[OPE-L] an overview on fictitious capital

From: glevy@PRATT.EDU
Date: Thu Mar 31 2005 - 07:44:27 EST

In the syllabus for a course on "Finance Capital, Fictitious
Capital, and U.S. Economic Decline" taught by Loren Goldner
there is the following overview.  Do others agree with his
statement of the issues?

In solidarity, Jerry



I see this course as a work-in-progress, a collective
effort to think through a fundamental aspect of the
contemporary world economy, fictitious capital.
Fictitious capital is, concisely, paper claims on
wealth (in the form of profit, interest and ground
round) in excess of the total available surplus value,
plus available loot from primitive accumulation.

Here's the problem as I see it.  There is $33
trillion in outstanding debt (Federal, state, local,
personal) in the U.S. economy, three times GDP. (No
one knows how much is tied up in the international
hedge funds and derivatives.) The state (including
Federal, state and local levels) consumes 40% of GDP.
The net U.S. debt abroad is $3 trillion ($11 trillion
held by foreigners minus $8 trillion in U.S. assets
abroad) That amount is growing by $500 billion a year
at current rates. Foreigners hold an increasing
percent of U.S. government debt; the four major Asian
central banks (Japan, China, South Korea, Taiwan)
alone hold over $1 trillion.  It is th Federal
government's debt which makes possible the
reflationary actions of the Federal Reserve Bank.
If Doug Noland (cf. article in suggested reading)
is right, the old conceptualization of the role of the
banking system
and the Fed's (apparent) ability to expand and
contract credit
availability through it,  is superceded;  increasing
amounts of credit are created by "securitized finance"
independent of banks. One must also consider the
government-linked entities (Freddie Mac, Fannie Mae),
which backed the reflation of
mortgages of the past 4 years, leading to an
incredible housing bubble. This entire edifice depends
on 1) low inflation in the U.S., as higher inflation
would scare off foreign lenders; 2) the willingness of
U.S,  "consumers" to go more and more heavily into
debt (with debt service now taking 14% of incomes, as
opposed to 11% a few years ago) 3) the willingness of
foreigners to go on re-lending U.S.
balance-of-payments deficits back to the U.S.

Shifting to another level altogether: the extent of
unproductive labor and unproductive consumption in the
U.S. economy. Marx defines the state debt as
fictitious; he defines labor
performed against revenue as unproductive. Many
Marxists would agree
that military expenditure performed against the
revenue of the state is unproductive labor, even if it
produces a profit for an individual capitalist. One
can extent that paradigm, I think, much farther in
terms of other goods and services commanded by state
revenue, and/or the fictitious capital of the state
debt. To be productively consumed, a commodity that is
part of C (constant capital) or V (variable capital)
must RETURN to C or V for further expanded
reproduction; by that criterion, it would
seem that unproductive consumption in the U.S. economy
must be enormous.

Now perhaps for the most controversial point: what do
individual reported corporate profits mean in such a
situation? The amount of profit from interest and
ground rent relative to profit from manufacture grows
every year. Even within profit of "manufacture", what
does this mean when companies like GE and GM are now
earning more profits from their financial departments
than from production? And if a significant amount of
that production (with GE, a very significant amount)
is for (unproductive) capitalists' consumption (i.e.
military) then
what does the expanded M' that returns to each
corporation as profit mean? What does it correspond to
in terms of C and V in their material form that must
be productively consumed in further expansion for the
capital circuit to continue?

We know the countervailing tendencies that must partly
subsidize the circulation of so much fictitious
capital and so much capitalist's consumption:
primitive accumulation (non-payment of equivalents)
for goods imported from the less advanced parts of the
world, for labor power recruited from Third World
petty producer economies; pushing labor power below
its reproductive value; using fixed capital past its
replacement time; looting of nature (non-replacement
of resources) or destruction of the environment as a

All of this adds up to a pretty grim picture. It looks
  like vast bankruptcy subsized by foreign
creditors, who would themselves be bankrupted by the
contraction of the debt pyramid sustaining the whole
operation. This is far bigger than the biggest Spanish
bankruptcy of the 16th century in terms of its
potential impact on the world economy.

When Marx was writing Capital the
trends described above were a marginal part of the
picture. Fictitious capital was pretty much destroyed
with each decennial crisis; the amount of unproductive
consumption in the economies he studied was nothing
compared to what is has become. I think his conceptual
apparatus is still perfectly contemporary for sorting
out what is what.

In my view, the development of fictitious capital
since the 1960's requires a radical anti-capitalist
left to look closely at how such a development has
distorted the U.S. and world economy. The last part of
the course will be devoted to considering possible
interventions that increase awareness of this
distortion in the broader working population and how
such a distortion  affects the program of any possible
society beyond capitalism.


  Michael Hudson. Super-Imperialism. The Economic
  Strategy of American Empire. (1973; reissued 2003.)
  fundamental book on how the world economy was
  subordinated to the management of the debt of the
  American state through World War I and II, and
  Even more relevant today than when it was first
  published. It seems to be available from Amazon for
$24; I will announce possible photocopies at
(hopefully) a reduced price.

Loren Goldner. Three articles: "The Dollar Crisis, and
Us" (2005), "Once Again, on Fictitious Capital" (2003)
and "Production or Reproduction?" (2002), available on
the Break Their Haughty Power web site


Doug Noland "Financial Arbitrage Capitalism", Dec. 28,
2001; archived at

Newspapers; On-Line:

Reading the Financial Times (of London) will be a
great supplement to this course, and to an
understanding of world capitalism generally.  The
Financial Times is the self-conscious daily newspaper
of the global capitalist class. It has far more
coverage of international developments than the New
York Times, and it towers over the complacent
American-centred coverage of the Wall Street Journal.
It sells on the newsstand for $1, and an annual sub
with home delivery can start at $150 (get the
introductory coupon from a newsstand copy).

Finally, I suggest looking at the Prudent Bear web
site at


Prudent Bear is an investment fund. The two most
important writers are Doug Noland, who posts every
Friday, and Marshal Auerback, who posts every Tuesday.
Their columns and some of the guest columns they run
are among the best analyses I know of, within a
pro-capitalist framework, of the precarious
unsustainability of the current world economy. They
are "neo-Austrians", influenced by a conservative
theoretician named Kurt Richebacher (see his stuff on
a Google search),, in a tradition outside the
Keynesian and monetarist mainstream that goes back to
at least the 1920's. They focus on what they call
"asset inflation" in a way similar to what I call
fictitious capital. Like all the non-Marxists I have
recommended on this list,  the Prudent Bear people
have no notion of any underlying crisis in production
itself, but their analysis of what they call "credit
arbitrage capitalism" is remarkable in its own terms,
and they do understand that the pyramiding of credit
without production is a recipe for disaster.

Finally, all members of the class are invited to join
a list-serve on world economic crisis which I started
6 years ago, and which now has about 50 members in the
U.S. and in Europe. To join, send a BLANK message to


It would probably also be a good idea to have our own
list serve for quick communication.


(NOTE: I realize that the weekly reading specified
below is well over the 50 pages per week I initially
aimed for, though never in excess of 100 pages per
week. If your schedule does not permit you to do all
the reading, try to do as much as possible (and at
least 50 pages) to maintain a decent level of class
discussion. In the class, I will also be providing
historical and analytical material to supplement the

Mar. 1: Introduction. Fictitious Capital and Social
Inadequacies of earlier Marxist views of finance
(Lenin, Hilferding).

Mar. 8. Further Conceptual Foundations. The reading
for this class will consist of three articles by
myself (cf. above) and the article of Doug Noland
("Financial Arbitrage Capitalism).

Mar. 15: Marx's View in Capital, vol. III. Reading:
Chs. 24, 25, 34 and 35. For further background, look
at the other chapters of Part V. It is of course
highly risky to consider these chapters in isolation
from the four volumes of Capital as a whole; I will
attempt to put them into context. These chapters are
also fundamental to understand the continuities and
discontinuities between capitalism in Marx's time and
in our own.

Mar. 22:  Contemporary Dollar Standard Imperialism:
Hudson, Preface and pp. 1-57, 377-393.

Mar. 29: Origins of Dollar Standard Imperialism:
Hudson, pp. 58-161.

Apr. 5: The Postwar Boom and U.S. Ascendancy: Hudson,
pp. 162-264

Apr. 12: Perfecting Empire Through Bankruptcy and
Monetary Crisis; What Is To Be Done? Hudson, pp.


I will e-mail this list to all class members. (Anyone
else interested in receiving it can contact me at the
e-mail address above.)

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