Fictitious capital is a concept used by Karl Marx in his critique of political economy. Marxism is the political philosophy and practice derived from the work of Karl Marx and Friedrich Engels. Manifesto of the Communist Party ( often referred to as The Communist Manifesto, was first published on February 21, 1848, and is The Eighteenth Brumaire of Louis Napoleon was written by Karl Marx between December 1851 and March 1852 and originally published in 1852 in Die Revolution On the Jewish Question is a work by Karl Marx, written in 1843, and first published in Paris in 1844 under the German title The Grundrisse der Kritik der Politischen Ökonomie ( German, Outlines of the Critique of Political Economy) is a lengthy Manuscript by the The German Ideology (1845 was a book written by Karl Marx and Friedrich Engels around April or early May 1845. 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Jean-Paul Charles Aymard Sartre (21 June 1905 &ndash 15 April 1980 commonly known simply as Jean-Paul Sartre (ʒɑ̃ pol saʁtʁə was a French Louis Pierre Althusser (Pronunciation altuˡseʁ ( October 16, 1918 – October 22, 1990) was a Marxist philosopher. Various aspects of Marxist theory have been criticized These criticisms concern both the theory itself and its later interpretations and implementations Political economy originally was the term for studying production buying and selling and their relations with law custom and government It is introduced in the third volume of Das Kapital, a manuscript which Marx never edited for publication.
Fictitious capital could be defined as a capitalisation on property ownership. That ownership itself was very real and legally enforced, and so were the profits made from it, but the capital involved was fictitious in the sense that it was not backed by any real physical asset value or earning power.
Fictitious capital could also be defined as "tradeable paper claims to wealth" but this definition disregards that tangible assets themselves may under certain conditions also gain a vastly inflated value, far beyond what they are really worth.
Contents |
Origins
Marx saw the origin of fictitious capital in the development of the credit system and the joint-stock system. Credit is the provision of resources (such as granting a Loan) by one party to another party where that second party does not reimburse the first party immediately thereby generating A joint stock company (JSC is a type of business entity it is a type of Corporation or Partnership.
Governments and banks could create additional money or credit, which generated purchasing power unrelated to the value of real production or real consumption, or to the real value of physical assets owned. A banker or bank is a Financial institution whose primary activity is to act as a payment agent for customers and to borrow and lend money Money is anything that is generally accepted as Payment for Goods and services and repayment of Debts.
They could also issue debt securities of various kinds which could be traded in, regardless of whether these were backed by assets or deposits, and which became objects of speculation.
Companies could likewise issue share certificates that were speculated in. Again, this caused fluctuations in asset values unrelated to what a business and its production were really worth.
Effects
The general effect was that:
- the market value of physical and financial assets could, backed by credit, be driven up and artificially inflated by some margin, purely as a result of supply and demand factors which could themselves be manipulated for profit. That margin of value could, however, just as suddenly disappear, if large amounts of capital were withdrawn.
- profit could be made purely from trading in a variety of financial claims existing only on paper.
- profit could be made by using only borrowed capital to engage in (speculative) trade, not backed up by any tangible asset.
In addition, changes in underlying technology of a competitor, such as a labor saving advance, can render market value of paper claims to an asset "fictitious. " Many features of modern global capitalism reflect the impact of such changes. Thus, a business firm may attempt to prop up the market value of its stock by increasing the rate of exploitation of its work force in order to keep up with the innovating firm. Other firms may attempt to use legal sanctions in the form of, for example, intellectual property law to prevent competitors, or potential competitors, from developing labor saving advances.
Illustration
Marx cites the case of a Mr Chapman who testified before the British Bank Acts Committee in 1857:
"though in 1857 he was himself still a magnate on the money market, [Chapman] complained bitterly that there were several large money capitalists in London who were strong enough to bring the entire money market into disorder at a given moment and in this way fleece the smaller money dealers most shamelessly. There were supposed to be several great sharks of this kind who could significantly intensify a difficult situation by selling one or two million pounds worth of Consols and in this way taking an equivalent sum of banknotes (and thereby available loan capital) out of the market. The collaboration of three big banks in such a maneouvre would suffice to turn a pressure into a panic. " (Das Kapital Vol. 3, Penguin edition, p. 674).
Marx added that:
"The biggest capital power in London is of course the Bank of England, but its position as a semi-state institution makes it impossible for it to assert its domination in so brutal a fashion. None the less, it too is sufficiently capable of looking after itself. . . Inasmuch as the Bank issues notes that are not backed by the metal reserve in its vaults, it creates tokens of value that are not only means of circulation, but also forms additional - even if fictitious - capital for it, to the nominal value of these fiduciary notes. And this extra capital yields it an extra profit. " (ibid. , p. 674-675, emphasis added).
See also
References
- Karl Marx, Das Kapital, Vol. Most generally the accumulation of capital refers simply to the gathering or amassment of objects of value the increase in wealth or the creation of wealth An economic bubble (sometimes referred to as a speculative bubble, a market bubble, a price bubble, a financial bubble, or a speculative Speculation, in a financial context is making an investment that increases the overall risk in a portfolio A stock market bubble is a type of Economic bubble taking place in Stock markets when price of Stocks rise and become overvalued by any measure of Stock 3.
- Makoto Itoh and Costas Lapavitsas, Political Economy of Money and Finance.
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