then, money traders (originally goldsmiths) have emerged, as well as the exchange houses that became banks. From the exchange business, “(...) developed exchange banks, in which silver (or gold) functions as world money26 – known as the bank or commercial money – as distinct from currency” (Marx 1991, pp. 433–434). In contemporary capitalism, the function of world money was exercised by the US dollar following the Bretton Woods Agreement in 1944. With the end of the convertibility of the dollar into gold, unilaterally decreed by President Richard Nixon, the dollar became a fully fiduciary, non-convertible, State paper currency. With the full development of capitalism, the regulatory and control operations of the banking and financial system were concentrated in central, state,27 or private banks. Many major private banks initially received the prerogatives of a central bank and were later nationalized, such as the Bank of England, or were created as private, as in the particular case of the US Federal Reserve (FED) which was explicitly created with the function of central bank at a stroke28 on December 23, 1913. In any case, central banks operate at the level of the circulation of capital in general, guaranteeing the monetary and credit conditions for the effective circulation of capital. The full restructuring or reorganization of the monetary and credit systems was only consolidated with the generalization of the central banks after the Second World War. In addition to the primary creation of currency, central banks must be active in regulating and controlling exchange rates, the base interest rate, and the public debt. They must regulate, control, and oversee the entire system of bank clearing, bank reserves, and the open market. The creation of money and its circulation, as well as part of its transformation into

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interest-bearing monetary capital, begins to circulate because of the daily operations of the central banks of each nation State. At the global level, these mechanisms are outside national laws and regulations, and the banking system can, through the same mechanisms, continue to create the post-war world currency. Central banks have also received the prerogatives of being the bankers of governments, the custodian of their reserves,29 and of executing a monetary policy whose purpose is the maintenance or stability of the value of money by controlling the quantity in circulation, according to the principles of the quantitative theory of the currency, thoroughly criticized by Marx. In this way, central banks are the main players in the foreign exchange and money markets,30 as well as continuously executing the collection operations and monetary payments of national treasuries. Let us look at this in more detail: (1) In central banks operations with the national treasures, they daily and continuously receive all taxes, fees, contributions, and payments made by the population. They also make all payments for purchases, wages, debts, investments, and other commitments of the governments. In this market, all national treasury receipts constitute a cancellation or destruction of the national currency and all expenditure on primary money creation. (2) In the currencies market, central banks buy all available foreign currency, particularly the most important, at the same time as they sell them.31 With each purchase, the central banks are creating new currency, and at each sale, they are cancelling or destroying the previously created currency. (3) On the open market, where national treasury securities transactions are carried out, every time central banks buy securities owned by their holders, it is creating currency, and each time it sells, it is cancelling or destroying currency. In this market, all the monetary capital available in the form of money is converted into fictitious capital, into public debt, with various interest rates according to their maturity dates. A very important operation carried out daily in this market is known as overnight in which daily securities are bought and sold, either between the central bank and the banking system, or between the banks themselves in repo operations. Such operations were already being carried out in the nineteenth century.

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Chapman says that the banks’ custom of investing their surplus money capital for a short term in the purchase of Consols and treasury bills has greatly increased in recent times, since it became the custom to lend out this ‘money at call’ (i.e. money whose repayment may be demanded at any time, from one day to the next). (Marx 1991, p. 665)

In the same way that central banks, commercial banks, and multiples also have the capacity to create money and credit as capital.32 This point had already been explained by Marx: In as much 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 form additional – even if fictitious – capital for it, to the nominal value of these fiduciary notes. And this extra capital yields it an extra profit. (Marx 1991, p. 675)

As we saw earlier, each unit of individual capital daily and constantly mp rotates through the cycle of its capital, in the form M − C  … P … C′ − M′. L At the end of the daily cycle of capital, these units of capital are relieved of part of their capital in the form of money. This money is usually deposited in some account in a bank, as if it were hoarded. The whole set of individual capitals is in the same situation. The mass of latent monetary capital, to which we have already referred, is gathered in the banking system, which, at the end of each day, performs the whole process of compensation between the multiple units of capital and between the multiple banking capitals. The whole mass of monetary capital, which Marx considered to be hoarding, can be transformed into capital, a value that generates more value. Furthermore, the amount of money required for the daily circulation of capital is controlled through the operations of the central bank’s effected with the National Treasury and the banking system.33 So, the banking system converts almost all surplus capital, in the form of idle currency, into interest-bearing capital in the form of government bonds34 and the next day returns the necessary portion of this global amount in book-entry trust money, needed by the circulation of capital in general as a means of circulation and means of payment. As such, the different national states are creating, reproducing, and expanding a growing mass of public debt that starts to grow mainly through the payment of interest. In this way, interest-bearing capital assumes one of its new forms: that of fictitious capital:

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The state has to pay its creditors a certain sum of interest each year for the capital it borrows. In this case the creditor cannot recall his capital from the debtor but can only sell the claim, his title of ownership. The capital itself has been consumed, spent by the state. It no longer exists. […] But in all these cases, the capital from which the state’s payment is taken as deriving, as interest, is illusory and fictitious. (Marx 1991, p. 595)

The accumulation of capital in its money, commodity, and productive forms may not effectively mean capital accumulation because it may be a technical moment within its own dynamics or of periodic crises when portions of capital are stagnant in any of the autonomous forms. But in the case of monetary capital, it can effectively constitute accumulated capital. Not in its regular meaning of value that accumulates through the process of production of surplus value in the industrial cycle, but as part of social capital that receives interest, dividends, or capital gains. In the case of a portion of the money capital, which mp finances the cycle M − C  … P … C′ − M′, in the form of interest-bearL ing capital, there is an accumulation of real capital. Another portion, which accumulates in forms derived from interest-bearing capital, in fictitious forms such as equity capital or public debt, do not directly participate in real accumulation, but can be continuously converted and reconverted from the fictitious form into the form of money and integrated into the cycle of industrial capital. Similarly, bank capital35 has a part that also consists of real accumulation, that which enters the cycle M-M-C-M′-M′. The banking system, like all private units of capital, has a part of its capital, of its assets, in the form of fixed capital or real capital. All capital that accumulates under fictitious forms, does not, strictly speaking, from the point of view of capital in general, constitute an actual accumulation of real capital. However, from the point of view of an individual capital, a portion of each of these units may be in any fictitious form and produce some form of income, especially that portion of dormant, latent, monetary capital, which, given the specific conditions of the form of individual capital, cannot be converted into productive capital. A large conglomerate that controls several private units of capital in the form of a Public Limited Company will, for example, disperse this among the share assets of the controlled companies. These shares, in addition to contributing to shareholder control, also produce dividends and capital gains with

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their appreciation on stock exchanges. To the extent that the company holds in its own shares as an asset, it also has a portion of its assets in fictitious form. We must also consider that the forms of fictitious capital also participate in parallel with the global circulation of social capital. Its movement is identical, that is, it moves by changing its form, for example, from the fictitious form to the industrial cycle, as industrial capital. To do so it must necessarily go through the money form. The amount of fictitious capital, by moving to the money form, does not disappear; it is transferred from the hands of one owner to another, who makes available capital in the form of money, the exchange for the fictitious form. The fictitious capital, now in the form of money, is no longer fictitious, it has changed form into money. To this end, specific markets have been developed for each of the fictitious capital forms: stock exchanges for share capital, bonds and private debts and the open market for public debt, and the interbank market for banking capital. Some scholars are mistaken when they refer to the dominance of financial capital over real accumulation; they do not take into consideration that what has happened is a change of form and usually present an opposition between industrial capital, as if it were real capital, and financial capital. From all this, we can claim that the functional forms of capital, namely commodity capital, productive capital, and money capital, are not at all constituted in specific spheres of capital accumulation. Likewise, we cannot hypothesize the division of the bourgeoisie into a commercial, industrial, and financial fraction, even though there may be fractions that specialize in trade, industry, or finance. Both capital in general and individual capitals move through autonomous forms, which Marx called “The Metamorphoses of Capital and Their Circuit” (Marx 1992).

Final Considerations In this text we have studied capital in general, as a totality in movement, and its forms of existence as individual or private capital. We have treated the concrete reality of individual or private capital at different levels of abstraction. We have included the State only at one of its points of contact with the movement of capital in general, for that matter we have not treated it as a State, but as a government, a form of State existence. We do not yet consider the State as a part, and as an intrinsic necessity, of capital.

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There remains, however, a gap, namely the historical constitution of nation-states and the links in the global cycle of today’s globalized capital. A gap that cannot be developed in this chapter. We have tried to show that the dynamics of capital constitute a social totality in movement. An abstract totality, but at the same time, concrete and real. This totality moves, driven by its internal contradictions and ultimately by the development of the productive forces and the respective capitalist relations of production, in the process of the accumulation of capital through the exploitation of the labor force. Naturally, this whole process is found not only in the three volumes of Capital but in others of Marx’s writings. We would like to emphasize that the fundamental and principal contradiction is that which moves capital, along with the contradictory unity of production, circulation, and appropriation of wealth under the aegis of capital. The continuous production of new wealth occurs through productive labor, a productivity that tends to reduce because of the accelerated development of the productive forces of capital. Their concreteness and their movement are manifested through the appearance of market prices and the accounting profits of individual capitals. We do not address, here, the different levels at which concrete reality appears to us. This is one of the problems facing most historical and concrete studies, they only have sources of information available to them from the business statistics collated by various data collection and dissemination bodies. Finally, we consider that the more concrete historical treatment of categories in motion and their specific moments throughout history are the object of profound divergences between Marxists and Marxologists. Partly because of the enormous difficulty in dealing with the links between and the unity of the abstract and concrete in motion and partly because of the difficulties of understanding the new concrete and historical determinations that we find throughout the development of the specific forms of capital. The intertwining of the functional forms of capital, as well as the specific moving units affected by the other concrete and historical determinations that we have not addressed, makes this question even more complex.36 This means that the form, mode, and particularity of the concrete movement of capital in its various forms may be profoundly affected by those determinations which are not considered when we treat its movement at higher levels of abstraction. Some of these inadequacies have been attenuated by the mass of research, studies, and works carried out over more than a century by

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scholars and theorists who place themselves in the field of Marxism. Another part depends on new studies and research, in particular looking at the publication of Marx’s unedited materials by MEGA 2, not only as a field of inquiry as to what Marx meant and how we can interpret it, but primarily as a source from which even with all the shortcomings and gaps, we can approach a more precise understanding of contemporary capitalism and ways of overcoming it.

Notes 1. The recent publication of the Manuscripts of 1864–1865 by MEGA2 in the original form as written by Marx, does not appear to be contributing to clearing up doubts about the organization of the material. Although it is a rich material, it will still take some time for scholars of Marx’s work to establish a more conclusive judgment on the structuring Engels gave to the Manuscripts in Volume III of Capital. 2. In the Grundrisse, Marx calls the existence of capital in general “many capitals”; in this text, we prefer to use multiples: “Capital exists and can only exist as many capitals, and its self-determination therefore appears as their reciprocal interaction with one another” (Marx 2015, p. 340). At other times, both in the Grundrisse and in Capital, he calls it private or individual capital. 3. Concerning this, Engels makes an observation on Volume III: “(Marx is not referring at all here to unconvertible paper money; unconvertible banknotes can become general means of circulation only where they are in actual fact supported by the state’s credit, as is the case today in Russia, for example. These therefore fall under the laws of inconvertible state paper money, as already developed: Volume 1, Chapter 3, 2, c: ‘Coin. The Symbol of Value’. F. E.)” (Marx 1991, pp. 656–657). 4. Braga et al. (2017) cite authors who discuss the “financialisation of commodities”, of “housing”, “education”, “urban policy”, “consumption”, “water”, “labour relations”, the “social financialisation”, and so on. With this comprehensive and perhaps abusive use the category (financialisation) tends to lose in heuristic power and analytical rigor. 5. “Capital, as self-accumulating value, does not just comprise class relations, a definite social character that depends on the existence of labour as wagelabour. It is a movement, a circulatory process through different stages, which itself in turn includes three different forms of the circulatory process. Hence it can only be grasped as a movement, and not as a static thing. Those who consider the autonomisation [Verse/bststiindi- gung] of value as a mere abstraction forget that the movement of industrial capital is this abstraction in action. Here value passes through different forms, different movements in which it is both preserved and increases, is valorised” (Marx 1992, p. 185).

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6. Rosdolsky discusses the relationship between capital in general and the multiplicity of capitals in Chap. 2 and cites Marx: “Capital in general, as distinct from the particular capitals, does indeed appear (1) only as an abstraction; not an arbitrary abstraction, but an abstraction which grasps the specific characteristics which distinguish capital from all other forms of wealth – or modes in which (social) production develops. These are the aspects common to every capital as such, or which make every specific sum of values into capital. And the distinctions within this abstraction are likewise abstract particularities which characterise every kind of capital, in that it is their position [Position] or negation [Negation]; (2) however, capital in general, as distinct from the particular real capitals, is itself a real existence” (Marx 2015, pp. 375–376). 7. Taking the concept of capital in general as a starting point and agreeing that Marx developed his analysis both in Grundrisse and in the first two volumes of Capital within the framework of that concept, the central argument of the present chapter is developed with emphasis on two levels of abstraction, universality, and singularity. In future works, another way of approaching the theme was an analysis of the financialization process in contemporary capitalism at three levels of abstraction; first, that of capital in general as a universality, the preponderant moment of Volume I; second, that of the autonomous functional forms, particularly emphasizing on Volume II; and finally, Volume III, as a singularity, a sphere of the forms of existence of capital. 8. In the Introduction to Volume II, Mandel seems to draw an analogy between capital in general and total social capital. “That is why the study of ‘capital in general’ – provisionally abstracted from competition and ‘many capitals’ – encompasses the process of production and the process of circulation both of commodities”, and in the following paragraph, “Marx introduces a new and passionately interesting object of study: the reproduction and (‘turnover’) circulation of the total social capital” (Mandel 1992, p. 16). It is not our intention to study these two categories in this text. 9. “The real circuit of industrial capital in its continuity is therefore not only a unified process of circulation and production, but also a unity of all its three circuits. But it can only be such a unity in so far as each different part of the capital runs in succession through the successive phases of the circuit, can pass over from one phase and one functional form into the other; hence industrial capital, as the whole of these parts, exists simultaneously in its various phases and functions, and thus describes all three circuits at once” (Marx 1992, p. 183). 10. “Industrial capital is the only mode of existence of capital in which not only the appropriation of surplus-value or surplus product, but also its creation, is a function of capital. It thus requires production to be capitalist in char-

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acter; its existence includes that of the class antagonism between capitalists and wage-labourers” (Marx 1992, pp. 135–136). 11. Marx had already demonstrated in Volume I, Part two, “The transformation of Money in to Capital” that added value cannot arise in the circulation. In Volume II he states that, “In order to grasp these forms in their pure state, we must firstly abstract from all aspects that have nothing to do with the change and constitution of the forms as such. We shall therefore assume here, both that commodities are sold at their values, and that the circumstances in which this takes place do not change. We shall also ignore any changes of value that may occur in the course of the cyclical process” (Marx 1992, p. 109). 12. “[I]ts whole movement within the circulation phase, merely forms an interruption, and hence a mediation, between the productive capital that opens the circuit as the first extreme and closes it in the same form as the last extreme, i.e. in the form of its new beginning” (Marx 1992, p. 144). 13. “The general circulation includes the intertwining of the circuits of the various independent fractions of the social capital, i.e. the totality of individual capitals, as well as the circulation of those values that are not placed on the market as capital, in other words those going into individual consumption” (Marx 1992, p. 150). 14. “What differentiates the third form from the two earlier ones is that it is only in this circuit that the accumulated capital value, and not the original capital value that has still to be accumulated, appears as the starting-point of its own accumulation” (Marx 1992, p. 173). 15. “Capital, as self-accumulating value, does not just comprise class relations, a definite social character that depends on the existence of labour as wagelabour. It is a movement, a circulatory process through different stages, which itself in turn includes three different forms of the circulatory process. Hence it can only be grasped as a movement, and not as a static thing” (Marx 1992, p. 185). 16. “What makes this particular act of commodity circulation a part of the whole process with a well-defined function in the independent circuit of an individual capital is not primarily the form of the act, but rather its material content, the specific use character of the commodities that change place with money” (Marx 1992, p. 110). 17. In contemporary capitalism, this interlocking operation of multiple capitals already occurs on a worldwide scale, with the production of parts and components in one country and assembly in other countries. Here, we would like to draw attention to the debate on capital in general and competition within multiple capital cities. At the most concrete level, while the functioning of private capital requires its intertwining and reciprocal needs, it also requires sustained competition between them.

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18. “In considering the general forms of the circuit, and throughout this second volume in general, we take money to be metal money, excluding symbolic money, mere tokens of value which are specific to particular countries, as well as credit money, which we have not yet developed” (Marx 1992, p. 192), and “the interest and credit categories still do not appear systematically developed (this only occurs in Volume III), which is why Marx needs to presuppose the existence of treasures” (Heinrich 2014, p. 21). 19. The conversion of commercial banks to multiple banks was the result of the Glass Steagall Act of 1933, which separated the functions of commercial banks from investment banks. After its repeal in 1999, banks began to integrate into their activities not only those of commercial banks, but all other financial activities and this was becoming widespread for the whole world. The most important issue in this transformation was the secondary creation of the credit currency, which was totally unrelated to bank deposits and reserves. 20. The role played by these funds can be found in Chesnais (2005), in particular in the writings of Catherine Sauviat, Dominique Plihon, Luc Manpaey, and Claude Serfati. 21. “This finding leads to a picture that this is due to the ‘demands of finance’ (the famous 15%)” (Husson 2010, p. 321). 22. One of the ways was, and still is, the famous agreement of corporations’ administrators with the stock-options clause. The contractor receives the option to purchase shares of the company in the future at the price of the contract day. Thus, the higher the shares price of that individual capital, the greater the gain to be obtained. This option was disseminated to the level of the company’s employees in order to obtain a greater mass of added value, it also produced immense fraud. 23. “The collective worker in department I has sold his labour-power to the collective capitalist (…); he receives this value paid in money in the form of a wage” (Marx 1992, p. 516). And also, “we can see that each individual capitalist, just like the totality of all capitalists in each particular sphere of production, participates in the exploitation of the entire working class by capital as a whole, and in the level of this exploitation” (Marx 1991, p. 298). 24. See Chap. 4 on virtual currencies. 25. A quarter of a century ago, Joel Kurtzman published a volume he called “The death of money: how the electronic economy has destabilised world markets and created financial chaos” (Kurtzman 1994). 26. The function of world money began to be exercised by the US dollar, convertible into gold, after the Bretton Woods Agreement in 1944, and became unconvertable from 1971. 27. We consider that the separation of public and private is misplaced for the understanding of the movement of capital. In its metamorphosis, capital

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moves continuously between the public and private spheres, between business families and government, either through the credit system, through financing mechanisms, or through government operational expenditures. 28. The story of the FED’s creation is often treated as a coup. Ultraliberals, such as Murray Rothbard (Rothbard 1994) and Ron Paul (Paul 2009), harshly criticize the symbiosis between bankers and the government. 29. Reserves generally consist of a small amount of gold and major currencies, such as the dollar, euro, sterling, and yen. But currency reserves are usually in debt securities denominated in their respective currencies, particularly US Treasury in the case of the dollar. Thus, they are in the form of interestbearing capital in the fictitious form of public debt securities. 30. Central banks carry out other functions, one of these is as the lenders of last resort, which we do not deal with in this text. 31. It should be noted that in each specific circumstance in which the laws regulate a greater or lesser opening of the foreign exchange market, then a greater or smaller part of these operations is carried out by the banking system. 32. The whole technical process of monetary creation by the banking system is called the fractional reserve system. Reserves, called compulsory reserves, are usually a percentage of demand deposits set by central banks. According to conventional monetary theory, this rate determines the magnitude of the monetary multiplier, that is, how often each monetary unit created by the central bank is secondarily multiplied by the commercial banks. If the rate is 100%, the multiplier is zero and if it is 0%, the multiplier is infinite. Currently, in several countries, central banks no longer require a compulsory reserve. 33. This mechanism worked in an analogous way in the nineteenth century, but much less developed than in the contemporary world. “The amount of notes in circulation is governed by the needs of commerce, and each superfluous note immediately finds its way back to its issuer” (Marx 1991, p. 657). 34. Banks can also operate in other markets of the credit system, such as stock exchanges. 35. “The greater part of banker’s capital is therefore purely fictitious” (Marx 1991, p. 600). 36. We refer here to the political, social, ideological, and even psychological or psychoanalytic dimensions in the course of the class struggle and the accumulation of capital in general and private capitals.

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References Braga, J. C., et al. (2017). For a political economy of financialization: Theory and evidence. Economia e Sociedade, 26, 829–856. Chesnais, F. (2005). A finança mundializada: raízes sociais e políticas, configuração, consequencias (1st ed.). São Paulo: Boitempo. Chesnais, F. (2016). Finance capital today: Corporations and Banks in the lasting global slump. Leiden: Brill (Historical Materialism Book Series. Crotty, J. R. (1993). Rethinking Marxian investment theory: Keynes-Minsky instability, competitive regime shifts and coerced investment. Review of Radical Political Economics, 25(1), 1–26. Duménil, G., & Lévy, D. (2010). Os três campos da teoria das relações financeiras de Marx: o capital financeiro de Hilferding e Lênin. In Finança Capitalista (pp. 247–300). São Paulo: Alameda. (tradução de Rosa M. Marques e Paulo Nakatani). Dussel, E. (2012). A produção teórica de Marx. Um comentário aos Grundrisse (1st ed.). São Paulo: Expressão Popular. Epstein, G. A. (2005). Introduction. In Financialization and the world economy. Cheltenham: Edward Elgar Publishing. Fine, B. (2013). Financialization from a Marxist perspective. International Journal of Political Economy, 42(4). https://monthlyreview.org/2016/07/01/ the-profits-of-financialization/. Fineschi, R. (2013). The four levels of abstraction of Marx’s concept of “capital”. In Marx’s laboratoy: Critical interpretations of the grundrisse (pp. 71–98). Leiden/Boston: Brill. Heinrich, M. (1989). Capital in general and the structure of Marx’s capital. Capital & Class, 13(2), 63–79. Heinrich, M. (2014). Prefácio – O livro II de O capital. In O capital: crítica da economia política: livro II: o processo de circulação do capital (pp. 17–22). São Paulo: Boitempo. Husson, M. (2010). Finança, hiperconcorrência e reprodução do capital. In A finança capitalista (pp. 301–336). São Paulo: Alameda. Krippner, G. R. (2005). The financialization of the American economy. Socio- Economic Review, 3(2), 173–208. Krippner, G. R. (2011). Capitalizing on crisis: The political origins of the rise of finance. Cambridge, MA: Harvard University Press. Kurtzman, J. (1994). A morte do dinheiro: como a economia eletrônica desestabilizou os mercados mundiais e criou o caos financeiro (1st ed.). São Paulo: Atlas. Lapavitsas, C., & Mendieta-Muñoz, I. (2016, July–August). The profits of financialization. Monthly Review. https://monthlyreview.org/2016/07/01/ the-profits-of-financialization/

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Mandel, E. (1992). Introduction. In Capital. A critique of political economy (2nd ed., pp. 11–79). London: Penguin Books. Marx, K. (1990). Capital. A critique of political economy (Vol. 1). London: Penguin Books. Marx, K. (1991). Capital. A critique of political economy (Vol. 3). London: Penguin Books. Marx, K. (1992). Capital. A critique of political economy (Vol. 2). London: Penguin Books. Marx, K. (2015). Grundrisse. Foundations of the critique of political economy. New York: Penguin Books. Moseley, F. (1995). Capital in general and Marx’s logical method: A response to Heinrich’s critique. Capital & Class, 19(2), 15–48. Moseley, F., & Smith, T. (2014). Marx’s capital and Hegel’s logic. Leiden/ Boston: Brill. Oresme, N. (2004). Pequeno tratado da primeira invenção das moedas (1355) (1st ed.). Curitiba: Segesta. Palley, T. I. (2013). Financialization: The economics of finance capital domination. London: Palgrave Macmillan. Paul, R. (2009). End the fed (Vol. 1). New York: Gran Central Publishing. Rosdolsky, R. (1977). The making of Marx’s ‘capital’. London: Pluto Press. Rothbard, M. N. (1994). The case against the fed (Vol. 1). Auburn: Ludwig von Mises Institute. Sotiropoulos, D. P., et al. (2013). A political economy of contemporary capitalism and its crisis: Demystifying finance. London/New York: Routledge.

CHAPTER 6

Parasitic Speculative Capital: A Theoretical Precision on Financial Capital, Characteristic of Globalization Reinaldo Antonio Carcanholo and Paulo Nakatani

Introduction Discussions on the meaning of the process of globalization are currently extremely important. Understanding what is new in capitalism allows us to present it as a new phase of its development (Corazza 1997). Most authors accept that the financialization or generalization of the speculative movement of capital1 is one of the basic characteristics that define contemporary capitalism.2 For this reason, the use of the term “money capital” has increased in publications on the characterization and interpretation of contemporary capitalism. The term has, at times, been presented, or at least been under-

This chapter was originally published in Portuguese with Ensaios FEE, 20(1), in 1999, and was translated into English by Kenton James Keys. R. A. Carcanholo (*) • P. Nakatani Department of Economics and Post-Graduate Programme in Social Policy, Federal University of Espírito Santo (UFES), Vitória, Espírito Santo, Brazil © The Author(s) 2019 G. M. de C. Mello, M. de S. Sabadini (eds.), Financial Speculation and Fictitious Profits, Marx, Engels, and Marxisms, https://doi.org/10.1007/978-3-030-23360-0_6

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stood, as being a concept or category of Marxist thinking and as having a precise meaning. Those who use the term should, however, feel uncomfortable with the imprecision of its meaning. Although some may accept that, even if it lacks precision, there is enough understanding of it to define it, our view is that in Marxist theory we cannot accept closed definitions. The Marxist method treats social phenomena as transformation processes driven by dynamics that arise from their internal contradictions and that cannot be captured by definitions. These can only capture the static. More than that, the reality can be reduced to the movements themselves, and although they can be described and understood, they cannot be defined. Movement always implies metamorphoses. Reality is the movement itself and does not exist outside of it. This work represents an effort aimed at those who, dissatisfied with the imprecision of the term “money capital”, are not content with positivist definitions, however complex or exhaustive they may be. Starting from Marx’s concept of capital, through industrial capital, functional forms, and the autonomation of functional forms and fictitious capital, we will arrive at what we mean by speculative capital and parasitic speculative capital. Clearly, this is not a question of defining them, but of describing them. In the face of new elements in the logic of capital, we try to identify phenomena and processes, characterize them, and finally select terms for them. In this case we chose the terms speculative capital and parasitic speculative capital. Parasitic speculative capital results from the conversion of the autonomous form of capital into interest or interest-bearing capital, or more precisely to fictitious capital,3 when it exceeds the limits of what is necessary for the normal functioning of industrial capital. The logic of parasitic speculative capital contaminates even those companies or corporations dedicated entirely to productive functions,4 and so industrial capital becomes speculative capital. As a dialectical synthesis of the movements of its functional forms this places parasitic speculative capital as the dominant pole. We emphasize that this is not about definitions, but about the identification of phenomena and processes labeled with certain names. This identification was facilitated by previously constructed concepts that followed the same logic and were never arbitrary definitions. Nevertheless, it is possible that some categories addressed in this work may appear to be definitions. This is because of the formal ease of positivist discourse, which is widely used in Marx’s works, especially in Capital.

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Our hypothesis is that globalization, with all its characteristics, is distinguishable from other eras in the history of capitalism by the dominance, at a global scale,5 of parasitic speculative capital (a more concrete form of interest-bearing capital) over productive capital. In this phase, industrial capital has become speculative capital and its logic has been totally subordinated by speculation and dominated by parasitism. It is the speculative rational of the global circulation and reproduction of capital that has come to define this new stage. This phenomenon is undoubtedly associated with the collapse of the international monetary standard since the 1970s. This means that even the interest-bearing capital necessary for the reproduction of productive capital starts to act according to speculative logic. Moreover, large productive enterprises increasingly combine their normal activities with financial activities, subordinating their strategies to speculative practices: productive capital has thereby had its dynamics subordinated by speculation.6 In our view, the current phase of the globalization of capitalism constitutes a phase of the international predominance of speculative logic over production and the consequent exacerbation of competition between large productive capitals operating on the international stage. This exacerbation has, as its starting point, the enormous pressure that speculative gains7 exert on the surplus value produced. Capitalist globalization is characterized by an increase in the exploitation of wage earners throughout capitalist space and, paradoxically, by excessive growth in the consumption of non-durable products. Finally, it is essential to emphasize that the analyses that favor our viewpoint focus on the antagonism or antinomy between capital’s ability to create wealth8 and speculative logic’s demand for accumulation.

From the Marxist Concept of Capital to That of Parasitic Speculative Capital On Capital The concept of capital first appears with a high degree of abstraction. Marx’s starting point, having developed the concept of value, is the empirical observation that money circulates differently from what would be expected from the simple circulation of the commodity. Money that circulates in search of accumulation becomes capital. So too does the commodity that serves as the intermediary between the start and end of this circulation process.

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The idea then appears that the true agent of the circulation process is value rather than money. Hence, capital is value, only in a more developed phase of mercantile social relationships, and it acquires new characteristics. Money and commodity appear, then, as simple expressions or forms of capital. Capital is a value that, through a given process of circulation, values itself through creation, production of surplus value.9 Capital is the simplified name of capital value. The new characteristics acquired by value, when it becomes capital value, are the capacity to auto-appreciate and, less obviously, substantiation. Value acquires the capacity to auto-appreciate precisely by converting itself into capital. This means that capital is a value with more determinants, that it is more developed, and that it corresponds to a society in which mercantile relationships are more widespread and more developed. Capital is a “mature” value that has outgrown its “youth” and is capable of generating new value. In the era of developed capitalism, the existence of value occurs through capital; it exists, fundamentally, as capital. In the same way, commodity and money exist, fundamentally, as forms of the existence of capital. Capital dominates everything, even the logic of society. The Substantiation of Value in Capital Another new feature of value converted into capital is what we call substantiation. It is, in our opinion, a fundamental and little-understood aspect needed to properly understand Marx’s theory of value and to differentiate it from other theories, especially that of Ricardo. Value, as described by Marx in the first chapter of Capital, has a special characteristic, a property of commodities. Just as they have color and weight, they also have value. Value, like color, only exists in the commodity and is, therefore, an adjective of it. Something different happens with the capital value. Let us look at the cycle of capital:

D – M …( p )… M ′ − D ′.

Capital is a value that circulates and, through certain metamorphoses, auto-appreciates. The agent, the subject of this circulation, is the value, and as such, it ceases to be a mere characteristic of commodities and gains the status of an object, with its own life. We contend that the transformation of value into capital implies a huge leap in its development. The era of the dominance of value and of the logic

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of accumulation begins. Value becomes, in capital, a substantive social reality, a societal object with its own life and movement. From the mere social characteristics of commodities, that is, their appearance, they become an independent reality. From a simple passive concept, subordinated to its substantive forms (commodity and money), value becomes an autonomous social agent with a life of its own, perceptible through its movement (circulation) and in relation to which the commodity and money become subordinate manifestations: In simple circulation, the value of commodities attained at the most a form independent of their use-values, i.e. the form of money. But now, in the circulation M-C-M, value suddenly presents itself as a self-moving substance which passes through a process of its own, and for which commodities and money are both mere forms. (Marx 1990, p. 256)

In this way, from a simple adjective of commodities, value becomes a noun in the cycle of capital. When value is no longer simple value but capital value, we witness the substantiation of value. Marx devotes only a single passage to the subject in chapter IV of Book I of Capital and some others in the first chapter of Book II. We believe that the subject is extremely relevant and deserves more extensive and systematic treatment. The subject is almost totally ignored by its readers and interpreters. It is described by Marx (1992, pp. 185–6) in the following terms: [C]apital […] is a movement, a circulatory process through different stages, which itself in turn includes three different forms of the circulatory process. Hence it can only be grasped as a movement, and not as a static thing. Those who consider the autonomisation [Verselbstständigung] of value as a mere abstraction forget that the movement of industrial capital is this abstraction in action. […] It is clear however that despite all revolutions in value, capitalist production can exist and continue to exist only so long as the capital value is valorized, i.e. describes its circuit as value that has become independent, and therefore so long as the revolutions in value are somehow or other mastered and balanced out. […] The more acute and frequent these revolutions in value become, the more the movement of the independent value, acting with the force of an elemental natural process, prevails over the foresight and calculation of the individual capitalist, the more the course of normal production is subject to abnormal speculation, and the greater becomes the danger to the existence of the individual capitals. These periodic revolutions

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in value thus confirm what they ostensibly refute: the independence which value acquires as capital, and which is maintained and intensified through its movement. […] “Value”, says Bailey, opposing the autonomization of value which characterizes the capitalist mode of production, and which he treats as the illusion of certain economists, “value is a relation between contemporary commodities, because such only admit of being exchanged with each other”.

As such, the concept of capital expresses value at any given stage of its development and consists of an expressed social relation that is substantive. Moreover, it is a process, never static, as it is a linked and structured sequence of metamorphoses in which the value agent assumes both the form of money and the form of commodity. Understood in this way, the concept of capital value has a very high level of abstraction: the idea that an entrepreneur or a company, by itself and without the collaboration of others (except the suppliers of inputs and final customers of its product), performs all the operations necessary to complete the entire cycle of capital rarely exists in concrete reality. To account for this problem and to concretize the analysis, the concept of industrial capital arises. Industrial Capital and Its Functional Forms Industrial capital appears to be equal to capital, but with a new name. It is, however, a concept at a different level of abstraction, just as happens with the concepts of value and social value which arises from the analysis of extraordinary surplus value. To describe the concept of industrial capital, Marx analyzes the complete circulation of capital and the functions that its various existential forms must fulfill. These are functions fulfilled by the forms into which value metamorphoses throughout its complete cycle:

D – M …( p )… M ′ − D ′,

where (p) represents the productive process. The observed forms came to be termed as follows: money capital (D), productive capital (M), and commodity capital (M′). Productive capital (M) consists of the means of production and the workforce. The capital value takes the form of money capital to fulfill the functions of money, that

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is, the general means of purchase and payment. After the purchase, it becomes the material elements of productive capital. The expression D – M indicates the metamorphosis of capital from money capital to productive capital. In the form of means of production and workforce, capital must fulfill productive functions, that is, the creation of value and surplus value. Subsequently, capital value takes the form of commodity capital (already imbued with surplus value) to fulfill the functions of merchandise, that is, products to be sold. The simple commodity becomes commodity capital at the moment it assumes the functional form through which capital value has its existence. These are forms designed to fulfill specific functions in the capital cycle. They are, then, functional forms. Capital that, throughout its cycle, adopts and relinquishes these successive functional forms (money capital, productive capital, and commodity capital) is called industrial capital. This concept counters commercial capital and interest-bearing capital but not agrarian capital. At first, the concept is treated as if all the functions were fulfilled by the same entrepreneur, and so the concept of capital is confused with that of industrial capital. Marx goes on to explain that the various functional forms become autonomous due to the social division of tasks among capitalists. The functions of money capital, productive capital, and commodity capital can each be delivered by specialized firms. When a functional form of industrial capital becomes autonomous, it becomes the functional form, autonomous capital. Commodity capital becomes commercial capital and money capital becomes interest-bearing capital: There are not two different kinds of capital – interest-bearing and profit- yielding – but the selfsame capital which operates in the process of production as capital, produces a profit which is divided between two different capitalists – one standing outside the process, and, as owner, representing capital as such (but it is an essential condition of this capital that it is represented by a private owner; without this it does not become capital as opposed to wage-labour), and the other representing operating capital, capital which takes part in the production process. (Marx 1971, p. 473)

Industrial capital, understood as a global and abstract synthesis of the circulation of three autonomous forms of capital (interest-bearing capital, productive capital, and commercial capital) is the same concept of capital, but at a more concrete level of analysis. Even so, the concept of industrial

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capital cannot account for all the complexity of concrete reality. A unit of capital (under the control of a single entrepreneur or a single company or corporation) does not exclusively fulfill the autonomous function of only productive capital, or only that of commercial capital, or only of interest- bearing capital. It is likely to perform a combination of functions. In general, the operation of a unit of capital must be understood to be performing partially or totally different functions and acting as an interlocking of the circulation of more than one unit of industrial capital. In this way, we will be very much closer to the complexity of reality.10 For the time being, let us consider industrial capital at a level of abstraction in which it represents a simplified synthesis of the cycle of three autonomous capitals, in which each one exclusively fulfills one of the three functions and which, in aggregate, deal with all the conversions required by the cycle. Of the three, the only autonomous capital capable of directly producing surplus value is productive capital. It must share this surplus value with the other two autonomous functional forms: commercial capital and interest-bearing capital. It does so, to some degree, willingly, to the extent that they perform useful functions for the circulation of industrial capital. Without the existence of these two, the magnitude of value constituted by productive capital would not be able to produce surplus value to the same extent. Marx shows that the division of tasks, by specializing each of them on specific functions, makes them more “productive”, or rather, more efficient. The total volume of value resulting from the sum of the three autonomous capitals would not be capable of producing and accumulating the same amount of surplus value if they functioned without division of labor, if each of the companies had to fulfill all the functions necessary for industrial capital. Although interest-bearing capital and commercial capital appropriate part of the surplus value without producing it, they are not parasitic as they contribute to productive capital. They allow capital to be more efficient. Interest-bearing capital is subordinated to the logic of industrial capital. During a given stage of the development of capital, productive capital is dominant, subordinating both interest-bearing capital and commercial capital to its logic. This is the stage of the existence and dominance of industrial capital in which the dominant pole is productive capital. From the logical point of view, interest-bearing capital is merely an aspect of industrial capital, it is its subordinate. Historically, however, interest-bearing capital and commercial capital pre-date industrial capital, and there must be a process for its subordination:

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[I]nterest-bearing capital appears on the scene as a historic form before industrial capital and continues to exist alongside it in its old form and it is only in the course of the development of industrial capital that the latter subordinates it to capitalist production by turning it into a special form of industrial capital. (Marx 1971, p. 493) The commercial and interest-bearing forms of capital are older than industrial capital, which, in the capitalist mode of production, is the basic form of the capital relations dominating bourgeois society—and all other forms are only derived from it or secondary […]. In the course of its evolution, industrial capital must therefore subjugate these forms and transform them into derived or special functions of itself. It encounters these older forms in the epoch of its formation and development. […] Where capitalist production has developed all its manifold forms and has become the dominant mode of production, interest-bearing capital is dominated by industrial capital, and commercial capital becomes merely a form of industrial capital, derived from the circulation process. But both of them must first be destroyed as independent forms and subordinated to industrial capital. Violence (the State) is used against interest-bearing capital by means of compulsory reduction of interest rates […]. But this is a method characteristic of the least developed stages of capitalist production. The real way in which industrial capital subjugates interest-bearing capital is the creation of a procedure specific to itself—the credit system. (Marx 1971, p. 468)

Still referring to the seventeenth century, Marx (1971, p. 467) states: Interest-bearing capital in this case is still an antediluvian form of capital which has yet to be subordinated to industrial capital and to acquire the dependent position which it must assume—theoretically and practically—on the basis of capitalist production. The bourgeoisie did not hesitate to accept State aid in this as in other cases, where it was a question of making the traditional production relations which it found, adequate to its own.

Fictitious Capital The simplest way to understand the meaning Marx assigns to the concept of fictitious capital11 is to start from the question he poses in chapter XXX of volume III of Capital: “Firstly, the accumulation of money capital as such. How far is it, and how far is it not, an index of genuine capital accumulation, i.e. of reproduction on an expanded scale?” (Marx 1990, p. 607). The answer to this question must be sought in the concept of interest- bearing capital as the bearer or producer of interest:

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The form of interest-bearing capital makes any definite and regular monetary revenue appear as the interest on a capital, whether it actually derives from a capital or not. […] Yet this is and remains a purely illusory notion, except in the case where the source […] is directly transferable, or assumes a form in which it is transferable. (Marx 1991, p. 595)

And, referring more specifically to public debt: But in all these cases, the capital from which the state’s payment is taken as deriving, as interest, is illusory and fictitious. It is not only that the sum that was lent to the state no longer has any kind of existence. It was never designed to be spent as capital, to be invested, and yet only by being invested as capital could it have been made into a self-maintaining value. […] Yet this fictitious capital has its characteristic movement for all that, as we shall see soon. (Marx 1992, pp. 595–6)

The development, expansion, and generalized existence of interest- bearing capital in developed capitalism transforms all kinds of regular income into a revenue that seems to come from interest-bearing capital. For example, if one were granted the right to exploit, ad infinitum, the services of an office of notes and trades, capital would be created, as if by magic. Let us suppose that the expected annual revenue was constant over the years; it would be enough to divide it by the interest rate and we would have the amount of capital created.12 This “created capital” is, however, “purely illusory”. It ceases to be illusory, however, if the right of accumulation of revenue or regular income is transferable, that is, if it can be represented by title and can be transferred commercially. Does this mean that capital, created in this way, is truly capital? Regrettably, the answer is no: the title might appear to the holder to be true capital, but for society, it is nothing more than illusory; fictitious capital, nevertheless, it has its own movement and a certain independence like real capital. From the individual’s point of view, it is real capital; from the point of view of totality, of the global, it is fictitious capital. It should be emphasized that fictitious capital has real existence and its logic interferes with the pathway and circumstances of valuation and accumulation. Fictitious capital has its own movement.13 So, it is real in a certain way but at the same time it is not. One of the typical forms of fictitious capital is public debt securities:

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[T]he distortion involved in the credit system reach its culmination. These promissory notes which were issued for a capital originally borrowed but long since spent, these paper duplicates of annihilated capital, function for their owners as capital in so far as they are saleable commodities and can therefore be transformed back into capital. (Marx 1991, p. 608)

Even if it were initially treated as real money capital, from real interest- bearing capital, when buying public debt securities, it becomes fictitious capital if it becomes, in the public sphere, current expenditure. These securities simply represent a right of appropriation over part of public revenue, which comes largely from the taxes to be collected. In addition to government bonds, a significant portion of fictitious capital in developed capitalism is made up of private securities such as shares, debentures, and bills of exchange: As we have seen, the ownership titles to joint-stock companies, railways, mines, etc. are genuinely titles to real capital. Yet they give no control over this capital. The capital cannot be withdrawn. They give only a legal claim to a share of the surplus-value that this capital is to produce. But these titles similarly become paper duplicates of the real capital […]. They become nominal representatives of non-existent capitals […]. In so far as the accumulation of these securities expresses an accumulation of railways, mines, steamships, etc., it expresses an expansion of the actual reproduction process […]. But as duplicates that can themselves be exchanged as commodities, and hence circulate as capital values, they are illusory, and their values can rise and fall quite independently of the movement in value of the actual capital to which they are titles. Their values, i.e. their listings on the stock exchange, have a necessary tendency to rise with the fall in the rate of interest, in so far as this is a simple result of the tendential fall in the rate of profit […]. [So] that this imaginary wealth […] expands for this reason as capitalist production develops. (Marx 1991, pp. 608–9)

Although they constitute fictitious capital, these securities correspond, to a certain extent, to real capital. They differ, in part, from the previous form constituted by public bonds. Within certain limits, its value has a real link.14 Often their value may be less than the actual capital they represent. We can say that at least part of the fictitious capital corresponds to the magnitude of real capital.15 The problem is that its value grows or diminishes for independent reasons, so that part of it can have a purely illusory existence. In addition, it can be duplicated, triplicated, etc. and may appear to exist alongside real capital as another capital that adds to it. To that extent, it is also, typically and entirely, fictitious capital.

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It is necessary to emphasize that, in the present day, there are many forms of fictitious capital. Harvey says the following on fictitious capital: Property rights come in many forms. In principle, bonds of any kind can be bought and sold. Governments can sell settlement rights on instalments of their revenue with future taxes. Commodity securities can be sold without them changing hands or, as in future markets, even before actual production of them. Land titles, buildings and natural resources (oil field drilling rights, mineral exploration rights, etc.) can also be sold and purchased. Under capitalism, there appear to be as many types of fictitious capital markets as different forms of property. (Harvey 1990, p. 280)

Finally, it is necessary to point out that, although part of fictitious capital remuneration consists of interest, it must not be confused with interest- bearing capital, the latter understood as an autonomous functional form of industrial capital. These are two different concepts.16 Money Capital The term “money capital” has been widely used to describe one of the most striking features of our time. There is a consensus that one of the most significant aspects of globalization is the expansion and dominance of “money capital”. By this, they mean that capital whose remuneration consists basically of the speculative gains obtained in financial operations of the most diverse types, in addition to that derived from interest. We are accustomed to the widespread use of poorly defined expressions and are not concerned with the imprecision of the said “concept”. Often, however, the term money capital is used as if it were a theoretical concept. We consider it a theoretically empty “concept” because it refers to a set of undefined forms of capital whose links with the functional forms of industrial capital are indeterminate.17 According to Harvey, the expression was never used by Marx18: The concept of money capital has a history within Marxist thought. Marx himself never used this expression but left to posterity a series of not very articulate writings on the process of circulation of different types of money- capital. The definition of money capital that would derive from Marx’s perspective relates to the type of capital-circulation process that is based on the credit system. Later writers tended to abandon this view of the process and

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began to treat the concept by referring to a configuration of alliances within the bourgeoisie, a block of power that exerts immense influence on the processes of accumulation in general. (Harvey 1990, p. 287)

Hilferding and Lenin use the expression as a more concrete and institutional concept, in the sense of describing the historical fact of the unification of productive capital with banking capital, under the hegemony of the latter.19 Parasitic Speculative Capital The remuneration of fictitious capital consists of interest earned and capital gains in speculative markets. Fictitious capital obtains such remunerations through transfer of surplus value produced by other capitals or by non-capital. This means that fictitious capital is non-productive capital in the same way as interest-bearing capital. Interest-bearing capital, however, performs a useful and indispensable function in the circulation of industrial capital and to that extent, although unproductive, cannot be considered parasitic, fictitious capital is totally parasitic. It does not fulfill any necessary function within the logic of industrial capital, its remuneration being purely a burden. However, its fictitious characteristic allows it to accept, within certain limits, a partly fictitious remuneration; in this measure, and only within it, does it not present itself as an immediate cost.20 Fictitious capital, as we have seen, moves independently from industrial capital and its growth is explained by different circumstances. Within certain limits, the volume of fictitious capital does not substantially compromise the logic of the accumulation of industrial capital or its trajectory. Once these limits are exceeded, however, there is the possibility of losing control: Money capital is equally indifferent to its uses, since it generally goes to places where there is adequate remuneration without regard to the type of use. … there is nothing to stop the speculative investment directed towards the appropriation of revenues becoming completely out of control. Worse still, an accumulation of rights (titles) may appear as if it were an accumulation of real money capital, and titles may continue to circulate although they are not backed up and do not correspond to actual production. (Harvey 1990, p. 291)

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In another part: If the central bank does its job, it must prevent fictitious values from being too far apart from the values of real commodities. The bank cannot impose strict proportionality – even if it has the power to do so – as this would deny the free movement of money capital to force new forms of accumulation, but it cannot allow credit-money creation to exceed certain limits. (Harvey 1990, p. 284)

An explosion in the volume of fictitious capital may occur at various junctures, making it capable of altering the logic of industrial capital. This explosion may be the result of accelerated growth in the public debt of nation-states, high trade deficit, or current account deficits, circumstances in which interest rates increase substantially, or if there is instability in exchange markets due to difficulties in the monetary standard. The issue of the explosion of fictitious capital becomes a problem for capitalism: The “absurd” forms of fictitious capital are brought to the forefront and allow for extreme distortion within the credit system. What began as a simple solution to the contradictions of capitalism becomes a problem to be solved. (Harvey 1990, p. 292) Consider, for example, what happens when credit money and “fictitious forms of value” usurp the place of commodity money. If the pace of credit creation agrees with the pace of socially necessary work performed in society, then the effects of credit are beneficial rather than detrimental to the movement of capital. However, much cannot be done to prevent credit creation from getting out of control altogether, and on the other hand, the problem of over-accumulation lurks forever on the horizon. If it happens that the fictitious values are not backed by the products of social work, or if, for whatever reason, faith in the credit system weakens, then capital must find some way to re-establish its base of operations in the world of socially necessary work. (Harvey 1990, p. 297)

In this way, parasitic speculative capital is fictitious capital when it exceeds in volume the limits normally borne by the reproduction of industrial capital. Its basic character lies in the fact that it fulfills no function in the logic of industrial capital. It is a capital that does not produce surplus value or value-added and neither favors nor contributes to its production. It appropriates surplus, however, and demands it in increasing amounts. Its logic is the unbridled appropriation of surplus value or profit (speculative profit). It does so, or at least sets out to do so, impelled by the very nature

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of parasitic speculative capital itself; auto-appreciation and no commitment to use-value.21 It drives the value/use-value contradiction to the extreme of its development, that is, to the theoretical destruction of use-value. In achieving its impelling, and somewhat secretive, goals and by presenting itself as independent from the logic of industrial capital, parasitic speculative capital contaminates all existing capital to which it relates. Through this, productive capital is dominated and concrete individual capital that performs the functions of productive capital becomes ever more subject to parasitic logic and operates increasingly speculatively.22 What was once industrial capital, a synthesis of the autonomous forms of productive, commercial, and interest-bearing capital, under the hegemony of the former and dominant over fictitious capital, becomes speculative capital, a synthesis of the same functional forms, but antinomic and dominated by parasitic speculative capital. Industrial capital, whose logic is accumulation based on the production of surplus value, becomes not parasitic capital but speculative capital because it has become the dominant aspect of the contradiction. In fact, while parasitic speculative capital is a synthesis, the dimension that is remunerated parasitically is found outside of it. It is, therefore, parasitic and comes to dominate the whole logic of capitalist society. It should be noted that, even if it has dominance, parasitic speculative capital is not a functional form of speculative capital because, fundamentally, it plays no useful role alongside productive capital. It is something external to the latter and taken with it forms another contradiction.23 Like industrial capital, speculative capital is a substantive but much more complex value. At the same time, parasitic speculative capital, although fictitious wealth, is also substantive; it becomes an agent capable of economic and even political dominance. It has a contradictory existence. Although real, it is at the same time fictitious. From the individual’s point of view, and therefore in perception, it is real, but from the global point of view, it is fictitious and lacks substance. Even when viewed as fictitious, the fact that it requires remuneration, and therefore is at least, in part, real means that it must be considered as real. In summary, from the perspective of its appearance, speculative capital is real; from the perspective of its essence it is both fictitious and real at the same time.24

Final Considerations We claim that speculative capital is not capable of sustaining a new era in capitalism, which has been maintained for decades and which has historically reorganized the world according to its interests, which has established

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a new international division of sustainable labor which guarantees levels of growth and acceptable economic conditions and has allowed minimally acceptable living conditions for a reasonable contingent of the world’s population. The era of the predominance of speculative parasitic capital can only prevail during a period marked by deep and recurring financial crises and by polarization never seen before in the history of capitalism; magnificent material wealth, on the one hand, and deep and growing misery in much of the world on the other. While the misery of large parts of an overexploited population functions as a financing mechanism for an increasing share of speculative profit, crises operate as a moderating mechanism on the growing volume of p arasitic speculative capital, relative to the productive base. Speculation and parasitism grow uncontrollably; misery too. Crises slow the growth of this capital, destroying a part of it,25 but accelerate that of poverty. Speculative and parasitic capitalism is the tragedy of our time. It is true that, for a time, speculative capital can be satisfied with a fictitious remuneration which implies nothing more than an increase in fictitious capital without acutely pressuring the actual surplus produced. This, however, only postpones the problem by amplifying the contradiction and antagonism. The crises are recurrent; their depth and periodicity can be large or small. The longer the time between one crisis and another,26 the more violent the readjustments need to be. Everything operates as a seismic shock mechanism. Geological tensions are accumulating, and frequent, small tremors are the mechanisms for relieving tensions. The fewer the number of them and the less frequent they are, the more likely the tragedy of the “big one” becomes. Although the end of speculative and parasitic capitalism is inevitable, humanity will survive it. This is a historic bet worth playing. This game is the only game in town.27

Notes 1. See, for example, “When discussing the dynamics of the contemporary international economy – including discussions on economic growth – globalisation is often mentioned as being a central factor. The trans- nationalisation of production that has been taking place for more than 100 years – particularly, post-war, under the command of American transnational corporations, with the corresponding oligopolistic reaction of large European and Asian companies – is confused with a more recent sce-

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nario caused by the policies of financial globalisation” (Tavares and Melin 1997, p. 73). Or “Two basic, though tentative, conclusions follow. Firstly, if we are to look for something truly peculiar (as opposed to ‘ever-present capitalism’) in the present situation we should focus our attention on the financial aspects of capitalist organisation and the role of credit” (Harvey 1992, p. 184). See also Chesnais (1996), Braga (1993), Coutinho (1996), Harvey (1990). 2. Such as the change of industrial production patterns and/or the globalization of production. 3. Text in quotation marks is not consistent with the original version of this text. This version contains some refinements that attempt to overcome difficulties that appeared in the original. 4. The original version read “it even contaminates the productive functions, autonomic or not, and so”. 5. “at a global scale”, does not appear in the original version. 6. The original version reads “productive capital is contaminated by speculation”. It should be noted, “Financial dominance – financialisation – is a general expression of the contemporary means of defining, managing and realising wealth in capitalism. Dominance is understood, conceptually, because all corporations – even those typically industrial, such as those in the steel production sector – have in their financial investments, retained earnings or cash, a central element in the process of global accumulation of wealth”, (Braga 1993, p. 26) and “finally, it is understood that in the face of all-pervasive financialisation, and the corresponding internationalised macrostructure, the core of capitalism is no longer ‘industrial capitalism’ in which, in the absence of crisis, the innovative entrepreneur, with a view to production, raises credit, advances productive expenditures, buys labour, sells production, makes profits and then starts the process again … but, on the contrary, in current capitalism, particularly since the end of the 1960s, different realities, corporate groups – true capitalist corporations – act simultaneously, through financial wealth and production, intermittently engendering the instabilities arising from the contradiction between income (product) and money capitalisation and, in addition, leave the system permanently in crisis, or rather, on the brink of crisis” (Braga 1993, p. 47). See other parts of this chapter. 7. For us, speculative logic and the exorbitant remuneration of speculative capital are what lead to the exacerbation of competition and to technological change, until they reach the current standards of flexible technology. “I am, therefore, tempted to see the flexibility achieved in production, labour markets and past consumption as the results of the search for financial solutions to the tendency for crises of capitalism rather than the reverse. This implies that the financial system has achieved a degree of autonomy, in the

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face of real production, unprecedented in the history of capitalism, leading capital into an era of equally unprecedented financial risk” (Harvey 1990, p. 181). 8. For Marx, it is capital that produces wealth and, therefore, surplus (surplus value). It does so through work, the consumption of the workforce, which is one of its aspects. This idea is sustained by the logical structure of its theory regardless of how technology develops or how much the organic composition of capital is extended (a process that is very prominent and the starting point for understanding the trend to decreasing rates of profit). 9. We insist once again that this is not a definition. On these ideas regarding capital, see Marx (1990, chapter 4). 10. Chapters 1 to 4 of Volume II of Capital portray, in a profound way, the complexity of capitalist circulation. Unfortunately, little attention is paid to them. 11. The most significant sections in Capital on this theme appear in Volume III, chapters XXIX and XXX (the first six paragraphs). 12. “What establishes the price of property titles are generally the presumed present and future revenues, to which the owner of the title is entitled, updated through the current interest rate … (thus) prices can vary in a totally independently from the variations in forecasted revenue. There are other considerations that further change the price, such as ease of sale in the market, security, maturity, taxes etc. It is not necessary to worry about these details here, since what interests us is the relationship between prices in general and the real values that should finally be represented. This relationship gives us something important to try to explain, how and why the fictitious values (prices) achieved through the credit system can be so far removed from the values expressed by the ‘monetary base’” (Harvey 1990, pp. 280–281). 13. “The independent movement of these ownership titles’ values, not only those of government bonds, but also of shares, strengthens the illusion that they constitute real capital besides the capital or claim to which they may give title. They become commodities, their prices having a specific movement and being specifically set. Their market values receive a determination differing from their nominal values, without any change in the value of the actual capital” (Marx 1991, p. 598). 14. In this case it is confused with interest-bearing capital. 15. “This capital (the fictitious capital) is defined as capital that has a nominal monetary value and existence as paper, but which, at a given point in time, has no bearing on real productive activity or physical assets. Fictitious capital is converted into real capital to the extent that investments are made that lead to an appropriate increase in useful assets (e.g. facilities and equipment that may be gainfully employed) or useful goods (goods or services that can be sold for profit)” (Harvey 1992, p. 171).

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16. In the original version, this paragraph was entirely different: “Finally, an apparently obvious but very significant finding: not all interest-bearing capital should be considered as fictitious capital. In contrast, not all fictitious capital can be considered as interest-bearing capital as we have explained, that is, as an aspect of industrial capital. Thus, for example, the fictitious capital represented by public debt securities cannot be considered as the functional form of industrial capital”. 17. In an excellent article by Alves Pinto (1997), a position appeared that was different from ours. 18. It was used inappropriately in one of the translations of Capital into Portuguese and this is well explained by Klagsbrunn: “In the Editora Civilização Brasileira edition of ‘Capital’, this specific function was translated as ‘money capital’, an expression that has little to do with the original geldhandlungskapital, both in literal terms and in content and which presents the exasperation of advancing theoretical developments of another author – Hilferding –, which refer to more specific aspects. The later Brazilian edition of The Capital, by Editora Abril Cultural, was, in this matter, much more precise and correct. It seems that the origin of the error is in the French translation of Editions Sociales, Paris, 1976 (translation by M. Cohen-Solal and M. Gilbert Badia), in which the title of ch. 19 p. 301 appears as ‘Le capital financier’ (capital marchant)”. This led to innocuous undertakings, such as Brunhoff’s (1978, p. 103 et seq.), countering “the notion of money capital presented by Marx” with that of Hilferding, cf. Klagsbrunn (1992, p. 603). On the non-existence of the expression “money capital” in Marx, we thank the collaborations of Klagsbrunn, Etelberto Ortiz and Francisco P. Cipolla, through the SEP mailing list on the Internet. 19. Cf. Harvey (1990, p. 292 and following) and Hilferding (1985). 20. In the original version the following did not appear: “However, his fictitious characteristic allows it to accept, within certain limits, a partly fictitious remuneration; in this measure, and only within it, does it not present itself as an immediate cost”. 21. In another circumstance and on another completely different level of abstraction, Marx, referring to the cycle of money capital and its difference to the others, states: “It further expresses the fact that it is the exchange- value, not the use-value, that is the decisive inherent purpose of the movement. It is precisely because the money form of value is its independent and palpable form of appearance that the circulation form M...M’, which starts and finishes with actual money, expresses money-making, the driving motive of capitalist production, most palpably. The production process appears simply as an unavoidable middle term, a necessary evil for the purpose of money-making” (Marx 1992, p. 137).

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22. In the original version: “Thus, productive capital itself becomes contaminated and individual capital that fulfils the autonomic functions of productive capital is increasingly subjected to parasitic logic and begins to operate more and more with speculative logic”. 23. The previous version had a substantial difference in this paragraph. It then read: “What used to be industrial capital, a synthesis of the autonomic forms of productive capital, commercial capital and interest capital and under the hegemony of the former (productive capital), becomes speculative capital, a synthesis of various forms of capital, one of which is the hegemonic, parasitic speculative capital already described. Industrial capital, whose logic is accumulation based on the production of surplus value, becomes, not in parasitic capital, but in speculative capital. In fact, while this is a synthesis, the parasitic speculative capital within it is the dimension of the parasitic remuneration; is therefore its parasitic aspect and dominates all its logic (the logic of speculative capital, as a synthesis)”. 24. May the positivists forgive us! The part of this paragraph “We saw that […] real at the same time” was not in the original version. 25. “Marx often claims that in the course of a crisis, capitalism is obliged to abandon financial fictions and return to the world of real money, to the eternal truths of the monetary base” (Harvey 1990, p. 296). 26. State intervention, contrary to neoliberal proposals, can alter the cyclical mechanism of the crisis. Particular attention is being paid to creating new regulations on parasitic speculative capital aimed at the destructive potential of crises arising from their accelerated growth. 27. According to Bensaid (1996).

References Alves Pinto, N. P. (1997). O capitalismo financeiro. Crítica Marxista, 5, 9–26. Bensaid, D. (1996). Trabalhar para a incerteza. Em Tempo, 291, 9–12. Braga, J. C. d. S. (1993). A financeirização da riqueza: a macroestrutura financeira e a nova dinâmica dos capitalismos centrais. Economia e Sociedade, 2, 25–57. Brunhoff, S. d. (1978). A política monetária. Rio de Janeiro: Paz e Terra. Chesnais, F. (1996). A mundialização do capital. São Paulo: Xamã. Corazza, G. (1997). Globalização: realidade e utopia. Análise Econômica, 15, 16–27. Coutinho, L. (1996). A fragilidade do Brasil em face da globalização. In R. Baumann (Ed.), O Brasil e a economia global (pp. 219–237). São Paulo: Campus. Harvey, D. (1990). Los límites del capitalismo y la teoría marxista. México: Fondo de Cultura Económica. Harvey, D. (1992). Condição pós-moderna. São Paulo: Edições Loyola.

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Hilferding, R. (1985). O capital financeiro. São Paulo: Nova Cultural. Klagsbrunn, V. H. (1992). Considerações sobre a categoria dinheiro de crédito. Ensaios FEE, 13(2), 592–615. Marx, K. (1971). Theories of surplus-value (Vol. III). Moscow: Progress Publishers. Marx, K. (1990). Capital: critique of political economy (Vol. I). London: Penguin Books. Marx, K. (1991). Capital: Critique of political economy (Vol. III). London: Penguin Books. Marx, K. (1992). Capital: critique of political economy (Vol. II). London: Penguin Books. Tavares, M. d. C., & Melin, L. E. (1997). Pós-escrito 1997: a reafirmação da hegemonia norte-americana. In M. d. C. Tavares & J. L. Fiori (Eds.), Poder e dinheiro: uma economia política da globalização (pp. 55–86). Rio de Janeiro: Vozes.

CHAPTER 7

Profit, Interest, Rent, and Fictitious Profit Gustavo Moura de Cavalcanti Mello and Mauricio de Souza Sabadini

The Vicissitudes of Contemporary Capitalism and So-Called Financialization Just over ten years ago the world was shaken by one of the most violent economic crises in the history of capitalism. Despite the social tensions and popular clashes that ensued from the devastation it provoked (Harvey et al. 2012), and to the frustration of hard-line Reformers with their cries for a new Keynesian New Deal, what was seen was a powerful reaffirmation of the neoliberal formula and ideology. In the midst of cynical insults, morally condemning the social climbing of speculators and recognizing the technical failures of financial market regulations and the econometric models that asserted that everything was well with the world economy, it was not long before apologetic efforts turned to propagating the idea that the root cause of the turbulence lay in the actions of the State and their mitigation of the self-regulating mechanisms of the market. This was all happening at the same

G. M. de C. Mello (*) • M. de S. Sabadini Department of Economics and Post-Graduate Programme in Social Policy, Federal University of Espírito Santo (UFES), Vitória, Espírito Santo, Brazil © The Author(s) 2019 G. M. de C. Mello, M. de S. Sabadini (eds.), Financial Speculation and Fictitious Profits, Marx, Engels, and Marxisms, https://doi.org/10.1007/978-3-030-23360-0_7

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time that the state was injecting multiple trillions of dollars into the world economy with its rescue policies for the “too big to fail” and successive rounds of quantitative easing, revealing its key importance not only as a “lender of last resort”, but as “creator of the market of last resort” (Braga et al. 2017, p. 838). Once again it was concluded that the foundations of the crisis should not be sought in the determinations and trends inherent in capital accumulation, but in supposedly exogenous factors and a lack of capitalism. From all sides the incantation of the choir could be heard, in favor of privatizations, of “austerity policies” (which can be translated as the cutting of direct expenditure and the destruction of social policies by the same steamroller that crushes labor and social security rights), cutting taxes for the wealthiest sections of the population and the deification of the “market”, the mantra in defense of the ideology of entrepreneurship, competition, meritocracy, and individualism. Despite this hegemony, the promises of prosperity and “balanced” and “sustainable” economic growth were repeatedly broken. On the contrary, the world economy continued to collapse, with weak growth rates (a measly 2.4% between 2008 and 2017, according to World Bank estimates1), very low rates of gross fixed capital formation (1.18%2), reduced rates of growth in productivity (Mckinsey 2018), historically low average rates of profit, as will be seen below, and galloping State and private indebtedness, accounting for more than 300% of global GDP (IFF 2018; BIS 2018). Despite the lack of quality of much of this aggregated data and some methodological issues that will be raised, these figures indicate some phenomena worthy of consideration and which receive different interpretations, even within the critique of political economy. Is there a divide between the real and financial dimensions of accumulation, or is one of them somehow privileged in understanding contemporary capitalism? Are we facing “rentier capitalism”? How can we correctly understand financialization? What is the nature of the economic crises that have swept over us in the last decades? This text sets out to provide conceptual contributions to answer such questions and has, as its mainstay, the Marxian critique of political economy and dialogically criticizes some contemporary Marxist authors. To this end, our attention will be specifically focused on the categories of interest-bearing capital (M-M-C-M'-M') and fictitious capital (M-M'), and with particularly to the latter, which we will refer to as fictitious profit. This choice is justified by the fact that the first two categories, which are fundamental to understanding the global dynamics of capital accumulation, continue to be commonly vulgarized or sub-theorized and

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that the mobilization of the category of fictitious profits derives from the analysis of fictitious capital and sheds light on important dimensions of this concept. Another contribution that we judge to be important here is, following Paulani’s (2016) footsteps, the relevance of Marxian analysis of ground rent to the understanding of the phenomenon of financialization, and, more broadly, of contemporary capitalism.

Capital as a Contradictory Totality Most Marxist theorists affirm the need to understand financial phenomena in their autonomy and singularity and as part of the global dynamics of capital accumulation, in its contradiction to “real” production and circulation. This is only possible when one rigorously and articulately considers some often-neglected elements, namely: (a) “Capital is the all-dominating economic power of bourgeois society. It must form the starting point as well as the finishing point” (Marx 1993, p. 106). Capital possesses a powerful thirst for surplus-value, and it exists only when it extensively reproduces the “bad infinity” of its self-appreciation, which is the foundation, the driver and the purpose of all the production that takes place under its aegis. It tends to subsume everything that exists in this process, controlling ever more fully the conditions for this reproduction and elevating itself to the condition of formal totality (Grespan 2002) which, as we will see, is a fragmented and contradictory totality. In this movement it tends as much to dominate as to autonomize itself in relation to its substance, the abstract work, which is necessarily external to it (Grespan 2008). In other words, this tendency toward the autonomization and subjectivation of capital—the fetishism of capital—is expressed both in the real subsumption of labor to capital and in the tendency to increase organic composition, in the process of extracting surplus value, and which will, in turn, lead to a downward trend in the rate of profit and to crises of overaccumulation. So, the fundamental contradiction of capital which marks each step of its constitution, limits it to the condition of a “blind” and “automatic” subject, a false subject, and therefore, a “contradiction in process” (Marx 1993, p. 706), and “self-limiting” (Marx 1991, p. 358). It is, therefore, a transient plexus of social relations, which opens up routes to revolutionary

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political practice. In this sense, when one follows each step of the concept, the crisis is the negative of capital (Grespan 2008), which is already appearing, as a formal possibility in the separation between the acts of purchase and sale, and even as a necessity, in the form of a crisis of overaccumulation (Grespan 2008). (b) The totalitarian nature of capital manifests itself in ways which it is necessary to distinguish and deepen. As for immediate production, the vampiresque impulse for living labor implies growth in the mass of workers formally subsumed into capital, as well as the expansion and intensification of the working day (in search of the extraction of absolute surplus-value). At the same time, there is a downward trend in the value of the workforce (in pursuit of the extraction of relative surplus-value), and even the reduction in the price of labor below its value, a form of extortion of the working population. Both tendencies are engender and propelled by the real subsumption of labor to capital and by the process of automation of production, which reduces the workers to being an appendage of the machine system, as the productive base appropriate to capital—which is thus emancipated in relation to the physical and mental limits of the workers—and which distinguishes, “the specifically capitalist mode of production” (Marx 1990, Ch. 13). According to the “general law of capital accumulation” (Marx 1990, Ch. 23), in addition to the aforementioned “multiplication of the proletariat” (Marx 1990, p. 764) the increased reproduction of capital thus effects the concentration and centralization of capital, which engenders the formation of large business conglomerates as well as the creation of relative overpopulation. So, the tendency toward the widening of income and property inequality can be seen as inherent to capitalist social formations. It has already been said that capitalist subsumption is extensive, spreading in time and space to produce a specifically capitalist (abstract) time and space.3 In this sense, there is the drive toward the “annihilation of space by time” (Marx 1993, p. 206), with improvements to transport and communication systems and a tendency to reduce the period of the cycle of capital. It also, however, has the impetus to suppress time through space, with the spatial concentration of production and consumption in urban space (whose production is a central moment of capitalist reproduction) (Lefebvre 1991).

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So, the territory of capitalist reproduction is the world market, “the tendency to create the world market is directly given in the concept of capital itself ” (Marx 1993, p. 408). Or even, abstract wealth, value, money, hence abstract labour, develop in the measure that concrete labour becomes a totality of different modes of labour embracing the world market. Capitalist production rests on the value or the transformation of the labour embodied in the product into social labour. But this is only [possible] on the basis of foreign trade and of the world market. This is at once the pre-condition and the result of capitalist production. (Marx 1971, p. 253)

Even the most elementary categories are only effectively built with reference to the world market, “the very basis and living atmosphere of the capitalist mode of production” (Marx 1990, p. 205). So, “the world market itself forms the basis for this mode of production” (Marx 1990, p. 451). That is, capitalism came into the world as a global system, and it is not surprising that colonialism constitutes a fundamental moment for the original accumulation of capital (Marx 1990, Ch. 24). The impetus for the real subsumption of labor to capital, as well as the destruction and subsumption of non-capitalist social formations and forms of production, is constantly renewed, as it is inherent to the concept of capital: (c) Capital possesses distinct levels of existence, corresponding to different levels of conceptual abstraction.4 Throughout the exposition of the concept of capital, which gradually encompassed concrete reality as concrete thought in a “synthesis of multiple determinations”, such categories acquired new determinations, and the more concrete determinations fed back and gave new meaning to the more abstract. In this movement we must distinguish between the planes of “essence” and “appearance”, the latter emerging as a necessary manifestation of the former, in a relationship in which they both constitute and deny each other. Here the distinction between capital in general and competition between capitals is key: the former understands the movement and the fundamental determinations of capital, as a concrete universal, a social form that exists above and alongside the particular forms of capital, which is constituted by them but not as a simple aggregation; it has a nature, characteristics and tendencies that condition the different forms of

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capital.5 Thanks to its contradictory character, its determinations are manifested in the “real” reality—on the plane of competition, in which the multiplicity of capital is confronted—in an inverted, contradictory, mystifying but no less real way. Thus, “under free competition, the immanent laws of capitalist production confront the individual capitalist as a coercive force external to him” (Marx 1990, p. 381; 1991, p. 311). Those who fail to revolutionize their means of production, reduce their costs, create new goods and new necessities, and so on are swallowed up by more successful capitals. At this level of analysis, the thirst for absolute and relative surplus value (and extra surplus value—Carcanholo 2000) manifests as a thirst for profits (and surpluses especially) which imposes an incessant quest for productivity gains, and the differentials between capital, both in the same branch of production and in different branches of production, and from a local to a world scale (which is one of the bases of the hierarchy between nation states and imperialism). In addition, capital only exists in movement, undertaking continuous metamorphoses, through the interweaving and repetition, simultaneous and successive, of infinite reproductive cycles, in which capital assumes the commodity-capital, money-capital, productive-capital forms, seeking to eliminate any interruption and to shorten the cycle time.6 Again, in the words of Marx (1992, p. 185): [C]apital, as self-appreciating value, does not just comprise class relations, a definite social character that depends on the existence of labour as wagelabour. It is a movement, a circulatory process through different stages [...]. Hence it can only be grasped as a movement, and not as a static thing. Those who consider the autonomisation [Verselbstständigung] of value as a mere abstraction forget that the movement of industrial capital is this abstraction in action. Here value passes through different forms, different movements in which it is both preserved and increases and appreciates.

In the midst of this process, there is a tendency toward the autonomization and specialization of industrial capital, giving rise to the trading capital of merchandise and money, related to the formal changes inherent to circulation, legal transfer of property, balance-sheet actions and compensation, collection, payments, accounting, custody of assets, organization

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of the processes of hoarding and dispersal—in order to make money available as a means of circulation or means of payment—and so on. In this sense, although not participating directly in the extraction of surplus labor, such specialization propel accumulation—by reducing the period of capital rotation, by rationalizing and increasing the security of transactions and by saving the “false costs of production”—which would be much greater if individual capital had to carry out the activities that are to be carried out by commercial capital—it requires only the average profit as its minimum remuneration and participates in the equalization of the profit rate, since the capital invested therein is considered as part of total capital. This raises the denominator of the equation (given by the sum of the variable capital and the constant invested capital) and adds nothing to the numerator (which corresponds to the mass of value-added), making the average rate of profit settle at a lower level.7 Another fundamental result of this tendency toward the autonomization of capital is the building of the modern credit system. Later, we will carefully consider interest-bearing capital and fictitious capital, but it is not too soon note that, from the beginning, the production of capitalists and money traders was gradually concentrating money and capital as society’s savings in the form of deposits and to monopolize lending activities, with a view to appropriating abstract wealth in the form of interest. Credit can be seen as, “a terrible weapon in the battle of competition and is finally transformed into an enormous social mechanism for the centralisation of capitals” (Marx 1990, p. 778), that is both the expression of, and the fuel for, the immanent tendencies of accumulation8: it allows growth in the scale of production and accelerates new investments, thus mitigating the need to tie up capital in treasury reserves; drastically reduces cycle time and capital costs; increases the mobility of capital; reinforces the tendency toward the equalization of the rate of profit, and so on. Nonetheless, “banking and credit, however, is also the most powerful means for driving capitalist production beyond its own barriers and one of the most effective vehicles for crisis and swindling” (Marx 1991, p. 742). The other lever in the process of the concentration and centralization of capital is the formation of joint-stock companies, titles of property that, in general, allow their owners to appropriate a portion of the profits produced by the company in the form of dividends. Finally, the global production of capital also includes the struggle for the drive for surplus-value in the form of absolute rent, differential rent, and monopoly rent in the strictest sense. As is known, if not from contingent

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and ephemeral circumstances, the surplus sought by every individual capitalist corresponds to the, “difference between the individual price of production of these favoured producers and the general social price of production in the sphere of production as a whole, which is what governs the market” (Marx 1991, p. 780). It happens that the use of resources that are non-reproducible and that can be monopolized can cause this excess profit to persist and is appropriated by the owners of these resources in the form of rent. In dealing specifically with ground rent, whose analysis will be developed later, Marx firstly analyzes the conversion of excess profit into land rent when it comes from differences in fertility and land location— relative to the transportation system, access to consumer inputs and markets, the type of built environment etc.—either natural (differential rent I) or derived from land-based investments (differential rent II). Secondly, he deals with absolute rent, which can be appropriated even from the worstquality land. From the analyses of the equalization of profit rates, it has been shown that competition between capital causes the total added value to be distributed among individual capitals according to their size, irrespective of their organic composition, and hence how much surplus value they effectively create. However, land ownership exempts agricultural production from entering this process. Presupposing that agricultural production has a lower organic composition and tends to produce a greater mass of surplus value than the same magnitude of capital invested in another productive branch, there arises a surplus that will be appropriated in the form of rent (absolute), even if its market price is below its value (but above its price of production). Finally, in the case of an “authentic monopoly price”, the market price has nothing to do with the value or the price of production of the commodity in question, there is an absolute separation between them. From the above, it is not only evident that “the capitalist production process, taken as a whole, is the unity of the production and circulation processes” (Marx 1991, p. 117), but that, in the context of competition between capitals, the extraction of surplus value appears only as one of several means of appropriating surplus value (in the form of profit, interest, dividends, differential rent, etc.). This is the true target of individual capital within the framework of the competitive process but manifests itself in a mystifying way. If salary is a transformed form of variable capital, here the profit, interest, dividends, and the different forms of rent are transformed forms of surplus value. It will be seen more clearly later that the fictitious forms of capital which have existed since the earliest days of

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production, as expounded by Marx, for example, in the seminal chapter on the original accumulation of capital, are not a deviation but a necessary moment for accumulation, and also that fictitious capital will appear as capital par excellence, and as the primary form of abstract wealth, reigning over other forms. In short, this fragmented totality must be understood as a process, as a strictly dialectic movement of the subsumption, differentiation, and autonomization of co-pertinent moments, and from this perspective, the understanding of bourgeois society as a whole must be made through the development of its contradictory foundation, a process in which the different categories are revealed as forms of manifestation of the constitutive contradiction of capital. Thus, the various categories of Marx’s critique of political economy are moments of the constitution of capital (which, of course, includes interest-bearing capital and fictitious capital, as well as absolute, differential and monopoly forms of rent). An articulated understanding of Books I, II, and III of Capital is therefore necessary for the critical understanding of the global dynamics of accumulation and their particularities. In order not to cloud the explanatory logic, one must recognize (and theorize about) both the non-identical (Adorno 2009), that which escapes the totalitarian impulses of capital, and the fact that the historic evolution of capital introduces the determinations and forms within its concept, without which capitalist social formations remain incomprehensible. Before considering it, however, it is convenient to deal with the concepts of interest-bearing capital and fictitious capital, essential for theorization about contemporary financialization.

Interest-Bearing Capital, Fictitious Capital and Fictitious Profits As mentioned, and presuming its power of self-appreciation, capital can be temporarily sold through productive investments under the conditions imposed by competition, conditional on the lender being guaranteed interest subject to terms previously defined between lender and borrower. This capital can be in the form of a commodity, such as a machine, but most of the time it takes the form of money. If, at a more abstract level of analysis, commodity and money appear as forms of capital in a movement of continuous transformation, then at this point of the explanation capital

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is capital that takes the form of commodity, which has as its value-of-use the power to generate profit. It is interest-bearing capital, the foundation of the credit system, which gives the capitalists who use capital productively, the possibility of employing the capital of others to exploit the work of others. In logical terms, the emergence of interest-bearing capital presupposes the appreciation process is only a matter of the lender receiving what has been formally or informally determined, being indifferent as to how the borrowed capital will be used. Gains appear as arising from the mere ownership of capital and not from the appreciation process itself. In this sense, “in interest-bearing capital, the capital relationship reaches its most superficial and fetishised form. Here we have M-M', money that produces more money, self-appreciating value, without the process that mediates the two extremes” (Marx 1991, p. 515). The nature of capital is even more mysterious, and its substance concealed. The autonomization and subjectivation of capital correspond to a process of the concealment and mystification of its own essence, which can only be understood through dialectical criticism: “in this way, all connection with the actual process of capital’s appreciation is lost, right down to the last trace, confirming the notion that capital is automatically valued by its own powers” (Marx 1991, p. 597). With the process of the concentration and centralization of capital, access to the credit system becomes more and more imperious and universal, which in turn further reinforces this concentration and centralization. With this generalization of credit operations, and by seeming “palpable” and firmly defined, interest appears to individual capitalists as the form of remuneration of capital par excellence, instead of a deduction from profits. All capital, whether loaned or borrowed, seems to yield interest, and the difference between this interest and the total gain of the enterprise appears as the “profit of enterprise”, derived not from the extraction of surplus value but from the labor of the managers (see Marx 1991, p. 968). But the inversions and mystifications do not stop here. In the case of interest-bearing capital, it is assumed that a capital amount, through a legal transaction, permits the channeling of a flow of income in the form of interest, as if it were a natural product of capital and as if everything took place within the sphere of circulation, without any connection with the sphere of production. From this form of capital, in addition to all capital appearing as an interest source, every potential income stream starts to give rise, through the process of capitalization, to a specific type of capital, devoid of value.9 When it becomes formalized,

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giving rise to a legal title, this capital becomes tradable in specific markets. These, and other determinations that will be presented in the sequence, make up fictitious capital, a form that originates and develops from interest-bearing capital, which shares with it some determinations, but denies it in others.10 It may be said here in passing, as pointed out in the first chapter of Capital, that price form not only enables the, “quantitative incongruity between price and magnitude of value” (Marx 1990, p. 196), which is inherent to it but, “may also harbour a qualitative contradiction, with the result that price ceases altogether to express value, despite the fact that money is nothing but the value-form of commodities” (Marx 1990, p. 197), as happens in the formation of capital or in land pricing, algorithms, and so on. The elementary form of fictitious capital, analyzed by Marx, are shares, a large portion of banking capital, and state bonds.11 On shares, to addition to what has been said previously, it is possible to say that these titles operate as a paper duplication of the capital effectively invested in companies; are, “nominal representatives of non-existent capitals” (Marx 1991, p. 608). The buying and selling of shares on stock exchanges or over-the- counter markets—where all kinds of state or private debt securities are also transacted—involves a formal legal transaction that does not change fixed capital and working capital. In a sense, the shares result from the capitalization of the expected profits of the company and its price varies continuously according to the conditions of competition in the financial markets, and therefore as a function of the demand and the offer of this title which becomes autonomous in relation to the effective value of the capital objectified in said company. Banking capital is characterized by the issuing of money to an amount much greater than its own capital and the deposits it brings together and thus, “the greater part of this money capital is purely fictitious” (Marx 1991, p. 601). This flood of credit money fueled the specter of panic and runs on banks, which then further boosted the creation and nationalization of central banks, distinguished by their role as lenders of last resort, the primary creators of money and the guarantors of its quality, controllers of the exchange rate, determiners of the basic interest rate and the regulators and supervisors of bank reserves and the bank clearing system.12 State bonds, on the other hand, have the tax system as their mainstay, and support the appropriation of surplus value in the form of taxes, and their issuance is remote from the immediate target of productive employment.

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That is, the interest paid on state debt is based on real wealth, produced by the workers and transferred to the capitalists, who are creditors of the State. A part of abstract wealth absorbed in unproductive forms of income is hoarded by capitalists and can drive capital accumulation. In addition, although it appears as the loan to the State, as Marx reminds us, the creditor here yields nothing, since the title of state debt represents wealth and can be traded at any time in the so-called open market (Marx 1990, p. 919). It should be added that operations in the open market have become the fundamental means of state control of the monetary base (constituted by “fictitious money”13). In this way, both the overlaps between the elementary forms of fictitious capital and the fact that it functions across the most diverse dimensions of capital accumulation become evident. Finally, as analyzed in Chap. 5, either directly or indirectly, every everyday transformation of capital, every act of buying and selling, by companies, individuals and State, is completed in the form of money on the daily balance sheets of the banks and is inserted into the credit system, which has its mainstay and motor in the public debt system. So, the fictitious forms of capital forcibly go through the metamorphoses of their other forms of existence. It is worth mentioning another mode of fictitious capital that develops from those analyzed by Marx, derivatives. Derivatives have gained enormous importance, linked to so-called securitization, the transformation of debts into negotiable securities through capitalization. These are financial assets, referenced to exchange rates, interest rates, mortgages, stock indexes, student loans, futures securities and commodities prices, climate events, other derivatives (such as collateralized obligations, referenced in bonds, loans, mortgages, debits, etc.), and the estimated risk of investments in these assets (with emphasis on credit default swaps [CDS]), which have reached a monumental volume in recent decades.14 Despite their fictitious character, according to Norfield (2012), [d]erivatives can help promote capital-accumulation by saving companies transaction-costs, by giving the impression that risks are lower than in reality, by appearing to represent wealth that can be used as collateral for loans and by generating recorded profits based on speculation-driven prices. (p. 117)

The first of these means, concerning the reduction of faux frais, seems to be correct. Regarding the other aspects, which would compete to increase willingness to invest, it should be noted that this would only hap-

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pen if the individual capitalist recognized opportunities for productive capital employment that were better than those of the fictitious capital markets. Moreover, between the identification of these opportunities and their realization there is a gap that may prove to be an insurmountable abyss, and there would be real capital available that would remain fallow or be dissipated in an unproductive mode without the impulse given by derivatives.15 More importantly, insofar as these financial securities enable investors to negotiate expected price changes of financial assets (Braga et al. 2017), derivatives permit, in a sense, the estimating, pricing, and transacting of the expected gains of any type of application—real or fictitious—taking the risk of failure into consideration.16 In this sense, they decisively interfere with capitalist calculations and strongly increase the mobility of capital (Sotiropoulos et al. 2013, p. 166), as well as propelling the process of capital centralization, having a decisive impact on the primary markets, impacting prices, and investment decisions. These fictitious forms of capital, in short, become central to investment decisions and to the allocation of capital on a global scale.17 Moreover, if interest-bearing capital casts its shadow over all kinds of capital which seem to yield interest, “as is the property of a pear tree to bear pears” (Marx 1991, p. 516), fictitious capital, in particular each individual company, state, individual and worker, is viewed as a potential generator of income streams and is assigned a certain specific and concrete risk, which will interfere, for example, in their access to the system (Sotiropoulos and Lapatsioras 2014). In addition to this tendency of universalization of fictitious capital, which tends to be projected on e verything and everyone, this dynamic becomes a powerful mechanism for social control and management, conditioning behaviors and decisions, which has to do with what Sotiropoulos and Lapatsioras (2014, p. 94) consider to be financialization as a “technology of power”, referring to Foucault’s analyses of “governmentality”. In short, the fetishism of capital never ceases to deepen. A point should still be emphasized, as Paulani (2016) asserts, “fictitious capital, then, is everything that isn’t capital, wasn’t capital and never will be capital, but works as such. It works as such because of the capitalisation principle” (p. 791). It may be convenient to add that it operates in the sense that it represents and permits the drive for abstract wealth and can be exchanged for other forms of wealth, should it encounter a demand. So, from the perspective of the totality of the global accumulation process,

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capital is strictly fictitious—it is not and cannot be engaged in the direct creation of surplus value—from the individual’s perspective it represents wealth and is a prime part of the capitalist’s patrimony. In this sense, fictitious capital is, and is not, capital (Carcanholo and Sabadini 2015, p. 157). From the above, one can see the misunderstanding of several interpretations that these categories have acquired within Marxism. To take just two of them, proposed by eminent and rigorous Marxist theorists, who contributed much to the critique of contemporary capitalism. In Foley’s words (1991, p. 116), The price of shares will be established to make them attractive as investments, in competition with loans, given the higher risk attached to the flow of residual profit relative to the flow of interest. But this price of shares may exceed the value of the capital actually invested in the firm’s operations. Marx calls this excess fictitious capital, since it is part of the price of shares which does not correspond to the capital value actually participating in the firm’s production.

Harvey (1989), in turn, asserts that “credit is, according to Marx, always to be accounted for the ‘fictitious capital’” (Harvey 1989, p. 107), and that “fictitious capital is converted into real capital to the extent that investments are made that lead to an increase in useful assets [...] or commodities” (Harvey 1989, p. 182). In these passages one can see the confusion between interest-bearing capital and fictitious capital, as well as the notion that fictitious capital emerges from unproductively employed loans or failed investments. In addition, the “fictitious” nature of capital is attributed to a possible discrepancy between its value and the value of the capital that serves as its reference. In relation to what has already been put forward, it must be remembered that commodities acquire value in their productive process, as a function of the abstract work objectified in them, although the realization of this value is realized in circulation, post festum. Changes in the number of producers, in the scale of production, in the technologies employed and in the conditions of demand, among others, can cause a given investment to be frustrated and the capital employed does not increase in value and is therefore wasted. As value is determined, at the individual and social level, in a turbulent and uncontrolled competitive process, as a unit of the production and circulation of capital through countless cycles under ever-changing and anarchic conditions, capital

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accumulation has an inescapable speculative component.18 Beyond interest-bearing capital and fictitious capital forms, this speculative component is particularly notorious according to the analysis of fixed capital, as the longer that fixed capital remains obsolescent, the more it commits the present to the future extraction of surplus value.19 This is not the hallmark of so-called financial markets. However, this speculative dimension of capital should in no way be confused with the concept of fictitious capital, which has several determinations and functions that distinguish it, as has been seen. It is worth repeating that, unlike interest-bearing capital, which arises when a mass of capital is not directly invested by its owner but borrowed in exchange for its repayment plus interest, fictitious capital does not and never has possessed any value, it is a legal title which assumes an expectation of future income streams and variations in the prices of financial assets themselves, based on the conditions of competition in the markets in which they circulate. As explained above, it has its own origin and movement and constitutes a sui generis form of capital.20 Having pondered the conditions for the emergence and the fundamental determinations of fictitious capital, it is a good time to consider, still from the perspective of its logic of reproduction and at a relatively high level of abstraction, its mechanisms of expansion and retraction. We have seen that, due to the autonomy of fictitious forms of capital, which do not have an iota of objective value or participate directly in the process of the accumulation of value, its price being determined in specific markets, the fluctuations of that price can occur independent of the conditions and real movements of capital accumulation, simply from the competitive conditions of those markets. In addition to the creation of fictitious capital through new capitalization processes (IPOs, public debt issuance, debt securitization and all sorts of financial innovations that will be considered later), the influx of capital into financial markets, or even acquisitions and intra-market securities, may lead to significant increases in the prices of these securities, as has been seen in the so-called financial bubbles. This increase in the magnitude of fictitious capital represents gains for the individual capitalist, but one must ask: what is the nature of these gains? At this point, it is convenient to present and discuss the category of fictitious profits, originally introduced by Carcanholo (2003), appearing again in Nakatani and Carcanholo (2007), and developed in works such as Carcanholo and Sabadini (2015), originally published in 2008. This is the form of income derived from fictitious capital, the expression of fictitious

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capital on corporate balance sheets, and the variation of individual capitalist’s assets, stemming from state indebtedness and speculative movements in asset prices. In order to emphasize its specificities, attention should be paid to the way in which the category of fictitious profits appears in the work of some important Marxist theorists. To begin with, Carchedi (2011) hypothesizes that the exponential growth of fictitious capital in recent decades was a reaction to overaccumulation of capital due to the fall in the average rate of profit and the consequent deterioration of the conditions for the realization of productive investments, and argues the need to mobilize this category as follows: If loan capital is fictitious, its profits are fictitious too. They are fictitious not because they do not exist (as in some fraudulent accounting practices). They are the appropriation of a representation of value (money), and in this sense they are real. But they are fictitious because this appropriation springs from a relationship of debt/credit rather than production. Financial capital sells titles of debt with no intrinsic value for a representation of value, money. It appropriates value” (p. 5). [And even,] as we have seen, as profitability falls in the productive sectors, productive capital migrates to the fictitious sphere where it becomes fictitious capital. The greater the influx of capital, the higher the price of the titles of debt that form this fictitious capital. The same applies to stocks. As more capital expecting further price rises is drawn in, the price of the titles dealt with on the financial markets rises and the process becomes self-reinforcing. Fictitious profits rise. A speculative bubble is in the making. (p. 9)

Smith et al. (2014) also address the category of fictitious profits in their empirical investigations. After noting a statistically significant increase in the rates of profit in the United States in the 2000s, the authors characterize it as, “anomalous and based to a considerable extent on ‘fictitious profits’ booked in the finance, insurance, and real-estate sectors, and perhaps by many firms operating in the productive economy also” (Smith et al. 2014, p. 69). In turn, Duman (2014) places fictitious profits at the heart of his analysis of the global economic crisis that erupted in 2007–8. He states: The economic crisis occurred as the result of the excessive growth of the financial market over the real economy and of fictitious profits over real profits. The gap between fictitious profits and real profits widened with the dual effect of both the financial market and the real economy. The rate of

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fictitious profits increased with over-financialisation, whereas the rate of real profits decreased due to the law of the tendency for the rate of profit to fall in the capitalist mode of production. (Duman 2014, p. 248)

In general, fictitious profits are under-theorized and unconnected from a more conceptual discussion about fictitious capital and its place in the concept of capital. Duman (2014) only states that it is a profit derived from, “credit, mortgage, social insurance funds, bonds and stock markets” (p. 247). To empirically verify the monumental magnitude of fictitious profits does not, however, exhaust the subject, from the perspective of the critique of the political economy. As will be argued below, it is necessary to understand that fictitious capital appears to individual capitalists as the primary form of wealth, and that the fictitious profits that correspond to it become a fundamental reference for business actions in the most disparate sectors of the economy, influencing the flows and capital applications on a global scale. Even in the case of Carchedi, whose analysis of fictitious profits has conceptual gravitas, it should be pointed out, first of all, that the category “financial capital”—which did not exist in Marx’s work, and is the object of diverse interpretations based on the pioneering proposition of Hilferding (1981)—lies at a level of abstraction distinct from the category of fictitious capital and which cannot be simply identified with the question of the distinct segments of the capitalist class. Moreover, fictitious profits do not originate from an appropriation of value provided by the usual channels of production, transference and appropriation within the cycle of capital. Their fictitious nature lies precisely in the fact that they are profits that do not correspond to a fraction of the surplus value generated in the productive process. Hence, its maximum incomprehensibility and its role as a potential multiplier of capitalist crises that have manifested themselves in the last decades as financial crises. The emergence of fictitious profits does not negate the foundations of Marx’s theory of value; on the contrary, fictitious profits point precisely to the fact that capitalism cannot sustain itself without extracting surplus value, so that “the continuity of stage of speculative capitalism can only be sustained by the further increase in the exploitation of labour throughout the world and by the intensification of value transfers from the periphery to the central countries” (Carcanholo and Sabadini 2015, p. 152). Attention should also be paid to authors who deny this category entirely. According to Lapavitsas and Mendieta-Muñoz (2016), “financial profits are thus a highly complex economic category; one notion that

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could be immediately dispensed with, however, is that they are somehow ‘fictitious’” (pp. 3–4). This understanding comes from the authors’ own understanding of fictitious capital, which would have been employed by Marx to describe phenomena, particularly that of, “discounting of future returns which would result in completely fictitious prices for financial assets-i.e., net present value” (Lapavitsas and Mendieta-Muñoz 2016, p. 4). Here again lies the mistaken notion that a characteristic of fictitious capital would be to show a present value superior to that of the real capital which supposedly serves as its base. Nevertheless, according to the authors, when selling a financial asset, “the sum of the profits would be either a share of the money advanced, or a share of the future returns (surplus value, or even wages and salaries). There would be nothing fictitious about that sum of money profit, irrespective of how fictitious the asset prices might be” (Lapavitsas and Mendieta-Muñoz 2016, p. 4). Durand (2017), in his turn, in assessing the so-called capital gains arising from the repurchase of shares and other speculative movements in the stock market, argues: In short, even though capital gains are real, they result from variations in the value of fictitious capital. Whatever the type of assets under consideration, capital gains result from a zero-sum game among the various participants on the market: the fictitious capital accumulated through price rises becomes a reality for a given vendor when a buyer on the market himself takes over this fiction. (p. 173)

There is a limit to Durand’s approach (2017), which disregards the contradiction between the manifestation of the individual capitalist’s viewpoint and the overall reproduction of capital, as well as the distinction between value and price. Like Lapavitsas and Mendieta-Muñoz (2016), he simply denies the fictitious character of profits from fictitious capital21 and views the stock market as a zero-sum game.22 Hilferding also considers the result of the transactions to be a null total, when it signals the existence of so-called differential profits (Sabadini 2015).23 However, this is at odds with the interpretation that “the speculative valuation of the assets, while they remain, constitutes a profit that does not correspond to any loss” (Carcanholo and Sabadini 2015, p. 140), which is precisely the phenomenon that is understood as fictitious profits. On the contrary, by converting fictitious capital into any form of real capital, fictitious capital changes hands and does not cease to exist. What matters is, that without value and without participating in its creation,

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fictitious capital tends to demand a growing draw on value, putting great pressure on real accumulation. If it is the result of the capitalization of a future income stream, then it requires the realization of those incomes, which may have no effective basis. In this sense, “fictitious capital originates from three sources: (a) the transformation of illusory capital into marketable securities, (b) the apparent duplication of the value of interest- bearing capital (as in the case of public stocks and bonds) and (c) speculative valuation of the different assets” (Carcanholo and Sabadini 2015, p. 131). Thus, it pays interest, dividends, and so on, arising from surplus value, and in this case is a transfer of value between the fractions of capital and in the form of fictitious profits.

Still on Rent and Its Source These accumulation tendencies, in particular, those of the autonomization and subjectivation of capital, the concentration and centralization of capital, the development of the world market, the formal and real subsumption of labor to capital, and the reduction of time and the cost of rotation of capital, all come together to produce processes that are often pointed out as being distinctive of contemporary capitalism.24 Following the multinationalization of capital in the years following World War II, recent decades have seen the fragmentation of the production process being potentiated by different countries, so that a commodity can be assembled in any given country from components produced in different countries or continents (thus constituting so-called global value chains). This is not only an expression of the expansionary impulse of capital, but also as a way of reducing production costs, especially through fiscal incentives and state subsidies, the absence or laxity of environmental legislation and the cheapening of productive inputs, and the workforce in particular. This productive transnationalization becomes even more imperative in a context characterized by low average rates of profit and by an increasing overaccumulation of capital. Incidentally, the collapse of the Soviet bloc and the surge of capitalist development in countries such as India and, above all, China, gave great impetus to this trend, and with it, following extensive waves of expropriation and an intensive expansion of the number of workers subsumed, formally and actually, to capital. This productive transnationalization25 was made feasible and fed—but not finding its roots there, it should be emphasized—partly by technologies and techniques specific to information technology, telematics, microelec-

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tronics, robotics, nano and biotechnology, among others, called the Third Industrial Revolution. Thus, with specificities in each one of the branches of production, these innovations in general competed to perfect the mechanisms of control of the work process and of production, and therefore of extraction of surplus value26; to rationalize the relationship between suppliers and final consumers, reducing inventories and waste; to expand the real subsumption of labor to capital in various productive branches that hitherto imposed resistance on it, particularly those that developed from heterogeneous manufacturing (Marx 1990, Ch. 12), and various service sector activities, such as transport, especially those resulting from “non-material production”, in the Marxian sense (Marx 1993, pp. 451–2).27 These different processes, variously referred to as productive restructuring, flexible accumulation, Toyotism, among other terms, but which are understood here as another stage in the universalization of big industry and in the development of the world market, could not have developed without the corresponding evolution of the banking and credit system. Along with the transnationalization of production, there has been a trend toward the transnationalization of financial institutions, both to enable the necessary concentration of capital to finance productive transnationalization,28 and to guarantee capital the mobility it seeks, as opposed to its tendency to settle in productive enterprises, infrastructure networks, and so on, and to provide worldwide flows of income. In its early episodes, this tendency was marked by the establishment of overseas headquarters by large commercial banks, especially North American banks; and by the exponential development of the Euromarkets and later the Petro-markets, offshore markets that largely escaped the control of monetary authorities, particularly the Federal Reserve. In addition, it has been notable for an increasing competition around financial and institutional innovations, which has given rise to a number of new financial institutions—investment funds, pension funds, hedge funds, insurance companies, mutual funds, private equity funds, asset managers, venture capital, and so on, which would eventually be termed the “shadow banking system”—in a contradictory process of fierce competition, in which commercial banks were initially left behind, and of conglomeration and financial “disintermediation” (Chesnais 2016). As is well known, this development, of fictitious forms of capital and the markets by which they were launched, exploded the banking and financial system control mechanisms à la Glass-Steagall Act, which sought to segment the financial system into distinct functions, defined ceiling rates of

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interest and taxed international flows of capital, among other things. To mention just a few factors; the exchange rate instability that has appeared since the collapse of the Bretton Woods system, the huge fluctuations in commodity and oil prices (with the shocks of 1973 and 1979 as emblematic episodes), the vicissitudes of interest rates (especially the interest shock promoted by Paul Volcker between 1979 and 1981), increasing global financial turmoil, including the peripheral countries’ debt crisis in the 1980s that resulted from the opening of the door to the neoliberal Trojan Horse, and the strengthened trend toward securitization of state and private debts, all these vicissitudes cast even more fuel on the fire of financial innovations and propelled financial assets. It is in this context that the derivatives explosion took place, as analyzed empirically and conceptually in Chap. 8 of this book. Despite the expansion of hedge and secondary markets in general, far from increasing financial stability, as promised by economic orthodoxy, what has been witnessed in recent decades is the multiplication of financial crises and speculative attacks.29 It is well to insist that it is precisely at this moment that its fictitious character is fully revealed, when large volumes of fictitious capital turned to dust.30 The crisis that began in 2007–2008, with the United States as its epicenter, is a good example. After the dot-com crisis in 2001, when trillions of dollars disappeared overnight from the world’s financial markets and state “to big to fail” rescue policies were heavily employed in the central capitalist countries, together with the reduction of interest rates and various types of state financial stimuli, there was a frenzied wave of production of financial assets derived from the packaging of all kinds of debt securities, insistently offered to all types of “investors” independent of their degree of solvency and always very well evaluated by the impregnable institutions of risk assessment. It is no coincidence that the break-up of the world economic crisis was the bursting of the real estate bubble; a significant part of the fictitious capital created was linked to mortgages and the speculative run that had real estate markets at its epicenter. As is well recorded, house construction and the production of space in general is a productive branch of major importance, it is large-scale and tends to have a relatively low organic composition (producing relatively great surplus value), it also strongly involves the credit system in both production and consumption and is directly linked to rent extraction. In addition, the price of land itself is the result of a capitalization process, and real estate assets as well as real estate loans serve as a mainstay for numerous financial assets. Marx has long drawn attention to the “tremendous power” that guarantees the link between

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land ownership and the ownership of the means of production, in which the capitalist brings together the status of landlord and functioning capitalist.31 What is there to say about this power when it is added to that of appropriating interest, dividends, capital gains, to be arbitrated by the prices of all kinds of real or fictitious assets, including derivatives? In the case of the US housing bubble, a good part of the financial assets which supposedly had solid foundations, were castles in the air and precipitated real devastation on the world economy.32 It is possible to refer here to the Marxian understanding of the phenomenon of economic crises in its most elementary moment, one in which the concept of crisis, the “negative of capital”, makes its first appearance as a theoretical possibility in Capital (Grespan 2008), more precisely within the analysis of the process of movement of goods in Chap. 3, in which Marx observes that the position of money allows the acts of buying and selling to become autonomous until they seem unconnected to each other; but only to a certain extent, from which its unity reveals itself in an explosive way in the crisis (Marx 1990, p. 209). By this time, Marx had already exposed the general movement of contradiction, which preserves and reiterates the immanent negativity, temporarily overcoming it only to replace it at a more acute and universal scale. In the process of financialization something similar occurs; fictitious forms of capital become autonomous until they seem u nconnected to the process of value appreciation, as in the formation of financial bubbles. Nevertheless, the co-pertinence of these processes is evident when these bubbles burst. To establish only one of these moments—that of autonomization or that of co-pertinence—means to produce a limited and ideological analysis of the phenomenon. In any case, it should be emphasized, taking up the argument, that the international credit system is mobilized not only for the achievement of gigantic productive investments, but also for the surplus value extracted in its various transfigured forms. Even if the transnationalization of capital implies an “outsourcing” of production, the loss of direct access to surplus-value in the form of profit is more than compensated for by the abstract transference of wealth that follows: (a) intellectual property guaranteed by patents and copyrights (absolute and differential rent); (b) brand ownership and branding and marketing strategies (monopoly rent); (c) interest arising from loans and negotiations with all kinds of securities, boosted by differential access to the selective international credit system; (d) dividends, a portion of the corporate profits received as a result of the

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ownership of certain types of shares; and, possibly, (e) in the same way as with average profit, when the producing company depends on commercial activities developed by the corporation. For this reason, there is a tendency for large corporations to specialize in R&D, branding, marketing, and financial machinations of all kinds, including their own actions and those of competing corporations. Therefore, the basis of the production of abstract wealth has been broadened, which to a largely tends to be appropriated by the large economic conglomerates with headquarters in the central capitalist countries, especially in the form of interest, dividends and rent.33 With this, the international division of labor changes and the dynamics of imperialism are renewed. By way of illustration, we should remind ourselves that at the beginning of February 2019, the ten largest companies in the world in terms of market capitalization were all North American. Of these, the top three in the list, Apple, Alphabet (Google), and Microsoft, and the sixth-positioned Facebook are all producers of technology (and the sale of user’s data of their services and products). This is also the specialty of the fourth placed, Amazon, but it also operates in the retail sector. Berkshire Hathaway, Warren Buffett’s holding company, is principally engaged in the purchase and sale of shares of a diverse portfolio of companies, as well as being the “lender of last resort” for companies at risk of bankruptcy. The seventh and eighth comes from the banking sector, JPMorgan Chase and Bank of America, respectively. Johnson & Johnson ranks ninth, primarily operating in the pharmaceuticals sector, and Exxon Mobil Corp., the energy giant, ranks tenth34 (see https://www.investopedia.com/articles/activetrading/111115/why-all-worlds-top-10-companies-are-american.asp). Certainly, they are large conglomerates, and their role cannot be fully understood from this classification by main activities alone. It is not for this reason, however, that they become any less significant; on the contrary, all these companies are engaged in rentier activities! With the analysis of fictitious capital and modes of rent, [t]he form of mutual alienation and ossification of the various portions of surplus-value is complete, the inner connection definitively torn asunder, and its source completely buried, precisely through the assertion of their autonomy vis-à-vis each other by the various relations of production which are bound up with the different material elements of the production process. (Marx 1991, p. 968)

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On the Nature of Financialization and Rentier Capitalism The elements have now been gathered to permit us to consider some important issues that have absorbed the attention of theorists in the fields of criticism of political economy and economic heterodoxy. Over the last few decades the tendency has been to an increasing proportion of income of financial companies as part of total corporate profits. Considering central capitalist countries, Duman notes that “the rate of financial sector profits to total profits escalated from 25% in the 1980s to 40% before the global economic crisis” (Duman 2018, p. 216). According to Krippner’s estimate (2011), in the immediate aftermath of World War II the profits of US financial corporations were between 10% and 15% of total US profits, a share that rose to 30% in the 1980s and reaches 40% at the start of the 2000s. This process is even more significant in the case of large financial conglomerates, according to Levina (2012), analyzing US banking holding companies (BHC), “if by 2005 the financial sector profits rose to 28 multiples of their 1970 level, and commercial bank profits closely followed this trend, the BHC profits peaked at 47 multiples of their 1970 level” (Levina 2012, p. 229). However, for an adequate understanding of the phenomena that these figures describe, some factors must be considered. Firstly, by ignoring the nature of the form of value, and hence of the capital form, and by wrongly distinguishing between productive and unproductive activities, an important part of what conventional economics understands as profit is not profit itself, but, in some cases, forms of transference of surplus value and in others its transfigured forms. It is not abstract creation of wealth, of surplus value, but of unproductive activities that permit its appropriation. A portion of these alleged profits is purely illusory, strictly fictitious. If these unproductive activities and these fictitious profits are not eliminated from the calculation of the profit rate, attempts to grasp it empirically will be compromised. That is why many writers attest to a recovery in profit rates in the US economy, between the dot.com crisis and the subprime crisis, ignoring that [t]his recovery in profits was due to the biggest speculative bubble in US history. Much of the recorded extra profit will either have been a result of the credit-fuelled spending of the time or will have reflected transient gains in financial market-values that companies reported as income. Not surprisingly, the profit-rate fell back quickly after 2006 when the bubble burst. (Norfield 2012, p. 115)

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Moreover, besides the difficulty in collecting data, a series of accounting maneuvers (not to mention straightforward fraud) hinder empirical analysis. In fact, through market-to-market, mark-to-model, and so on, or the sale of credit default swaps (CDS), it has become customary to present highly speculative future income (as being current, which guarantees abundant bonuses to the managers of these companies). Finally, when it comes to the global production of capital, we are necessarily talking about the production and circulation of capital on a world scale. Much of the statistics for national states tend to conceal the phenomenon in its entirety. After all, from the perspective of the global reproduction of capital, the displacement of productive investments from one country to another does nothing to cool accumulation. If, for example, we take the US economy alone, as many contemporary analyses do (because of the US hegemonic position in the world market and the better quality of the available data), some issues are cut short. What appears on the surface as a turn toward fictitious forms of accumulation reveals itself as a strategic repositioning in the process of appropriating globally produced surplus value. In this sense, as early as 1985, Tavares (1997) recognized the rationale of the US strategy of raffle off its traditional industry in favor of financial prominence, the maintenance of the dollar as a world currency and control of productive activities that guarantee the extraction of rent, such as branding and R&D. A key part of this strategy was Volcker’s interest shock, which repositioned the United States as a global financial center, attracting overaccumulated capital in the form of money from all parts of the world, used to finance not only the Treasury, but also consumption and investment, focused primarily on the service sector and state-of-the- art technologies.35 Still in this text, Tavares (1997) notes that the growing US deficit, until now commonly denounced as an aberration, has, since the beginning of the 1980s become, “in practice the only element of temporary stabilisation of the money market and international credit” (p. 35), a process intrinsically linked to renewed US imperialism.36 Therefore, as has been stressed throughout the text, it is necessary at this point to consider in an articulated way the productive transnationalization and the geographical extension of the formal and real subsumption of labor to capital and the growing importance acquired by fictitious forms of capital and by the appropriation of surplus value in the form of interest, dividends, differential and absolute rent, and monopoly rent. Because of this, the importance of the centralization of capital in its contemporary manifestations must be emphasized. Despite genuine

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conceptual divergences, recent empirical studies corroborate this proposition.37 To cite just a few, Grullon et al. (2017) argue that “firms in industries with the largest increases in product market concentration have enjoyed higher profit margins, positive abnormal stock returns, and more profitable M & A deals, an important source of value” (p. 1).38 Milberg and Winkler (2010) seek to grasp the links between financialization and the phenomenon of offshoring, noting that non-financial companies that adopted this internationalization strategy, seeking to reduce costs and risks, tended to, “behave increasingly like the financial sector, purchasing more financial assets and raising dividends and executive compensation rather than investing in the real economy” (Milberg and Winkler 2010, p. 290). Also working at the microeconomic level and having the US economy as the focus, Auvray and Rabinovich (2019) find that [t]he negative correlation between payouts and investment in capital expenditures underlined by the literature is valid mainly for firms belonging to industries with high offshoring in non-core non-energy activities. Moreover, investment of firms in low-offshoring sectors is not significantly correlated to their financial payouts. (p. 3)39

In his turn, Orhangazi (2018) suggests that “the increased use of intangible assets by NFCs should be considered as another layer in explaining the investment-profit puzzle, in conjunction with financialisation and globalisation hypotheses” (p. 27).40 From a Marxist perspective Durand and Gueuder (2016) analyze “three narratives” on financialization, which help explain the supposed divergence between investments and profits characteristic of contemporary capitalism: first the “financial accumulation turn narrative,41 according to which the deterioration of productive investment conditions would have led to the surge of financial accumulation. This thesis has also been developed in the field of heterodox economics, particularly in the post- Keynesian perspective (e.g. Crotty 1993; Stockhammer 2004). However, even in the field of heterodoxy, authors such as Krippner (2005) did not find the roots of financialization in the dynamics of accumulation, but rather in institutional and conjunctural changes that would have opened new fields for the development of finance. This perspective is in line with the microeconomic analysis that underpins financialization in changes in the corporate management standard—crudely and capriciously called

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“corporate governance”—that has short-term increases in stock prices and the search for financial gains as its goal, to the detriment of medium and long-term strategies focused on real accumulation. These analyses form a second narrative analyzed by Durand and Gueuder (2016), that of the, “revenge of the rentiers”, which shows a constraint of profits due to financial payments. Finally, the authors analyze a third hypothesis, that of “globalization”, according to which non-financial corporations would receive large financial gains from investments abroad, to the detriment of domestic ones, which are concealed in the relative statistics, for example, interest and dividends. Having submitted the three “narratives” to econometric analysis, Durand and Gueuder (2016) only find consistent results that corroborate the “globalization” narrative.42 For this reason, in another paper, Durand (2017) concludes that “the financialisation of non-financial businesses seems to be an optical illusion” (p. 271). Roberts (2019), in commenting on a study produced by Goldman Sachs, finds that [t]he only place where corporate earnings have expanded is in the US. And this, according to Goldman’s is entirely down to those super-tech companies. Global profits, ex-technology, are only moderately higher than they were prior to the financial crisis, while technology profits have moved sharply upwards [...] Only the huge tech companies in the US have bucked this trend, helped by a recent profits bonanza from the Trump tax “reforms”.

It is of no interest to discuss the methodologies employed in these studies here, only to highlight the meaning of these investigations, which, each in its own way, seeks to overcome a single reading of financialization. To advance in the analysis, one of the most important analyses of the financialization from a Marxist perspective, that of Costas Lapavitsas, developed by him, as in Lapavitsas (2013a), and with collaborators, should be critically considered. Lapavitsas and Mendieta-Muñoz (2016) propose, for example, that “financialisation is a historical outcome of the persistent malfunctioning of real accumulation during the last four decades” (Lapavitsas and Mendieta-Muñoz 2016, p. 1). At the same time, they consider that “the most striking aspect of financialisation, and the feature that truly defines it as a historical phenomenon, is the tremendous growth of financial profit” (Lapavitsas and Mendieta-Muñoz 2016, p. 2) and, despite recognizing the so-called financialization of nonfinancial corporations and the domestic economy of households, consider the

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phenomenon empirically, defining “financial profit” as “profit earned by financial institutions alone”. In relation to the first observation, it argument was that the dynamics of accumulation are inherently contradictory; in this sense, it is not a mechanism that works well or badly, especially if we analyze the movements of capital in its totality, observing the phases and the different forms of capital, both in production and in circulation. Moreover, whether in times of expansion or crisis, accumulation of capital always means the accumulation of barbarism. However, any attempt at empirical description proves fragile when not conceptually grounded. As has been seen, depending on the function they perform, financial institutions participate in the appropriation of surplus value in its various forms, and each requires a specific approach. Moreover, this definition proposed by the authors restricts the analysis of the phenomenon of financialization, which is at the very core of accumulation. To understand the limits of Lapavitsas’ approach, it is appropriate, according to Prado (2018), to critically appraise the methodological foundations of his analysis which, although sophisticated, is marked by an adherence to methodological individualism and historicism. This is because, in Lapavitsas’ words (2013b), “financialisation does not readily lend itself to abstract theorisation because it represents epochal change resting on financial phenomena that are inherently institution-specific” (p. 799), and that “its roots must therefore be sought within the fundamental relations of non-financial enterprises, financial enterprises and workers” (Lapavitsas 2013b, p. 798). Furthermore, despite wanting to present a comprehensive and integrated analysis of the phenomenon, it ends up promoting a split between the productive and financial dimensions of accumulation.43 As Prado (2018, p. 6) argues, there is an essential element missing from Lapavitsas’ approach: a critique of capital as an automatic subject. For this reason, he dismisses the analysis of several fundamental trends of capital accumulation. Nonetheless, Lapavitsas and his collaborators have drawn attention to an issue: “financialisation presents the peculiar and interesting problem: financial profit rose strongly as a proportion of total profit at precisely the time when average profitability was broadly flat” (Lapavitsas and Mendieta-Muñoz 2016, p. 7). To resolve it, according to the authors, it would have to be considered that “financial profits were boosted by financial expropriation, which has directly transferred the income and wealth of transacting counterparties to financial institutions” (Lapavitsas and

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Mendieta-Muñoz 2016, p. 7). This financial expropriation, which is a, “transfer of value to financial institutions from various money incomes or money stocks”, occurs when loans or financial transactions are made to non-capitalists or even when the industrial or commercial capitalist fails to appropriate the amount of surplus value from the investment for which the financial transaction was carried out.44 In the case of workers who are the victims of financial expropriation, either to guarantee their access to the means of production or to finance their consumption, there is a type of, “secondary exploitation” (Marx 1991, p. 754), where, “profits upon alienation correspond to direct deduction from personal household incomes” (Durand 2017, p. 158), which is also highlighted by Chesnais (2016, p. 76–7). According to Durand’s (2017) estimates, “households pay a very significant amount of their income to financial institutions because they are in debt: 5 to 8 per cent of their disposable income, depending on the country concerned” (p. 161). As Norfield (2014) points out, it remains to be seen whether this secondary exploitation causes the labor force to be paid below its value, or whether credit, upon which an important proportion of workers increasingly depends, has become part of its value. In the first case, there would be a spoliation, and the banking and financial institutions would be advancing on the basic reproduction of the workers; as time goes on, however, the value of the labor force would thus tend to settle down to a new, lower level, and that spoliation would cease.45 In the second case, such institutions would be advancing, ultimately, on surplus value, or on capitalists’ incomes. Both seem to occur, the conversion of credit to part of the regular costs of reproduction of workers and the establishment of waves of spoliation that have, as one of their vehicles, the direct placing of workers into the whirlwind of interest-bearing capital and fictitious capital. Finally, several linked processes, which contradict and feed-back but which can be briefly linked, for “didactic” purposes, are presented as follows: on the one hand, in a context of a high organic composition of capital, the validity of low rates of profit competes for the low rates of accumulation and these in turn explain, in part, the cooling of labor productivity rates. On the other, increasingly overaccumulated capital, controlled by ever more concentrated and transnational conglomerates, tends to focus on the search for interest, dividends, absolute rent, differential, and monopoly, as well as for fictitious profits. Thus, performance within the credit system and financial markets acquires prominence within the strategy of large conglomerates, as well as R&D activities, monitoring,

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capture, and marketing of individuals’ information (as well as the conditioning of their behaviors), marketing, branding, and so on. These rentier and oligopolistic powers allow these conglomerates to appropriate the wealth of myriads of less competitive companies and consumers on a world scale. These strategies go hand in hand with rising rates of exploitation, wage repression, intensification of work, the regression of social policies, militarism, privatization of public services such as health, security, education, among others, and the intensification of environmental degradation. The thirst for surplus value, in a context of limp accumulation and with a working class in tatters, manifests its crudeness even more acutely in the case of non-conglomerate companies with a lower organic composition, especially in peripheral countries, where domestic enterprises are subordinate and financially and technologically dependent.46

Final Considerations Contemporary capitalism is characterized by a strong concentration of overaccumulated capital in the form of money, and, as Marx asserts, “an accumulation of money means more than an accumulation of these claims to production, and an accumulation of the market price of these claims, of their illusory capital value” (Marx 1991, p. 599). The prominence of fictitious forms of capital is a necessary product of accumulation and may favor it in certain circumstances and to a certain extent, but it is also a flight forward in the face of falling rates of profit and may cause capital to be directed into financial markets to the detriment of productive activities.47 Marx (1991) says: If this new accumulation comes up against difficulties of application, against a lack of spheres of investment, i.e. if branches of production are saturated and loan capital is over-supplied, this plethora of loanable money capital proves nothing more than the barriers of capitalist production. (p. 639)

From a different viewpoint this explosion of the fictitious forms of capital interferes with the very logic of working functioning capital. So, there is a nugget of truth in Marx’s (1991) assertion, according to which [t]he credit system, which has its focal point in the allegedly national banks and the big money-lenders and usurers that surround them, is one enormous centralisation and gives' this class of parasites a fabulous power not

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only to decimate the industrial capitalists periodically but also to interfere in actual production in the most dangerous manner—and this crew know nothing of production and have nothing at all to do with it. (pp. 678–9)

The error would be to hypostasize from this a supposed cleavage between “good”, productive, and other “evil” capital, disconnected from supposed “social needs”. This reformist reverie so often denounced and criticized by Marx, particularly in his quarrels against Proudhonism (e.g. Marx 1993, Ch. 1), tends to obscure the fact that capital, grounded, as it is, in the extraction of surplus work, is extremely parasitic. What is important is to understand the specific forms of manifestation of this parasitism, which rules out propositions such as the Proudhonist bonuses or the control of finances through their nationalization, as Lapavitsas would have it (2013a, Ch. 10), or, the surprising “transformation of finance into a potentially progressive force” (Guttman 2016). In this sense, any criticism that ignores the movement of accumulation as a whole and takes account of the sphere of circulation and distribution, blaming what they call “financial capital”, ends up uncritically accepting the mystique of interest-bearing capital and fictitious capital, which appear to accumulate autonomously, usurping and sucking dry the laboring classes.48 Once again in the words of Marx (1971): It is thus clear why superficial criticism—in exactly the same way as it wants to maintain commodities and combats money— now turns its wisdom and reforming zeal against interest-bearing capital without touching upon real capitalist production, but merely attacking one of its consequences. (p. 456)49

Braga et al. (2017) are partly correct in arguing that “in contemporary capitalism, from the point of view of large corporations, there is no reason for the split between productive and non-productive ones”, since, “financialisation—as a systemic pattern of wealth—means the consolidation of different forms of capital under financial dominance” (p. 837). However, they are mistaken when they disregard the nature of this wealth, which is based on the extraction of surplus value.50 Again, following the critique of Prado (2014), in dealing with financial domination as a central characteristic of contemporary capitalism, Braga suppresses the centrality of the formation of value—and thus of fetishism and exploitation. In his words, quoted by Prado (2014, p. 31), “I understand the process of capital as

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accumulation of value, in which labour ceases to be the great source of wealth and working time ceases to be its measure” (Braga 1997, p. 88), and with it tendencies such as the tendency of the rate of profit to fall would cease to operate (Braga 1997, p. 89). These analyses and conclusions are, therefore, contrary to those presented in this text, as the argued autonomization and subjectification of capital correspond to the process of the mystification of its own essence, which can only be thus understood through dialectical criticism; after all, in the appearance of capitalist social formations, “all connection with the actual process of capital’s accumulation is lost, right down to the last trace, confirming the notion that capital is automatically valued by its own powers” (Marx 1991, p. 597).51 We have tried, here, to outline some categories that we believe important in answering the questions posed at the beginning of the chapter, categories that require a broad reading of the three books of Capital. In our view, the understanding of the theory of labor-value, the various forms that capital assumes including in its most glorified manifestation as fictitious capital, is laid bare in fictitious profits, a category that supports us in understanding some of the transformations of contemporary capitalism.

Notes 1. Available at https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG 2. Cf. https://data.worldbank.org/indicator/NE.GDI.FTOT.KD.ZG 3. There will be no discussion here of a third dimension of capital subsumption, which, in its totalitarian impetus, is to advance the various dimensions of social life. In this, cultural industry can be considered as the cultural form of capital (Adorno and Horkheimer 2002), and the modern state as its political form (Pashukanis 2003). 4. For the theme of this item, cf. Chap. 5 of this book. 5. “Capital in general, as distinct from individual capitals, does indeed appear (1) only as an abstraction; not an arbitrary abstraction but one which grasps the specific differences which distinguish capital from all other forms of wealth or modes in which (social) production develops. These are determinations which are common to every capital as such, or which make any specific sum of values into capital [...]. But (2) capital in general is itself a real existence distinct from individual real capitals [...]. While on the one hand the general is therefore only a set of specific differences in thought, it is at the same time a particular real form alongside the form of the particular and individual” (Marx 1993, p. 449). Furthermore, “we can see that

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each individual capitalist, just like the totality of all capitalists in each particular sphere of production, participates in the exploitation of the entire working class by capital as a whole, and in the level of this exploitation” (Marx 1991, p. 298). 6. On the importance of the circulation of total social capital to the understanding of the process of autonomization of the functional forms of capital and for the analysis of financialization, cf. Chap. 5 of this book. 7. As explained in Chap. 5, despite this autonomization, at a concrete level, individual capitals represent the most distinct functions related to the production and circulation of capital, especially in a context of the intense centralization of capital and the intensification of competition for the appropriation of abstract wealth in the form of interest, dividends and rent, as will be seen below. 8. “Did not the introduction of our present banks, in its day, revolutionise the conditions of production? Would large-scale modern industry have become possible without this new financial institution, without the concentration of credit which it created, without the state revenues which it created in antithesis to ground rent, without finance in antithesis to landed property, without the moneyed interest in antithesis to the landed interest; without these things could there have been stock companies etc., and the thousand forms of circulating paper which are as much the preconditions as the product of modern commerce and modern industry?” (Marx 1993, p. 122). 9. “The form of interest-bearing capital makes any definite and regular monetary revenue appear as the interest on a capital, whether it actually derives from a capital or not. Money income is first transformed into interest, and with the interest we then have the capital from which it derives” (Marx 1991, p. 595). Or even, “any regular periodic income can be capitalised by, reckoning it up, on the basis of the average rate of interest, as the sum that a capital lent out at this interest rate would yield” (Marx 1991, p. 597). 10. In our view, Sotiropoulos and Lapatsioras (2014, p. 91) are mistaken in considering that, “interest-bearing capital is fictitious capital”. 11. Cf. Chap. 8 of this book. 12. Another of these impulses was the gradual monopolization of the task of providing credit to government by large banking institutions, fuelling public debt, a powerful lever for capital accumulation, under which the modern credit system was built (Marx 1990, Ch. 24). 13. Cf. Prado (2016) and Chap. 4 of this book. 14. For a detailed analysis of the recent evolution of derivatives and the different forms of fictitious capital, cf. Chap. 8 of this book. By way of illustration, it should be noted that the sum of banking assets and other financial institutions reached approximately US$ 84.8 trillion in 2017, according to BIS estimates, and that in the same year the global stock market exceeded

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US$ 79.2 trillion, with world GDP of US$ 80.7 trillion, according to World Bank estimates (cf. https://data.worldbank.org/indicator/NY. GDP.MKTP.CD) 15. Incidentally, secondary markets give rise to vigorous arbitrage and leverage operations, since the initial margins required for such transactions are rather low. Thus, such markets have an extreme speculative character. The competition there is so fierce that it is heavily invested in fiber optic networks and in the automation of operations, since the window of time to arbitrate with the prices of financial assets tends to reduce each time smaller fractions of a second (Paraná 2019). 16. “In other words, capitalisation is not possible unless there is some specification of risk, that is to say, unless specific events are objectified, accessed, and estimated as risks” (Sotiropoulos and Lapatsioras 2014, p. 93). 17. In a sense Braga et al. (2017) have a point when they see a contemporary process of financialization, understood as, “a systemic pattern of wealth that has a distinctive feature relative to previous stages of capitalism: the increasing share of financial assets in contemporary wealth. To be more specific: financialization, as a systemic pattern of wealth, establishes new ways of defining, managing and realising the wealth, which affects the spending decisions of the main economic actors, impacts economic policies and thus the ups and downs of business cycles, as well as leading to crises” (Braga et al. 2017, p. 830). Further on there some divergences in relation to this approach will be explained. 18. As Marx exemplifies in the first chapter of Capital (1990, p. 202), if, for instance, one branch of production receives many investments, even if under adequate technical and organizational conditions, so that total output exceeds demand, there is a waste of resources, and it is as if more work had been mobilized than socially necessary. 19. “This much is clear, then, which already follows from the difference introduced by fixed capital into the industrial cycle, namely that it engages the production of subsequent years, and just as it contributes to the creation of a large revenue, it anticipates future labour as a counter-value. The anticipation of future fruits of labour is therefore in no way a consequence of state debt, etc., in short, not an invention of the credit system. It has its roots in the specific mode of realisation, mode of turnover, mode of reproduction of fixed capital” (Marx 1992, p. 731–2). 20. This does not mean, as has already been pointed out, that fictitious forms of capital are absolutely autonomous in relation to the effective value accumulation process, but this point will be duly considered in the next item of the text. 21. “The counterpart to the growth of fictitious capital relative to wealth produced is financial profits’ increasing share of overall profits. But these

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financial profits are not themselves fictitious. Paid in hard cash, they have all the attributes of monetary power, firstly in terms of what is usually called purchasing power – the immediate drawing rights on wealth produced” (Durand 2017, p. 155). 22. “Financial profits give life to value but do not result from value production. We should thus conceive of them as transfers of income away from those activities that do produce value – that is, the revenues that come from labour and/or profits drawn from the production of goods and services” (Durand 2017, p. 156). 23. In this text, fictitious capital is discussed as forms of founder’s profits, differential and fictitious, and presents the similarities and differences between the last two. 24. Comprehensive empirical studies by authors such as Maito (2016), Roberts (2016), Jones (2014), and those of Kliman (2012) and Choonara (2018), specifically on the American economy, to name but a few, state that since the end of the 1960s there has been a significant tendency to increase capital appreciation (or exploitation) rates, to increase the organic composition of capital, to accelerate capital turnover and to lower average rates of profit, the sting in the tail of capitalist production. We will return to this. 25. That occurs by “outsourcing” business activities, in which a given company starts to contract other independent companies for the supply of goods and the provision of services, and for the establishment of productive units of the company itself in other countries. 26. That process thus contributes to the spread of piece-work wages (Marx 1990, Ch. 21) and the elimination of formal and stable labour ties. This is particularly true in the case of “uberization”, the profusion of applications that leave workers available virtually full-time for bosses and customers, while serving as efficient mechanisms for controlling the work done. 27. The so-called immaterial theorists, like André Gorz and Antônio Negri, besides confusing the category of service with that of immaterial labor, improperly amplifying the scope of the latter, falling back on the fetishistic illusion of confusing the nature of social relations with its material substrates (Prado 2005). It is the “fetishistic notion, peculiar to the capitalist mode of production and its derivation from its essence, that the formal economic determinations, such as that of being a commodity, or being productive labour, etc., are qualities belonging to the material repositories of these formal determinations or categories in and for themselves” (Marx 1993, p. 450). These misconceptions allow such authors to propose that capitalism would have surpassed abstract labour as the substance of value, precisely the opposite of what happens with the even greater universalization of the real subsumption of labour to capital. The indistinction between production and appropriation of surplus value, between value and exchange

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value, and the absence of an analysis of the Marxian ground rent categories, among others, charge a high price in these “theories”. 28. Durand (2017) notes that, “the spectacular boom in credit to the non- financial private sector has been a general phenomenon since the 1970’s. If at that time it amounted to 72 per cent of the average GDP, this figure had risen to 174 per cent by 2007” (p. 115). 29. To cite just a few: the New York Stock Exchange crisis in 1987, the pound crisis in 1992, the Mexican peso crisis in 1995, the Asian Tigers crisis in 1997, the Rubel crisis in 1998, the Real crisis in 1999, the Argentine peso crisis in 2001, the dot.com crisis in 2001, the 2007–8 subprime crisis, as well as the European sovereign debt crisis that followed. Despite speculative attacks and bubble bursting, such crises have had devastating economic and social impacts, which again points to the imbrication between the fictitious and real dimensions of accumulation. 30. “This fictitious money capital is enormously reduced during crises, and with it the power of its owners to use it to borrow money in the market. The reduction in the money value of these securities on the stock exchange has, however, nothing to do with the real capital that they represent. As against this, it has a lot to do with the solvency of their owners” (Marx 1991, p. 625). 31. In his words, “Finally, by the prevalence of a monopoly price in many cases, and particularly the most shameless exploitation of poverty (for poverty is a more fruitful source for house-rent than the mines of Potosi were for Spain), the tremendous power this gives landed property when it is combined together with industrial capital in the same hands enables capital practically to exclude workers engaged in a struggle over wages from the very earth itself as their habitat” (Marx 1991, p. 908). 32. Here too, cf. Chap. 8 of this book. 33. Without neglecting the long history of the process of business conglomeration, Chesnais (2016) analyzes in detail this contemporary process of concentration and centralization of capital, forming what he calls financial capital, bringing together the giants of industry, retail and wholesale, and of finance. According to Durand (2017), “we can observe that, on the eve of the current crisis, just 147 companies concentrated some 40% of the value of all multinationals, and even these were themselves dominated by a core of eighteen financial entities” (p. 170). 34. In addition to the extraordinary magnitude reached by these conglomerates, attention must be paid to the fact that they are linked through complex financing and investment strategies, including cross-ownership. Incidentally, sometimes the purchase of shares does not matter as an investment per se, but rather assures the buyer of information about specific markets and the strategies of their current and potential competitors.

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35. “By maintaining a tight monetary policy and forcing an overvaluation of the dollar, the Fed has in practice retaken control of its own banks and the rest of the international private banking system and linked the interests of the herd to its advantage. Interest rate and exchange rate fluctuations were again tied to the dollar, and through them the international liquidity movement was put at the service of American fiscal policy” (Tavares 1997, p. 34). In addition, “The ‘macroeconomic equilibrium’ of the world economy, given the generalised ‘dollarisation’ of the credit system, obliges most countries to practice restrictive monetary and fiscal policies and to obtain increasing trade surpluses to compensate for the global deficit situation of the hegemonic power” (Tavares 1997, p. 36). 36. “The policy-decisions of the US and UK governments to liberalise financial markets were based upon them seeing the financial sector as a key area of the global economy in which they had a competitive advantage. This advantage is based upon the British and US imperialist role in the world- economy, and it was an important option for them, especially given how difficult it was to try and regain industrial competitiveness” (Norfield 2012, p. 112). 37. For a bibliographic review of these studies, cf. Auvray e Rabinovich (2019). 38. In a recent report by The Economist on the process of the concentration and centralization of capital in various branches of production, one concludes that, “the American economy has become a capitalist dystopia, a system of extraction by ingrained giants. The increasing protectionism and increased digitisation are likely to make things worse. The stakes are high” (The Economist 2018). Contrary to what the report implies, as we have seen, it is not about aberrations or deviations, but about necessary expressions of the dynamic contradiction of capital accumulation. The expanded reproduction of capital engenders barbarism, violence, and destruction on a magnified and intensified scale; it is its own sickness. 39. “Our results confirm the nexus as the financial payouts variables were significant for firms belonging to industries with the highest level of offshoring only. For corporations that distribute financial payouts at the expense of their capital accumulation, the real source of the cash distributed to shareholders should be found in GVCs” (Auvray and Rabinovich 2019, p. 33). 40. Some of his discoveries around the north-American economy are synthesized by him as follows: “(i) The ratio of intangible assets to the capital stock increased in general. This increase is highest for firms in high-technology, healthcare, nondurables and telecommunications, (ii) Industries with higher intangible asset ratios have lower investment to profit ratios, (iii) Industries with higher intangible asset ratios have higher mark-ups and profitability. [...] Yet, intangible-intensive industries’ profitability has

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increased faster than their share of investment or total assets. All in all, these findings are in line with the suggestion that the increased use of intangible assets enables firms to have high profitability without a corresponding increase in investment” (Orhangazi 2018, p. 1). 41. This has its origins in the Monthly Review school, that includes the great reference the work of Paul Sweezy and the durable Braudelian world-system perspective, emphasizing Giovanni Arrighi (to which one could add other, fairly heterogeneous, currents of Marxism from theoretical figures as different as François Chesnais, Robert Brenner, Robert Kurz, among others). 42. “It suggests that non-financial corporations of rich economies have been able to capture gains from the dynamism of developing economies and, at the same time, that investment opportunities in the developing world have discouraged domestic investment. The econometric results are consistent with this thesis” (Durand and Gueuder 2016, p. 24). 43. “The interaction between finance and the rest of the economy is mediated by a complex set of institutional structures that often reflect historical, political, customary and even cultural factors” (Lapavitsas 2013a, b, p. 799). 44. The authors point out, that to understand the growth of financial profits it is necessary to consider the role of the state, particularly with regard to the deregulation of financial markets the provision of abundant “liquidity” in financial markets and the maintenance of low interest rates, especially in the context of economic crises, which is, to a large extent, made possible by, “monopoly command over the final means of payment, which is no longer convertible by law into anything of produced value” (p. 8). It is not possible to discuss this important phenomenon here, which is an expression of the process of the autonomization of capital, but it is considered in Chap. 5, and especially in Chap. 8 of this book. 45. This form of spoliation could compete to raise the average rate of profit by reducing the magnitude of variable capital and channeling that mass of value thus released to the process of accumulation (CARCHEDI 2011). 46. If the channeling of capital to the financial markets occurs, to the detriment of their productive use, a counter to the fall in the rate of profits would emerge because this channeling, “prevents an increase in the organic composition of capital, and hence, a decrease in the rate of profit for a limited time. Put plainly, financialisation postpones the tendency for the rate of profit to fall” (Duman 2014, p. 244). 47. Resulting from the tendency to a fall in the rate of profit, Marx says, “the mass of small fragmented capitals are thereby forced onto adventurous paths: speculation, credit swindles, share swindles, crises” (Marx 1991, p. 359).

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48. According to Lapatsioras et al. (2010), a “basic weakness” of this type of critique is that, “it is at the same time the link that holds them together – is that they represent the neoliberal formula for securing profitability of capital not as a question of producing surplus value but as a question of income redistribution pertaining essentially to the sphere of circulation. It thus appears that the developmental “ineptitude” and the instability of present-day capitalism are the result of a certain ‘insatiability’, or at any rate of bad regulation, in the relations governing income. Are we in the final analysis all Keynesians?” (Lapatsioras et al. 2010, p. 3). In a similar vein, Norfield (2012), propounds that, “simply to oppose finance, banks or derivatives is to miss the point that this is a single, integrated system of exploitation” (p. 129). 49. As Roberts (2018) sardonically recalls, if they do not want to listen to Marx, the reformist critics of financialization should at least listen to Joan Robinson, when she said that, “any government which had both the power and will to remedy the major defects of the capitalist system would have the will and power to abolish it altogether”. 50. It should be remembered that José Carlos Braga employs the notion of financial dominance in a pioneering way; in 1985, he had already said that, “Accumulation and competition operate under the dominance of the financial logic [...]. [No] it is more a question of capitalists using financial intermediation for a production process that is the means of accumulation [and seek to] simultaneously value themselves through the process of income (linked directly to production) and the capitalisation process” (Braga 1985, pp. 374–5). More recently, he argues that, “in contemporary capitalism, according to our hypothesis, financialisation is the systemic pattern of wealth” (Braga 1997, p. 195). 51. Paulani (2016), whose effort to mobilize Marxian rent analyses to understand contemporaneity, rightly concludes, concludes that, “the importance of rescuing Marx’s rent theory lies in showing that the foundation of several of the phenomena that have characterised the current stage of capitalism, and which we have tried to articulate in the summary of the regime of accumulation we have just presented, are in the same place where they have always been: the old and well-known unpaid labour, however much knowledge has actually grown in the productive process, no matter how brands and patents come to pontificate against conventional assets, even though finance seems to dispense with effective production” (p. 24).

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Paulani, L. M. (2016). Acumulação e rentismo: resgatando a teoria da renda de Marx para pensar o capitalismo contemporâneo. Revista de Economia Política, 36(3), 514–535. Prado, E. F. S. (2005). Desmedida do Valor: Crítica da Pós-Grande Indústria. São Paulo: Xamã. Prado, E. F. S. (2014). Exame Crítico da Teoria da Financeirização. Critica Marxista, 39, 13–34. Prado, E. F. S. (2016). From gold money to fictitious money. Brazilian Journal of Political Economy, 36(1), 14–28. Prado, E. F. S. (2018). Era da finança, mas não do sujeito automático. https:// eleuterioprado.blog/2018/09/14/era-da-financa-ma-nao-do-sujeito-automatico/. Accessed 16 Jan 2019. Roberts, M. (2016). The long depression: Marxism and the global crisis of capitalism. Chicago: Haymarket Books. Roberts, M. (2018). Financialisation or profitability? https://thenextrecession.wordpress.com/2018/11/27/financialisation-or-profitability/. Accessed 18 Jan 2019. Roberts, M. (2019). It’s all down to the FAANGS 2019. https://thenextrecession.wordpress.com/2019/02/18/its-all-down-to-the-faangs/. Accessed 25 Feb 2019. Sabadini, M. de S. (2015). O capital fictício e suas formas: lucros de fundador, diferencial e fictício. In H. Gomes (Ed.), Especulação e lucros fictícios: formas parasitárias da acumulação contemporânea (pp. 161–204). São Paulo, Outras Expressões. Smith, M. E. G., et al. (2014). Marxist phoenix: Studies in historical materialism and Marxist socialism. Toronto: Canadian Scholars’ Press Inc. Sotiropoulos, D., & Lapatsioras, S. (2014). Financialization and Marx: Some reflections on Bryan’s, Martin’s and Rafferty’s argumentation. Review of Radical Political Economics, 46(1), 87–101. Sotiropoulos, D. P., et al. (2013). A political economy of contemporary capitalism and its crisis: Demystifying finance. Londres: Routledge. Stockhammer, E. (2004). Financialisation and the slowdown of accumulation. Cambridge Journal of Economics, 28(5), 719–741. Tavares, M. C. (1997). A retomada da hegemonia norte-americana. In M. C. Tavares & J. L. Fiori (Eds.), Poder e dinheiro: uma economia política da globalização. Petrópolis: Vozes. The Economist. (2018). Across the West powerful firms are becoming even more powerful. https://www.economist.com/special-report/2018/11/15/ across-the-west-power ful-firms-are-becoming-even-more-power ful. Accessed 16 Nov 2018.

CHAPTER 8

The Nature and the Contradictions of the Capitalist Crisis Paulo Nakatani and Helder Gomes

Introduction The world economy continues under the effects of yet another great depression. A moment that reaffirms the need to resolve the internal contradictions of the movement of capital, in a much deeper way than that of the periodic adjustments required to resolve traditional short-term cyclical crises. The contradictions that are made explicit today result from the extrapolation of the most elementary nature of capitalist accumulation, the incessant quest for production and differentiated appropriation of sur-

This chapter was originally published in Portuguese with Políticas Públicas, in 2014, and was translated into English by Kenton James Keys. P. Nakatani (*) Department of Economics and Post-Graduate Programme in Social Policy, Federal University of Espírito Santo (UFES), Vitória, Espírito Santo, Brazil H. Gomes Post-Graduate Programme in Social Policy, Federal University of Espírito Santo (UFES), Vitória, Espírito Santo, Brazil © The Author(s) 2019 G. M. de C. Mello, M. de S. Sabadini (eds.), Financial Speculation and Fictitious Profits, Marx, Engels, and Marxisms, https://doi.org/10.1007/978-3-030-23360-0_8

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plus real wealth. They are based on the production and appropriation, on an unprecedented scale, of fictitious wealth of various kinds and in the dominance of the logic of speculative and parasitic capital over other functional forms of capital. It is a moment in which value, fictitiously expressed in the most sophisticated forms of speculation, betting on positions in the future, contradicts the entirety of the current social relations of production. For this reason, this crisis, because of its magnitude, depth and duration, can be considered as a structural crisis, whose alternatives, if put into practice, indicate a way out that may be increasingly painful for the working class worldwide. Some authors have stated that the current crisis of capitalism is not only an economic crisis, but a multiplicity of crises “because it is financial, economic, food, energy and environmental. It is a systemic crisis of capitalism… that questions the social order of contemporary civilization” (Gambina 2012, p. 34).1 Even before the collapse of Lehman Brothers in 2008, Samir Amin had already argued that the capitalist world had entered a stage of senility. “So, this aging implies the installation of permanent chaos in the system which will lead it to – at best – overcoming it by opening a long period of transition to socialism, or – at worst – to catastrophe and suicide of humanity” (Amin 2002, p. 101). So far, as a result of the deepening of the crisis after 2002, the world system has been driven far more to the second option than to the first, whether in “cold” or ongoing wars in Afghanistan and Iraq, in situations of serious conflict (particularly in Libya and Egypt) and in the Middle East (Syria, Lebanon, etc.). In addition, the current crisis with its multiple dimensions is also calling into question the dominant orthodox economic theory,2 whose proposals are producing an increasing deepening of its ills in some countries, especially in Portugal, Ireland, Italy, Greece and Spain.3 The measures imposed by the Troika (The European Commission, European Central Bank [ECB] and International Monetary Fund) on these countries, rather than leading to the solution of their problems, have increasingly deepening the crisis, with negative GDP growth rates, mass unemployment, public deficits and almost incomprehensible levels of sovereign debt. This questioning of the method does not mean, however, the end of neoliberalism and its dominant ideology in the system today, because, despite the deep crisis, it is capitalists and their organic intellectuals who continue to run international and state institutions and who put forward the political forms of public intervention. In this chapter, we study the development of fictitious capital (Marques and Nakatani 2009, 2013) and its implications within the international credit system. We intend to show that the dominance of speculative and

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parasitic capital, widely spread across the various forms of fictitious capital, has managed to practically resolve the crisis for this form of capital through the intervention of the State. State intervention in the so-called financial crisis, which exploded the American credit system and caused enormous damage all over the world, has recovered and even increased all inventories of fictitious wealth to pre-2007 levels. It should be emphasized that the recovery of fictitious capital stock has put in place the potential of a new crisis that could be even more serious and profound.

Overaccumulation of Capital, Fictitious Capital, and Parasitic Speculative Capital Background In the 1970s, following the unilateral breaking of the Bretton Woods agreement by the United States, the international credit system entered an era of increasing instability and volatility. This was followed, in the early 1980s, by a debt crisis in those countries whose foreign debt policy was subject to the rules of the international credit system, a system rich with dollars4 chasing opportunities. The economic policy of the Reagan administration, which was applied by the banks of developed countries, produced a huge mass of monetary capital from foreign debt interest payments, further increasing the mass of available currency. A considerable portion of this gigantic volume of dollars became real capital, producing remarkable expansion of the American economy and the Asian tigers and dragons. In other developing countries, the opposite occurred: a decade of economic stagnation, a large-scale reduction of the wealth produced and a worsening distribution of income and wealth. Another portion of the surplus dollars came together in the form of new loans, Central Bank reserves of all countries and in speculative applications of all kinds. This process was greatly facilitated by the deregulation of markets and by the rapid development of media and computer networks, which allowed the interconnection of markets around the world. In the second half of the 1980s, a new expression began to spread throughout the world: globalization. According to the ideologues of the system, this word intended to express the new world reality: the end of history with the final victory of capitalism and the end of national states with the removal of national borders. As an economic policy, globalization pro-

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posed and brought about the opening and deregulation of markets in goods, services, credit and speculation, the privatization of state-owned enterprises, the deepening of the internationalization of the economy by increasing the advantages for foreign capital and market-led economic regulation. Strictly speaking, this regulation is carried out by the large monopolistic, commercial, industrial and financial corporations that command the entire world system. However, the free mobility of the workforce has always been impeded by various means. Barriers of various kinds, both physical and bureaucratic, have been built to prevent workers from poor countries from gaining access to labor markets in developed countries. In recent years, localized wars in Africa and the Middle East, religious persecution and poverty, among other factors, have produced mass migration and refugees have flooded into Western Europe, peaking in 2015 and causing a serious crisis. In 2018, large numbers of migrants from Central America, mainly traveling from Honduras to the United States, were camped in Tijuana on the Mexican border. The dispute between President Donald Trump and the House of Representatives for resources to expand the wall on the border with Mexico virtually paralyzed the government for about a month. One of the reasons can be attributed to the enormous concentration of wealth and income among an extremely restricted group of international multibillionaires.5 International trade fundamentally depends on a sophisticated financing system and developing countries, at a time when they had to produce huge trade surpluses to pay interest on foreign debt, found wholehearted support from the international credit system to finance their exports. This meant that these countries started exporting and receiving dollars, but most of these dollars, accumulated in trade balances, were then returned, in the form of interest and debt charges,6 without any foreign exchange. In this way, the wealth produced domestically by these indebted nations began to be transferred, in value form and value of use form, to the center of the system.7 There remained an internal income in pursuit of usage values that no longer existed internally, and this accelerated inflation growth to hyperinflation. The consequence for the international credit system was the acceleration of international capital movements in the form of money, or money capital, in a continuous search for appreciation. The integration of stock exchanges with foreign exchange markets along with the flow of bets on the exchange rates of currencies and future interest rates allowed even economists to defend the idea of globalization. The volume of interna-

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tional credit and stock transactions reached very high levels. At the same time, the international currency and derivatives8 market had grown explosively since the first half of the 1990s.9 This trend continued throughout the decade and carried on into the first decade of the twenty-first century, even allowing for the normal cycles of expansion and contraction of the system that had occurred over the years.10

Real Capital, Fictitious Capital and Parasitic Speculative Capital11 The accumulation of real capital is mainly expressed through the expansion of productive, commercial and non-productive services (banks, rents, etc.). Growth in developing and Asian countries since the 1980s was achieved through new productive investments and the growth of international trade. This demanded increasing amounts of money and monetary capital for their financing, which was generated within the very process of the increased reproduction of capital. In this process, there are idle amounts of money, accumulated value from the point of view of the industrial, commercial or other wealthy capitalist, which are channeled into the credit system and meet the reproductive needs of that capital.12 The very growth of intra-firm international trade dispenses with the need for capital in the form of money to the extent that credits within firms can be canceled among themselves. They are recorded in the balance of payments as the entry and exit of currency and include the payment of interest as their remuneration. The increase in capital across varied currencies (dollar, Pound, Yen, Euro) beyond the requirements of expanded reproduction, due to the overaccumulation of capital, has generated increasing amounts of this mode of available resources, making it unnecessary for the accumulation of productive capital. Thus, what appears as lack of money in the market, better known as insufficient liquidity, is its opposite, an excess of capital in the sphere of industrial capital, a crisis of overaccumulation. The acceleration of capital centralization since the 1980s has also reduced the need for new sources of finance and increased the amount of money available to the international credit system. The activities of investment fund managers, institutional investors, mutual funds, pension funds, insurance companies and holders of large fortunes have expanded. This new volume of available money has added to the Eurodollars and petrodollars accumulated in previous decades. This surfeit of sources of finance

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produced an unprecedented growth of capital in the form of money, detached from direct real accumulation, which sought to be valued in a specific form of the development of the logic of interest capital: fictitious capital.13 This form of capital demonstrates speculative behavior, as its fundamental characteristic, and has the objective of obtaining income without the production of material wealth and this characterizes it as parasitic. This excess mass of capital, then, circulated throughout the world in search of every and any form of appreciation. These funds were invested primarily in public securities, private securities and stock exchanges which are characteristic of the paper market that represents fictitious capital. But the growth of instability in world capitalism, due to the sharpness of its contradictions, generated within it a search for security (hedging) for capital in the form of money, so derivatives were created that gave security to the holders. These rapidly multiplied fictitious capital from an initial operation, either as a result of real productive accumulation or a fictitious paper accumulation.14 These are known as hedge or swap contracts. This search for security further sharpened instability in the international credit system and was reflected in the continuous variation of stock prices (stocks, debentures, derivatives, etc.) on commodities and futures exchanges, principally in interest and exchange derivatives. The Recovery of Fictitious Capital After the Crisis of 2007 15 As we have already highlighted, one form of fictitious capital is banking assets. We are also including here the assets of non-banking institutions compiled by the Bank for International Settlements (BIS). According to BIS data, total assets of banks and financial institutions in 30 countries,16 including the world’s largest economies but excluding mainland China, totaled US$37.4 trillion in 2007. In 2008, even with the impact of the crisis, this amount dropped to US$35.3 trillion, a reduction of only 5.8%. The continuing of the crisis and mainly its impacts on the Eurozone countries, led to further reductions in this total, which fell to US$33.6 trillion, a reduction of 10.1% compared to 2007, but still higher than the total for 2006, which was US$29.5 trillion.17 Virtually all this gigantic quantity of banking capital is, according to Marx, fictitious capital.18 Thus, the impact of the crisis on the devaluation of this form of capital was insignificant, both for banking capital and for the capital of non- banking financial institutions, both in their domestic and international

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applications. By comparison, world GDP at current prices, estimated by the World Bank,19 was US$51.45 trillion in 2006, at US$74.99 trillion in 2012, and reached US$80.74 trillion, in 2017. Between 2012 and 2013, BIS, since it depends on the reports of each country team, promoted methodological changes in the handling of the data of these banking and non-banking assets to allow for the difficulties of collecting and handling the data.20 Nevertheless, the data in Table 8.1 confirms that the positions of these assets continued to expand in the period after 2012. Total assets as of 2013 presented a huge balance, almost doubled compared to 2012, due to the inclusion of domestic assets. Total assets went from US$64.4 trillion in 2013 to US$84.8 trillion in 2017, domestic assets increased from US$42.9 trillion to US$58.1 trillion. By 2017, total assets exceeded total world GDP. The data presented illustrates the amount of fictitious capital in the form of bank capital. We do not want to detail here the complexities in compiling and aggregating this data but just to give a flavor, national bank data is counted in their national currencies and all must be converted to the US dollar. Banks in each country have their domestic and foreign assets recorded in their respective currencies or in dollars, according to contractual interests. They may also have domestic assets in foreign currency or Table 8.1 Total assets of banks and other financial institutions (US$ billions) Years

Total assets

Domestic claims

Foreign claims

International claims

Local positions in local currencies

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

– – – – – – – – 64,389 76,339 73,849 74,636 84,777

– – – – – – – – 42,867 49,832 48,636 50,321 58,079

18,947 24,023 30,030 26,550 27,010 26,787 27,062 27,767 28,103 27,412 25,785 25,885 28,516

11,947 15,367 19,012 16,361 16,353 16,168 15,762 16,386 16,704 16,309 15,376 15,467 16,884

6999 8657 11,018 10,189 10,657 10,620 11,300 11,381 11,378 11,084 10,393 10,405 11,619

Source: BIS. https://stats.bis.org/statx/srs/table/b1?m=S. (Our own production)

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foreign assets in local currency. For each asset of an institution, the liability of another national or foreign institution and in local or foreign currency must correspond. So, aggregation and consolidation of data does not always allow totals to be exactly the sum of the variables. Another form of fictitious capital, according to Marx, is made up of what today is called the market value or stock value of a company organized in the form of a corporation or public company. This market value is obtained by multiplying the number of shares issued by corporations by the stock price, which varies daily and throughout the day, as quoted on stock exchanges. As a company increases its profits and dividends the stock price increases. The quotation of the shares on the stock exchange is determined principally by the capitalization of dividends at the current rate of interest and then speculation in the stock market adds other determinants. Betting that dividends may be higher than expected, raises the price of shares and increasing their prices leads to bets that prices will be even higher in the future. Finally, the market price ceases to represent the value of the original capital, or the nominal price of the share, and, in the same way, no longer represents the present value of the equity, by fictitiously inflating the capital. This process is known as a financial bubble. The widespread practice since the 1990s of partially compensating corporate managers with stock options has also greatly inflated the market value of these corporations, which have used all possible forms of fraud, falsification and crime. The documentary “Enron, the Smartest Guys in the Room” by Alex Gibney, illustrates this process very well. The magnitude of this fictitious capital can be seen in Table 8.2, developed from data collected and aggregated by the World Bank. In the upswing of the cycle, the market value of companies rose from US$50.0 trillion in 2006 to US$60.3 trillion in 2007, a growth of 20.6%. In the same period world GDP at current prices went from US$51.4 trillion to US$57.9 trillion, that is, it grew much less (12.6%) than fictitious capital on stock exchanges. When making the same comparison, this relationship between market values and world GDP is reflected across the various regions aggregated by the World Bank, that is, market values grew more than GDP in the upswing of the cycle and could not repeat this in the years following 2007. With the outbreak of the crisis, the market value of corporations on stock exchanges depreciated by 46.5%, falling to US$32.3 trillion between 2007 and 2008. Since then, the value has gradually increased and reached

–

32,269 25,532 12,626 7059 4990 8239 1132

2008

895

44,608 31,325 16,756 6900 6671 9221 2187

2009

1062

51,470 35,370 19,456 6705 6440 9550 2734

2010

901

44,384 31,011 17,555 5602 5400 7943 2259

2011

Source: https://data.worldbank.org/indicator/cm.mkt.lcap.cd. (Our own production)

60,305 45,880 22,112 14,358 10,062 16,331 2218

49,994 42,567 21,272 12,454 8373 14,160 1390

World OECD members North America European Union Euro area Europe and Central Asia Latin America and Caribbean Middle East and North Africa

2007

2006

Country name

Table 8.2 Market value of companies in stock exchanges (US$ billions)

921

51,133 35,945 20,730 6332 6134 8973 2479

2012

1568

60,240 44,281 26,150 7954 7708 10,748 2161

2013

1436

63,428 45,405 28,428 7205 7001 9545 1857

2014

1315

61,895 43,056 26,663 – 6121 – 1295

2015

1337

64,998 45,815 29,348 – 6172 8817 1591

2016

1371

79,225 55,399 34,491 – 7945 11,065 2017

2017

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US$51.1 trillion in 2012, but still well below world GDP, which reached US$74.99 trillion in 2012 and US$80.7 million in 2017. After 2012, market value continued to grow reaching US$79.2 trillion in 2017, approaching the total for global GDP. In regional terms, North America, mainly the United States and Canada, regained the market value of its companies in 2013, when they surpassed the 2007 value. OECD member countries took longer to recover market value, only surpassing the 2007 value in 2017. But these figures are underestimates, as the UK has not had its data calculated since 2009 and the European Union not since 2015. Those that we may consider to be more advanced capitalist countries have demonstrated a full recovery of the market value of their companies and have quickly overcome the impacts of the crisis, even if the available statistical data does not fully confirm this. Table 8.3 shows the statistical data on debt securities compiled by BIS, which has been regularly updated since 2012. This table brings together data on securities issued by financial corporations, non-financial corporations and governments in domestic and international markets.21 We have selected countries that have full data sets on all titles issued in the domestic and international markets. For our purposes only complete information is of interest. We have aggregated the two markets for countries who had not themselves combined them. The database contains information from almost 60 countries, but not all of them have data on government debt securities. The data presented in Table 8.3 shows that, in most of the selected countries, debt has grown continuously, accelerating after 2007–2008 crisis. However, European countries that have suffered most from the sovereign debt crisis have shown less accelerated growth, or even a fall, in indebtedness, as in the case of Greece. The five largest debtors in 2017 were the United States, Japan, the United Kingdom, Italy and France. Among the ten most indebted governments, the first two accounted for 68.7% of the total in 2017. Between the end of 2007 and 2017, the debt of these ten countries rose by 138.1% with the largest increases in the United Kingdom, 160.4%, Spain, 138.4%, and the United States, 100.2%. It is possible that an important mass of fictitious capital in the form of shareholder value has become public debt. Finally, derivatives are another important form of fictitious capital today. They did not exist in any significant amount in Marx’s time, as they

600 703 952 804 1221 1442 1409 1431 1322 1303 1042 1437 1588

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

1273 1494 1717 1663 1870 2040 2079 2178 2255 2000 1779 1715 1939

Germany 408 452 498 543 746 796 871 973 1135 1057 998 993 1186

Spain 1141 1301 1514 1563 1843 1838 1926 2064 2262 2084 1935 1921 2258

France 801 964 1070 990 1428 1674 2094 2338 2419 2696 2617 2504 2785

United Kingdom

Source: http://stats.bis.org:8089/statx/srs/table/. (Our own production)

Brazil

Years

Table 8.3 Selected government debt securities (US$ billions)

207 244 299 340 408 383 357 141 128 100 82 76 78

Greece 1469 1690 1928 1920 2114 2069 2078 2183 2392 2181 1985 1975 2292

Italy 5830 5833 6315 8125 8315 10,173 11,361 10,694 9123 8324 8418 9013 9477

Japan

100 118 136 142 170 187 168 173 178 156 150 157 190

Portugal

6849 7123 7487 8789 10,402 12,072 13,107 14,222 14,808 15,593 16,291 17,036 17,592

United States

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have only developed more vigorously since the changes that occurred with the end of the system of fixed exchange rates, maintained by the Bretton Woods agreement until 1971; the year in which President Richard Nixon decreed the end of convertibility of the dollar into gold which had been in effect since the end of World War II. This system, which provided some stability to international interest rates, also maintained these rates at relatively low and stable levels. Thus, under the Bretton Woods agreement, the world credit system was associated with the dollar, which assumed the role of world money and was anchored to gold at the rate of US$35.00 per ounce. After the end of the agreement, the dollar became disassociated from gold but continued to play the role of world money in the form of fictitious money,22 even though in appearance, in orthodox economy textbooks and system records, the dollar turned into forced paper currency of no intrinsic value. Table 8.4 shows the annual balances of derivatives registered by BIS for the period 2005–2017. Total securities went from US$292.9 trillion in 2005 to US$709.3 trillion in 2013, in notional values,23 even though they showed a significant reduction in the growth rates of these securities in 2007 and 2008. The data also shows that in 2014 the volume of derivatives started to retract and resumed growth only in 2017, when securities totaled US$531.6 trillion. This amount, in notional values, does not Table 8.4 Global OTC derivatives market (US$ trillions) Years

Interest rate

Foreign exchange

Equity

Commodities

Credit derivatives

Total

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

229.4 315.9 432.4 472.7 490.3 492.3 533.3 521.3 600.8 519.6 395.1 385.5 426.6

37.5 48.8 66.6 60.6 59.8 67.9 74.3 78.1 78.5 82.1 76 78.8 87.1

6.6 8.6 9.5 7.6 7 6.3 6.7 6.9 6.7 7.1 7.2 6.3 6.6

5.5 7.3 9.2 5.2 3.8 3.4 3.6 3 2.5 2.1 1.5 1.7 1.9

13.9 28.7 61.2 44.9 35.8 30.7 29.5 25.9 21.1 16.5 12.4 9.9 9.4

292.9 409.3 579 591.1 596.8 600.6 647.3 635.2 709.6 627.4 492.2 482.1 531.6

Source: BIS. https://stats.bis.org/statx/srs/table/d5.1?p=20152&c=. (Our own production)

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accurately reflect turnover, since these are futures contracts, that may contain options which may or may not be exercised, forward contracts and swap contracts. Furthermore, derivative contracts are settled only at maturity with the result of changes in the interest rate, exchange rate or commodity prices. Table 8.4 shows that interest rate derivatives are the most important, since they represent more than 80% of the total, from 2008 to 2017. Whilst, derivatives created from commodity prices represent a very small portion, falling from 1.6% of the total in 2007 to only 0.35% in 2017. Currency speculation in the monetary and exchange sphere is carried out within a specific market, the currency market. This market mainly buys and sells in dollars, euros, yens and pound sterling. The goal is to buy in markets where the currency is cheaper and sell in markets where it is more expensive. Economists call this arbitrage. Another objective is to bet on currency quotations in the future, these bets are made through the exchange swap contracts. Global turnover in the foreign exchange market was not affected by the deep crisis that began in 2007. The daily average of business, estimated in April annually and every three years by BIS, was US$1.9 trillion, in 2004 and went from US$3.3 trillion in 2007 to US$3.9 trillion in 2010 and to US$5.30 trillion in 2013, decreasing slightly to US$5.1 trillion in 2016 (BIS 2013, p. 9; BIS 2016). Of this total about 80% was in two types of transactions, US$1.7 trillion in cash transactions and US$2.4 trillion in foreign exchange swaps; the remaining 20% were in other operations. Considering a month with twenty business days, the monthly volume of business in this market would be US$101.3 trillion, much more than the entire global GDP for 2017. The data in Tables 8.1, 8.2, 8.3 and 8.4 presents forms of fictitious capital that demand remuneration without directly participating in the production of wealth, except for the portion of banking assets and financial institutions that may be financing productive capital. In this activity, it may be the counterpart of public debt securities that are currently growing only through interest capitalized on new debt. The actions constitute duplications of real capital accumulated in corporations, in the form of fictitious capital, and serve to maintain the speculative bets on price variations. So, a large part of this capital is remunerated without any contribution to the production of wealth. As betting gains and losses occur among the speculators in the market, this share also constitutes transfers between the capitalists themselves and speculators.

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The Effects of Parasitic Speculation on a World Scale Monetary Impacts of the 2007–2008 Crisis During downturns, governments often take countercyclical measures to stimulate production and alleviate unemployment. Currently, a part of accumulated capital, the less efficient and less productive part, usually devalues to zero. Public intervention at these times aims to prevent this inefficient portion from disappearing and to incorporate it into other more advanced fractions of capital in their respective sectors of activity. Between 2007 and 2008, we saw accumulated stocks of capital in the financial sphere reach their highest levels. This total, demanding remunerations that the productive sphere could no longer afford, led the circulation of capital to break the cycle of continuous metamorphoses between commodity and money. As was widely publicized in 2008, the main anti-crisis measure taken by the United States government sought to save the big banks, insurers and other financial institutions involved in the crisis. This did not include industrial corporations like General Motors,24 for example. We can observe this movement, between 2007 and 2008, in Fig. 8.1.

4,500 3,500

2,940

2,500

1,655

1,375

1,500

Base Money

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2006

2007

825

787 2005

2,461

1,375

1,000 500

3,599

2,676

3,000 2,000

3,851

3,934

4,000

Fig. 8.1 Monetary base and means of payments USA (US$ billions). (Source: Federal Reserve: http://www.federalreserve.gov/releases/H3/default.htm. Our own production)

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From 2000 to 2007, the Federal Reserve (Fed), the US Central Bank, maintained a steady growth of the monetary base in a practically linear trend. The monetary base (dotted line) expanded from US$585 billion in 2000 to US$825 billion in 2007, an increase of 41%, or a 5.8% annual average. In the same period, the M1 variable went from US$1089 billion to US$1375 billion. But in 2008, the monetary base experienced an enormous jump to US$1655 billion, a 100% increase in just one year and exceeding M1. The Fed continued with the same policy of expanding the base over the following years, which increased to US$2010 billion in 2010 and reached US$2611 billion in December 2012. This expansion of the monetary base was maintained for another two years and reached its highest level of US$3934 billion in 2014. It then reduced until 2016 and increased again in 2017 to US$3081 billion. Since 2008 US payments have been below the monetary base. This increase in the volume of primary issues was carried out by means of three anti-crisis monetary measures: quantitative easings 1, 2 and 3, called monetary loosening. The first was launched in 2008 and triggered the first jump in the base, the second began in November 2010 and the third was announced in September 2012. Even with the supposed total application of this policy, with the reduction in the rate of primary monetary expansion and the resumption of increases in the interest rate, we can see in Fig. 8.1 that M1 had still not returned to the behaviors suggested by textbooks on macroeconomics. In the first quantitative easing package, the Fed bought US$600 billion in real estate derivatives, in the second, US$600 billion in Treasury bonds and in the third, started buying US$40 billion a month in real estate or mortgage-backed securities, increasing this to US$85 billion a month as of December 2012. At the same time, the Fed had maintained the domestic interest rate, the prime rate, between 0% and 0.25% per annum since the end of 2008 and promised to maintain it at this level until 2015, when it started rising as we can see in Fig. 8.2. We will not develop the issue of the impacts of the rise in interest rates observable from 2015. Before moving on regarding these observations on the dollar we present Fig. 8.3, with the same variables as shown in Fig. 8.1. This refers to the countries of the European Union that make up the Eurozone. You could be said that this graph is a supported version of the primary and secondary currency creation mechanism described in the economics manuals. In this, the European Central Bank (ECB) carried out the primary creation, along

1,258 1,087

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198 P. NAKATANI AND H. GOMES

6.00

5.00

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0.00

Fig. 8.2 USA: Short-term interest rates—2005–2018. (Source: Federal Reserve: H.15 Selected Interest Rates for Sep 25, 2018. Our own production)

Fig. 8.3 Monetary base and means of payments in the Eurozone (€ billions). (Source: http://sdw.ecb.europa.eu/browse.do?node=bbn27. Our own production)

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with the money-creating banks, multiplying it within the system made up of the Euro Community countries. But even so, such statistical information is insufficient to explain the global currency markets and capital flows between countries. We must point out that there is a profound difference between these two Central Banks and their monetary policies. The Fed is a private institution that was given a civic function in the early twentieth century and the ECB is a public institution set up by the countries that make up the European Union and has the status of an independent Central Bank. The Fed usually creates money by buying US Treasury debt securities and reselling them to banks, companies, households and other government bodies on the open market, the equivalent of the open market in Brazil, or repurchases such securities and makes payments on behalf of the Treasury. Thus, US Treasury funding is provided directly by the Fed. The ECB creates currency through the purchase of private bank debt securities; these banks buy the debt securities of National Treasuries, thereby becoming responsible for the financing of the Treasury of the Eurozone countries, and the central banks of each country have lost their sovereignty for the execution of monetary policy. In the first case, the interest rate that the US Treasury pays on its bonds is fixed by the Federal Open Market Committee, a Fed body. In the second, it is the private banks that pay the interest rate set by the ECB and charge the National Treasuries a rate that is determined by the market. The Spread of the Dollar in the Global Credit System The apparent incongruity we find in the data shown in Fig. 8.1 can be explained by the outflow of US dollars to the rest of the world. But not dollars as money, but as interest-bearing capital in the specific form of fictitious capital.25 Thus, the monetization of public and private debt in the United States carried out by the Fed finds as an alternative means for accumulation in countries where speculative and parasitic capital, recorded in the balance of payments as portfolio investment, finds remunerations as dividends, interest, or capital gains higher than in the United States. But even direct foreign investments, considered good investments [sic], whose criterion for inclusion in the balance of payments is the acquisition of at least 10% of the shares of a company, still contain a speculative and short- term potential. The speculative and parasitic dimension of the resources recorded in these two balance-of-payments items can be met with the

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remittance of profits, interest and capital gains that grew rapidly after the financial crisis. Figure 8.4 shows the accumulated total in the balance of current account payment balance of selected countries between 2006 and 2017. As can be seen, the countries with the largest negative balances are the United States, the United Kingdom, Spain, Australia and Turkey. This balance, according to the economic, represents the inflow (negative balance) or the sending (positive balance) of the savings to or from overseas. Thus, during this period the United States received US$5878 billion from the rest of the world, most of it to finance the deficit in the commodities balance. Just three countries, Japan, Germany and China were responsible for US$7504 billion or 127.7% of the funds to finance this deficit.26 If we include the deficits of the other European countries the total amount reaches US$8864 billion of negative balance in the balance of payments current account. These numbers indicate a huge asymmetry in the world system. To further clarify the basic operating mechanism of this system we must consider that the dollar, along with some other currencies, functions as the world currency. That is why the United States can maintain recurring trade deficits without any problem, provided the dollar continues to be accepted in international transactions and as a reserve currency. Thus, we can say that the United States imports goods from the rest of the world and pays with fictitious money, which becomes fictitious capital in the international credit system. The same can be said for the Euro and Pound Sterling, currencies which are widely traded on the world exchange market and are part of the international reserves of various countries. The counterpart of the current account deficit of developed countries appears, in part, in the data in Fig. 8.5. Countries that obtain positive trade balances accumulate these balances in their reserves, in dollars, those that do not have to further open up their economies and offer more benefits to international capital to attract direct foreign or portfolio investment. China is the champion in accumulated reserves, US$3236 billion at the end of 2017, with about 60% of that total in dollars, followed by Japan, US$1264 billion, Switzerland, US$811 billion, and Saudi Arabia, US$509 billion. This asymmetry in the world system has been building since the introduction of neoliberal policies to open up and deregulate national economies, privatize state enterprises and reduce the role of the state in regulating economic activities. If before this period, countries had to maintain

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0 -1,000

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8 THE NATURE AND THE CONTRADICTIONS OF THE CAPITALIST CRISIS

3,500

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Fig. 8.4 Balance of payments balance in current account accumulated between 2006 and 2017 (US$ trillions). (Source: World Bank: http://data.worldbank. org/indicator/bn.cab.xoka.cd)

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Korea, Rep.

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China

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Fig. 8.5 International Reserves 2017—Selected countries with the largest reserves (US$ billions). (Source: World Bank: http://data.worldbank.org/indicator/fi.res.totl.cd. Our own production)

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reserves to secure imports, after this period countries, especially the most fragile ones, accumulate reserves when they can to confront speculative attacks. Brazil, for example, has accumulated US$374 billion in international reserves. This represents the value of almost 30 months of imports, based on the 2017 monthly average of US$12.5 billion. In the past, reserves necessary for the payment of two or three months of imports was considered acceptable. The current need to maintain a large and expensive reserve is due to the risk of speculative attacks and the need to guarantee financial speculation. In March 2018, Brazil had liabilities of US$825 billion in the foreign direct investment account and US$577.8 billion of foreign capital in the portfolio investment account; these balances were US$721.4 billion and US$459.2 billion, respectively, in September 2018 (BCB 2019a). This data records liabilities in Real converted into dollars, so a part of this apparent capital outflow is due to the brutal devaluation of about 20% of the Real between the end of March and September 2018. Meanwhile, balance of payments records show significant outflows in 2018. In the first three quarters of the year, gross capital outflows in the portfolio investment account of fixed income securities in the domestic market totaled US$70.5 billion. In the same period, the outflow of direct foreign investment, intercompany operations, totaled US$38.3 billion (BCB 2019b). This does not necessarily represent a capital flight as the inflow into fixed income applications was US$70.8 billion. Finally, if we consider speculative movements in the portfolio investment account, total business volume in 2018 was US$467.9 billion, a daily average of US$1.9 billion in inflows and outflows.

Final Considerations The results we have seen so far demonstrate that the crisis which began in 2007 continues to develop internal contradictions in the dynamics of capital and to pressure the transfer of value and added value from the weakest countries to the strongest within the system, from workers to capitalists and between nation states and social classes. The enormous asymmetry we observe in the global capitalist system does not signify a downward trend or collapse of the US economy, but rather shows the strength of the hegemonic position won and consolidated by the United States after World War II. There is, to date, no mon-

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etary system that can play the role of substitute for the dollar, nor a strong tendency toward new economic regulation that will lead to the replacement of dollar-denominated speculative and parasitic capital. Some attempts to reorganize the international payment system, for example, China’s agreements with several countries to eliminate the dollar in its bilateral transactions, are still not enough to do so, and this is without considering that countries that have a some trillions of dollars in their reserves, such as China and Japan, remain in effect trapped, as a sudden and abrupt devaluation of the dollar would produce brutal losses for them. Moreover, the United States finds itself in a similar position to that of the early and late 1970s, when it transferred to the rest of the world the losses incurred with the end of the convertibility of the dollar in September 1971 and obtained great benefits from the policy of increasing interest rates in the early 1980s. Under current conditions, a further increase in the US prime rate would produce rapid capital flight from all countries in which the stock of portfolio investment is important, in an accelerated exchange rate devaluation.27 Contrary to what might be expected, the crisis has not become a driving factor for wholesale development of the subjective conditions of the organization and pressure for anticapitalist changes, although we must acknowledge that there has been a relative rise in social struggles throughout the world during this period of crisis. However, it is possible that an element of these political trends, involving some Social Movements, also reflects the difficulty in understanding these contemporaneous phenomena of fictitious capital, either due to alienation or because of the systematic campaign of bourgeois organic intellectuals through their means and instruments of production and ideological diffusion. Hence the perception in recent years of the rise of right-wing political parties, groups and movements around the world that have produced electoral victories for the extreme right, for example, in the United States, in 2016, and in Brazil, in 2018. If this is correct, it is necessary to carry out a deepening, detailing and advancement by studies on fictitious capital and speculative and parasitic capital and their reflections and impacts in the political sphere and to disseminate these studies to broader levels of society.

Notes 1. See also Dierckxsens (2009, pp. 13–16).

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2. In 2016 Paul M. Romer, then chief economist at the World Bank, published the article “The Trouble With Macroeconomics” for The American Economist (see Romer, 2016), with a devastating critique of orthodox economic theory that leads to the idea that adopted models of economic policy must all be abandoned. Despite its importance, his criticism was largely ignored. Nonetheless, he received the Nobel Prize in Economics in 2018, along with William D. Nordhaus. 3. See Gontijo and Oliveira (2012) and Varela (2012). 4. “From a modest start in 1964, at about US$11 billion, the system had grown to US$40 billion in 1969—and these are conservative numbers. I say conservative numbers because there are several different estimates of the volume of Eurodollars that existed in 1969: the numbers range from US$40 billion to US$85 billion” (Wachtel 1988, p. 98). Then, with the oil crises in 1973 and 1979, this volume of money became predominantly petrodollars, which grew rapidly. “From the first oil price increase in 1973 to the end of the decade price increase, OPEC surplus totalled US$357 billion” (Wachtel 1988, p. 104). 5. “The top 1% of global wealth holders started the millennium with 47.1% of all household wealth. This share changed little between 2000 and 2005, but then fell to 42.6% by 2008. Our latest estimates suggest that the share of the top percentile continued downward until 2011, but then rose sharply from 42.1% in 2011 to a peak of 47.5% in 2016, before edging back to 47.2% in mid-2018” (Credit Suisse 2018, p. 16). 6. In December 1981, total Brazilian foreign debt, public and private, was US$61.4 billion and by December 1995, this had jumped to US$129.3 billion (Cerqueira 1997, p. 144). The accumulated balance of the trade balance between 1982 and 1995 was US$144.5 billion and total net interest paid was US$114.2 plus US$183.4 billion of amortisations (BCB 2013). Thus, almost 80% of the balance of trade was used to pay interest on foreign debt and although the amortisations in the period corresponded to almost three times the initial debt balance Brazil ended the period with a debt that was two and a half times the initial amount. 7. Exports of goods and services constitute the transfer of use values abroad in exchange for value represented by dollars that, through imports, could restore internal use values. The return of dollars obtained from exports as interest, amortization, profits or capital gains prevents this kind of conversion from occurring and the result is the transfer of material wealth produced domestically without any return. 8. Derivatives are denominated, high risk speculative (on currency exchange rates and interest rate futures) bonds that derive from (or are backed by) primary securities such as corporate stocks, government bonds, mortgages, and so on.

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9. “In the last ten years the volume of resources (bonuses, euronotes, bank loans and stock issuance) has quadrupled, from US$395 billion in 1987 to US$1597 billion in 1996; and “the daily volume of transactions in the currency market increased from US$ 718 billion in 1989 to US$ 1572 billion in 1995”. In the derivatives market, “while the total value of transactions increased from US$618 billion in 1986 to US$9.185 billion in 1995, the number of contracts traded increased from 315 million to 1210 million in 1995” (Gonçalves 1997, p. 314, 316 and 318). 10. According to BIS (2007a, p. 12), the global derivatives market, according to notional amounts, reached US$297,670 billion in December 2005 and reached US$414,290 billion a year later. Meanwhile, the international currency market, which traded US$880 billion a day in April 1995, rose to US$1.2 billion a day in April 2001 (BIS 2007b, p. 5). 11. See: Carcanholo and Nakatani (1999). 12. “Here we have firstly the section of profit that is not spent as revenue, being rather designed for accumulation, but which the industrial capitalists concerned do not have any immediate employment for in their own businesses. […] The part to be spent as revenue is gradually consumed, but in the meantime, it constitutes loan capital as a deposit with the banker. […] With the development of the credit system and its organisation, the rise in revenue, i.e. in the consumption of the industrial and commercial capitalists, is thus itself expressed as an accumulation of loan capital. And this holds good of all revenues, in so far as they are only gradually consumed—i.e. ground-rent, the higher forms of salary, the incomes of the unproductive classes etc.” (Marx 1991, pp. 635–636). 13. For Marx, public bonds and shares traded on the Stock Exchange represent specific forms of fictitious capital. But not only that; other types of securities are also fictitious capital, “Even when the promissory note—the security—does not represent purely illusory capital, as it does in the case of national debts, the capital value of this security is still pure illusion” (Marx 1991, p. 597). Between 1980 and 1992 the stock of so-called financial assets went from US$10.7 trillion to US$35.5 trillion. The composition of these assets in 1991/1992 was as follows: foreign exchange, 32%, international bonds, 4%, government bonds, 25%, corporate bonds, 10%, shares, 29% (Chesnais 1998, p. 27). According to the McKinsey Global Institute data released in October 2008, this stock of financial assets reached US$117 trillion in 2003, US$142 trillion in 2005, US$167 trillion in 2006, and US$196 trillion in 2007 (McKinsey 2008, p. 9). 14. “With the development of interest-bearing capital and the credit system, all capital seems to be duplicated, and at some points triplicated, by the various ways in which the same capital or even the same claim, appears in various hands in different guises. The greater part of this ‘money capital’ is purely fictitious” (Marx 1991, p. 601).

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15. The data in the tables are illustrative only due to the variety of sources and methods of acquisition and aggregation. Therefore, they should not be considered absolutely and should not be aggregated. 16. Australia, Germany, Norway, Austria, Greece, Panama, Belgium, Hong Kong SAR, Portugal, Brazil, India, Singapore, Canada, Ireland, Chile, Italy, Sweden, Taiwan, Japan, Switzerland, Denmark, Turkey, Finland, Mexico, United Kingdom, France, Netherlands, United States (BIS 2012a, p. A5). 17. This data was extracted from various editions of the BIS Quarterly Review (https://www.bis.org/quarterlyreviews/). 18. “The greater part of banker’s capital is therefore purely fictitious and consists of claims (bills of exchange) and shares (drafts on future revenues). It should not be forgotten here that this capital’s money value, as represented by these papers in the banker’s safe, is completely fictitious even in so far as they are drafts on certain assured revenues (as with government securities) or ownership titles to real capital (as with shares), their money value being determined differently from the value of the actual capital that they at least partially represent; or, where they represent only a claim to revenue and not capital at all, the claim to the same revenue is expressed in a constantly changing fictitious money capital. Added to this is the fact that this fictitious capital of the banker represents to a large extent not his own capital but rather that of the public who deposit with him, whether with interest or without” (Marx 1991, p. 600). 19. Data obtained from the website of the World Bank (2019). 20. With the difficulties in collecting and compiling the information from the periodic declarations offered by each country, especially on positions in the domestic banking institutions and non-banking assets of foreign origin, BIS changed the system for calculating Locational Banking Statistics (LBS), the nationality of the reporting bank or the country of residence of its counterpart, giving preference to consolidated data collected by the Consolidated Banking Statistics (CBS) system, reporting country, as of June 2012. See: BIS (Dec. BIS 2012a, b). 21. For more details on relevant methodological issues see Gruić and Wooldridge (2012). 22. This term was first used by Eleutério Prado and stems from the Brazilian debate on the Marxist theory of money in analogy with the Marxist concept of fictitious capital (Prado 2013). 23. The derivatives market registers the total amount of contracts over the future values that are the object of the bet. For example, a future exchange rate contract records the buying and selling bet of billions of dollars at a certain rate expected today and what the future rate will be. A buyer agrees to buy these billions at the exchange rate that he bets on in the future and the seller sells betting that the rate will be lower. The buyer must pay a premium, which consists of a small percentage of the total amount of the

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contract. Anyone who succeeds wins the difference between the stake rate and the effective rate at the end of the contract. The record is about the total of the contract, but the effect is on the ratio between the differences in betting rates and the total contract. 24. The US Treasury has put US$50 billion in stock to save General Motors, according to Folha de S. Paulo, and lost US$11 billion in five years (FSP 2013). 25. A necessary theoretical question for the grounds of this process is the transformation of the convertible dollar into the world currency both under the Bretton Woods Agreement, and its continuation after 1971, without such convertibility, as a purely forced currency, as fictitious money. 26. There are, of course, innumerable mediations and this direct relationship is just a device we are using. 27. This is the situation in which Brazil finds itself, as we have seen. Most serious is that the BCB’s orthodox economists are trying to keep the exchange rate stable through fictitious dollar creation by increasing speculation in the market. These are the foreign exchange swap operations, in which the capitalist buys a bond with the exchange rate plus a currency coupon (difference between the basic interest rate and the exchange devaluation rate) and pays the central bank the basic interest rate. In December 2018, the notional value of the foreign exchange swaps was US$259.9 billion and the total cash flow, which the central bank had to pay, was US$15.1 billion (BCB 2019c).

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Final Words

It is not intended to revisit the main conclusions and discussions made throughout this book. Any effort to synthesize the chapters at this point could compromise a necessary understanding of the theoretical foundations and the contradictory process of the building of the categories that support the decisive transformations of contemporary capitalism, especially those linked to the recent capitalist crises that manifest themselves more intensely in the form of a plethora of fictitious capitals and financial crises. The book sought to demonstrate that capitalism remains a mode of production in the continuous process of transformation, always shot through by Sisyphus’ work on accumulating abstract wealth. This dynamic, presided over by a blind, automatic, unbridled, and insatiable subject, which, at the same time, tends to become autonomous in relation to its substance, abstract work, only increases the imperative of the real subsumption of work to the capital on a larger—and world—scale. This fetishist tendency to autonomize capital, which comes to prominence in its fictitious forms and in its search for fictitious profits, magnifies the turbulent, oppressive, and potentially genocidal character of accumulation. Moving from this fundamental contradiction and repeatedly rebounding in a more universal and explosive way, in recent decades the predatory and voracious character of capital has been revealed in all its rawness, in the form of a intense concentration of income and property; mass impoverishment; rapine wars; the militarization of societies and the development © The Author(s) 2019 G. M. de C. Mello, M. de S. Sabadini (eds.), Financial Speculation and Fictitious Profits, Marx, Engels, and Marxisms, https://doi.org/10.1007/978-3-030-23360-0

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of “Wellesian” mechanisms of surveillance and social control; environmental destruction; the exploitation and degradation of the working population; the most diverse forms of intolerance and authoritarianism, holding hands with individualism and generalized competition, feeding a real war of all against all. This is to mention just some of the manifestations of capitalist barbarity. The old motto of capital—Aprés moi, le deluge [after me, the deluge]— is more topical than ever: the deluge—the crisis—has become the rule, accompanying the destructive march of capital. The clouds in the sky of history seem ever more charged and threatening. It is to be hoped that the discussions here, in their inextricably linked theoretical and empirical dimensions, have contributed to the updating and development of the critique of political economy, demonstrating its potential for the criticism of a society that is moving at a rapid pace toward the production of unprecedented catastrophes. The authors Vitória, Brazil

Index1

C Capital accumulation, 2, 36, 90, 106, 107, 125, 140–142, 150, 152, 153, 166, 171n12, 175n38, 175n39 circulation, 73, 75, 82n22 reproduction, 2, 3, 72, 99, 119, 142, 156, 163, 175n38, 187 Capitalist crisis, 3, 6, 60n22 Commodity-capital, 50, 82n21, 122, 123, 144 Contemporary capitalism, 2, 5, 6, 46, 65, 77, 78, 89, 91, 102, 103, 109, 110n7, 111n17, 117, 140, 141, 152, 157, 164, 168–170, 177n50, 211 Credit money, 48–52, 56, 57, 58n5, 59n8, 60n17, 60n18, 65, 66, 70–73, 80n7, 90, 99, 112n18, 130, 149

Crisis, x–xii, 9, 30, 56, 76, 88, 91, 132, 133n6, 136n25, 136n26, 139–166, 183–203, 212 2007–2008 crisis, 1, 2, 154, 159, 174n29, 188–199 Crypto-currencies, 5, 63–78 D Dematerialisation of money, 43–57 Derivatives, x, 4, 6, 49, 50, 74, 150, 151, 159, 160, 171n14, 177n48, 187, 188, 192, 194, 195, 197, 204n8, 205n9, 205n10 E Economic crisis, ix, xi, 1–4, 12, 15, 87, 154, 159, 162, 184

Note: Page numbers followed by ‘n’ refer to notes.

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INDEX

F Fetishism, 5, 11, 23, 35, 63–78, 141, 151, 169 Fictitious capital, 2–4, 6, 21, 36, 44–47, 58n1, 65, 73, 79n7, 104, 105, 107, 118–132, 140–170, 184–195, 199, 200, 203, 205n13, 206n18, 206n22, 211 Fictitious money, 65, 70, 150, 174n30, 194, 200, 206n18, 207n25 Fictitious profit, ix, 2, 6, 140, 141, 153–157, 162, 167, 211 Fictitious wealth, 2–4, 6, 72, 131, 184, 185 Financialization, 9, 87–109, 117, 133n6, 139–170, 172n17 Functional forms, 5, 6, 36, 45, 58n2, 89, 94–96, 107, 108, 110n7, 110n9, 118, 123, 184 autonomization of, 36, 45, 93, 101, 106, 107, 109n5, 110n7, 118, 171n6 I Industrial capital, 6, 44, 45, 58n2, 58n4, 89, 93–96, 98, 99, 101, 106, 107, 109n5, 110n9, 110n10, 118–132, 144, 169, 174n31, 187 Interest, viii, xi, 2, 3, 6, 9, 12, 15, 31, 64, 65, 72–74, 76, 80n7, 82n19, 83n23, 83n27, 88, 92, 101, 103–106, 112n18, 118–132, 139–170, 185–203 Interest-bearing capital, 6, 21, 36, 64, 71, 72, 89, 91, 99–101, 104–106, 113n29, 118, 119, 123–129, 131, 134n14, 135n16, 140, 145, 147–149, 151–153, 157, 167, 169, 171n9, 171n10, 199, 205n14

M Marx, Karl, vii–viii, 1–7, 9–36, 43–57, 63–78, 87–109, 117–132, 139–170, 188, 190, 192, 205n12, 205n13, 205n14, 206n18 Marxists, xi, 2, 3, 5, 7, 35, 37n6, 43, 46–49, 57, 58n1, 58n5, 101, 108, 118–131, 140, 141, 152, 154, 164, 165, 206n22 Money, x, 5, 7, 9–36, 63–78, 87–109, 117–130, 143–170, 186–200 Money-capital, 3, 5, 43–57, 66, 71, 73, 77, 128, 144 O Overaccumulation of capital, 5, 47, 58n4, 65, 154, 157, 185–195 P Parasitic speculative capital, 6, 44–48, 51, 57, 58n4, 118–119, 130–132, 185–202 Productive-capital, x, 36, 44, 45, 47, 58n2, 58n4, 72, 119–131, 144, 187, 195 Profit, ix, xi, xii, 6, 22, 44, 47, 60n20, 70, 79n4, 88, 90, 105, 108, 123, 127, 130, 132, 133n6, 134n8, 134n15, 139–170, 190, 200, 204n7, 205n12 R Reification, 7, 88 Rent, 6, 88, 141, 145–147, 159–161, 163, 167, 171n7, 171n8, 174n27, 177n51, 187

INDEX

S State, 4, 7, 10, 11, 29, 39n24, 45, 50, 52, 59n8, 65, 70, 73, 75, 76, 79n2, 79n6, 81n14, 89, 90, 94, 98, 102–107, 109n3, 111n11, 125, 126, 135n21, 136n26, 139, 140, 149–151, 154, 157, 159, 170n3, 171n8, 173n24, 176n44, 184, 185, 200, 202 Surplus value, xiin1, 1, 19–21, 31, 33, 34, 39n24, 44, 66, 72, 93, 98, 99, 101, 102, 106, 110n10, 120, 122–124, 127, 130, 131, 134n8,

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136n23, 141, 142, 144–146, 148, 149, 152, 153, 155–163, 166–169, 173n27, 177n48 V Value, x, xi, xiin1, 3, 4, 14–36, 43–57, 64–78, 90–109, 119–131, 139–170, 183–203 W World market, 20, 73, 79n2, 88, 112n25, 143–144, 157, 158, 163