Fictitious Capital

capital invested in securities (stocks, bonds), which give the holders the right to regularly appropriate a part of the profits in the form of dividends or interest. Being the paper counterpart of real capital, fictitious capital has a special movement outside the circulation of actual capital. As a specific commodity, it is bought and sold in a special market—the stock exchange—and it acquires a price. But since securities do not possess value, the fluctuations in their market price need not coincide (and often do not coincide) with changes in real capital.

The price of fictitious capital is the capitalized income to be derived from the securities. It is directly proportional to the level of income from the securities and inversely proportional to the normal bank interest rate in a given country. For example, if the annual income from a security is $20 and the bank interest rate is 5 percent, then the price of this security will be (20 × 100)/5 = $400. The difference between the amounts of fictitious capital and actual capital constitutes the promotional profit. One method used in obtaining this profit is the issuing of stocks in an amount significantly exceeding the capital actually invested in the enterprise.

In the era of imperialism, the issuance of securities grows on a huge scale; at the same time, the growth of fictitious capital outstrips the increase in actual capital. This rapid growth is caused by the widespread use of stocks to finance enterprises, by the growth in the national debt arising from increases in unproductive expenditures by bourgeois states for militarization and war, and by the intensification of inflation. During the course of the business cycle, fictitious capital expands during periods of economic upsurge and contracts during periods of crisis.

Fictitious capital is also distinguished from loan capital. Securities constitute an area of investment for loan capital. Fictitious capital quantitatively exceeds loan capital, and the movements of the two types do not coincide.

The further development of the fetishism and parasitism of capitalist production relations is reflected within the category of fictitious capital. The source of income with fictitious capital is completely hidden. To the holders, securities seem to generate income in and of themselves. The parasitism of fictitious capital becomes especially apparent in the case of government loans when the government unproductively spends the funds it has raised. This special form of fictitious capital not only is devoid of value but also, in many cases, does not represent real capital. Interest on government bonds is paid for the most part through tax revenues.

In the epoch of the general crisis of capitalism, changes have occurred in the structure of fictitious capital. With the expansion of the state sector in the economy and the increase in the national debt, the securities market becomes increasingly filled with government securities. The coalescence of monopolies and government can be seen in joint transactions involving fictitious capital. With increasing frequency, the government enters the securities market as debtor, creditor, and guarantor; moreover, in contrast to private enterprises, the government occupies a privileged position since it can issue securities at will and can offer investors tax advantages and guarantees against a fall in the value of investments. This connection between fictitious capital and government credit and guarantees aggravates inflation. State-monopoly control over transactions with fictitious capital allows this capital to be used for meeting treasury needs for additional securities, thus increasing the amount of the capital under the control of financial oligarchies.