(Note: Nothing is of course more boring than a reply to a reply to a reply. The following is written with the intention of being accessible to readers not familiar with my exchange with theAufheben group on fictitious capital, Sander’s intervention in that debate in Internationalist Perspective No. 41, and various discussion on e-lists. Further, I wish to sincerely thank all these critics for making it possible for me to sharpen my own views.)

Fictitious capital is the gap between total price and total value on a world scale.

Capital as defined by Marx is a social relationship of production, a process of valorization, money mixed with living labor and means of production to achieve expanded money in the movement M-C-M’ (money-commodity-money prime). Capital is self-expanding value, a “self-reflexive” (self-acting) relationship that relates itself to itself, “value valorizing itself” (sich selbst verwertendes Wert).

This is the profound movement of “pure” capital analyzed by Marx in vols. I and II of Capital, before the introduction of the surface phenomena of everyday appearance in vol. III. Vols. I and II offer a model of a “closed system” of only capitalists and proletarians.

Only in vol. III of Capital does Marx introduce capital as capitalists know it in daily practice, e.g. as stocks (profit), bonds and other interest-bearing paper (interest) and titles to landed property (ground rent). Capital for capitalists consists of titles to wealth, anticipations of future income.

Over the course of the real-world capitalist business cycle, the “value” of these paper claims is determined not by the “socially necessary labor time” for reproducing the asset to which it is connected (still less the necessary time of producing them), but by a capitalization of the cash flow generated by the investment in question. (“Capitalization” means that in an environment where the average return on investment is 5%, a title to wealth producing a $5 annual profit is “worth” $100.)

What determines the “cash flow” and the profit of the individual enterprises on which these capitalizations are based? Where direct investment in capitalist production is concerned, as a first approximation, they are determined by the distribution of the average rate of profit through all enterprises by the mechanisms described in the opening chapters of vol. III of Capital. The “immediate process of production” produces some, or most, (but not all) of the surplus-value available to be transformed into profit of enterprise, interest and ground rent.

This, once again, takes places in the “closed system” of only capitalists and workers. But the story hardly ends there.

From this surplus value extracted from the closed system must first be deducted all consumption of the capitalist class itself as well as that of the “house servants” of capital, the “kings-ministers-whores-professors”, as German Social Democracy used to say prior to 1914. Today we have to expand this category to include expanded forms of unproductive consumption: national, state and local civil servants, corporate bureaucracy, military, law enforcement and judicial personnel, prison employees, for starters, all the people Marx characterized as the “faux frais” of the system. (We can bracket here the question of productive and unproductive labor, but I think we can agree that this portion of the “active population” unproductively consumes a large (25% 35% 40%?) of total “GDP”(to refer to this highly artificial capitalist statistic) in the “advanced” sector and is a net deduction from the total surplus value available to prop up the paper claims of stocks, bonds and titles to landed property.

Having deducted the consumption of capitalists themselves and the faux frais of the system, we are left with the surplus value produced (once again) inside the “closed system” of only capitalists and workers, available for further investment (i.e. valorization or the M-C-M1 movement).

We recall that capital is “self-acting”, “self-reflexive”, “self-valorizing value”; this remaining surplus value must be reinvested for further accumulation or cease to function as capital (“Accumulate! Accumulate! That is Moses and the prophets!”) It must be productively consumed as future means of production (Dept. I) and future labor power (Dept. II).

We also recall that this surplus value is not just an abstract category but that it consists of real commodities, means of production and means of consumption, above and beyond those consumed in the previous year.

What determines the value of these commodities? It is of course the socially necessary labor time of their REproduction, today, interacting with the cost of reproducing all commodities (The most advanced method of producing buggy whips today will be worthless in a world that has gone beyond animal-powered transportation; conversely, the development of inland water transport (canals, etc.) in the 19th century had the effect of cheapening many other commodities.)

The “closed model” of capitalism developed by Marx assumes that all commodities are exchanged at their value, ultimately (after the shift to expanded reproduction at the end of vol. II) once again, at the cost of their REproduction.

This is as far as the three (actually four, including Theories of Surplus Value) volumes of the incomplete book Capital will take us. They offer an extremely powerful heuristic device for understanding the real world. But they are not the real world. My problem with critics of my theory of fictitious capital such as the Aufheben group and others is that they never get to the real world. They read in Marx that wages are determined by the cost of reproducing labor power and they assume this to be true, without looking at whether labor power in the contemporary world is actually being reproduced. They read in Marx that the value of fixed capital is determined by the cost of its reproduction and they do not look at the capitalized book value of aging plants in Britain and the U.S., or the similar “worth” of ancient tenement cash-cows in New York City, to see if that is indeed the case.

They do not examine the material social-reproductive side of accumulation because they have a vol. I (and most of vol. II) assumption of the indifference of the specific material character of a commodity. For such people, the expanded reproduction of society is totally unproblematic, as long as capitalist titles to wealth are expanded on the basis of “profits”.  They are exactly the kind of readers of Capital that Rosa Luxemburg had in mind when she wrote, in her Anti-Kritik:

“Now, what would one say to a man who exclaimed: You ask, where will the profit of the (proposed railway) line come from? I beg your pardon, but that is down in black and white in the costing.” In sober circles one would probably indicate…that he belonged in the lunatic asylum or the nursery. But among the official custodians of Marxism such know-alls form the “supreme court’ of experts” who give reports on whether other people have simply completely misunderstood the nature, aim and significance of Marx’s models” (p. 70)

Aufheben similarly shares the tradition of condescension toward Rosa Luxemburg’s Accumulation of Capital (1913) begun by the grey eminences of German Social Democracy and continued by Comintern pamphleteers after her death, a condescension summed up in the view of Luxemburg as a great revolutionary but merely a well-intentioned and wrong-headed reader of Capital. (Most people who have absorbed this view are surprised when informed that Marx left the most pressing conceptual problem of Capital, the possibility of expanded reproduction, unsolved,as they are similarly surprised to learn that Luxemburg, almost alone of 20th century Marxists, saw its non-solution as a serious problem.)

I do not agree with Luxemburg across the board. But she had the great merit of taking up the challenge (cf. Engels’ preface to vol. II) of the problem of expanded social reproduction left unsolved by Marx. Unlike Aufheben and some other left-communists, she did not take expanded social reproduction for granted, or trivialize it as a mere linear amplification of simple reproduction.

Luxemburg (rightly) took seriously, as a guide to Capital, Marx’s vision of capitalism as a transitory phase between feudalism and socialism, and analyzed capitalism’s expanded reproduction of society as meaningful in laying the material basis for a higher form of society. This means among other things that she understood that, unlike in vol. I, where the concrete material form of a specific commodity is a matter of indifference for analysis, this cannot be the case for the total social capital of vol. III. She understood that tanks, unlike bread, do not return to either Dept. I or Dept. II as further capital to be valorized. (In her formulation of “Socialism or Barbarism”, during World War I, she also recognized that capital, arrived at a certain stage, could also destroy the material basis for a higher form of society.)

Luxemburg again rightly saw that the “closed system” of capital and proletarians could only exist in negative relationship to the remaining non-capitalist world (including the European peasants and artisans of her own time) and that, from feudalism at the beginning to the draining of the petty producers of Latin America, Africa and Asia today, capital involves “primitive accumulation” off of labor power and resources for which it does not pay a reproductive price. She summarized this permanence of primitive accumulation thusly: “Although (capitalism) strives to become universal…it is immanently incapable of becoming a universal form of production”. This means that capital, because of the permanence of primitive accumulation, cannot impose the universal exchange of equivalents (one of the assumptions of the pure model). “Primitive accumulation” as used here, once again, does not merely mean the separation of petty producers from tools and land as described in vol. I of Capital(although this still continues in full force today); it refers more generally to the exchange of non-equivalents between the “closed system” of capital and wage labor with non-capitalist populations, with nature, and even (within the closed system) with labor and means of production.

Capital, then, does not merely pass through the valorization process described in the (incomplete) volumes of ; it does not merely depend on the surplus value produced in the “immediate process of production”; it also supports the paper titles to wealth in the form of profit, interest and ground rent with unpaid inputs from primitive accumulation—i.e. looting—both inside and outside the “closed system”.

Capital loots the petty producers of the Third World through their incorporation into the proletariat, in the “periphery” and in the “center”, as labor power whose prior reproduction is not paid by capital. (This process also lowers the global wage.)

Capital loots the backward (petty producer) sectors of the world economy through the ground rent it collects on the sale of agricultural products. It loots the same sectors through international trade, because the world market price of commodities does not cover the reproduction costs of workers (themselves mainly recruited from non-capitalist social strata) in the weaker economies.

Capital loots nature by the non-replacement of resources, and the non-replacement of environments depleted by production, which are not counted as costs for capital.

Capital sometimes loots the wage-labor work force within the “closed system” by pushing the total wage below the reproduction costs of labor power.

Capital sometimes loots its own fixed plant and infrastructure by running them into the ground long past their normal depreciation time, or by other machinations, as witnessed in the recent looting of firms in the Enron, World.com, Tyco and other episodes of 2002.

All of these forms of looting–the exchange of non-equivalents with petty producers, raw materials and the environment outside the closed system, and with wage-laborers, plant and infrastructure within the closed system–, increase the total surplus value available to prop up capitalists’ paper titles to wealth above and beyond the surplus value produced in the closed system through the exchange of equivalents (the assumption of vols. I and II of Capital). These titles to profit, interest and ground rent can continue their valorization process (M-C-M’) as long as sufficient surplus value is produced within the closed system, and outside it, to support them. Capital as a whole can expand, for a time, while social reproduction contracts, just as a living organism can go on living, for a while, while it is consumed by cancer. When the total surplus value available on a world scale can no longer adequately sustain the total profit, interest and ground rent claims on it, there is a direct deflationary collapse, such as the one we may be witnessing today (summer 2003).

Thus, critics of my conception of fictitious capital such as the Aufhebengroup say that I “jump right over” the first part of vol. III of Capital devoted to the determination of the rate of profit. They are in some sense correct because, as the forgoing should make clear, I do not consider the rate of profit from the “immediate process of production”, taken by itself, to be the crucial issue. The problem of capitalism is not the falling rate of profit per se but the question of valorizing titles to profit, interest and ground rent through the entire surplus value available both inside and outside the pure system. In return, I can say that such critics “jump right over” the question of the rate of social reproduction, because they consider none of the factors mentioned above, take social reproduction for granted, and pay no attention to the interaction between capital and the non-capitalist world and with nature, or to whether social reproduction is actually occurring within the world fully dominated by commodity exchange. Like the capitalists, they consider as profit what might in fact arise as a result of non-reproductive wages, non-reproductive plant and infrastructure erosion, looting of nature, and exploitation of labor power recruited from petty producers. They would accept as “profit” the profits from highly-mechanized (and locally indeed profitable) strip mining, without considering the “collateral” costs of endemic flooding, pollution from coal burning and global warning, and the social costs of the brake on potentially better energy sources exercised by large coal operators(to prevent the devalorization of their capital plant) as “deductions” from such profit as the level of the total social capital, none of which appear in any capitalist statistics as costs of the profitable strip mine.

Once again, like the would-be railway investor described by Rosa Luxemburg, they have no sensuous conception of the real-world material reproduction of society that is mediated or aborted by the valorization process and the capitalist rate of profit. They have no sense that the rate of profit and the rate of social reproduction can move in opposite directions. For them, it is all down in black and white in the costing.

I began this essay with the assertion that fictitious capital is the gap between total price and total value on a world scale. In light of the preceding let us examine this notion more closely. (Bourgeois economics–there is, by contrast with the Marxian critique of political economy, no other kind–has something of the same idea in “Tobin’s Q”, which is the ratio of the total valuation of all assets over the cost of replacing them in today’s terms. Contemporary economists, of course, have no more conception of social reproduction than many contemporary Marxists.)

Capitalist accumulation can only be understood in wholes, and such wholes for capitalism are best grasped in the “peak to trough” movement of an entire business cycle. It is at the bottom of a deflationary crash such as 1929 (or perhaps the one we are currently witnessing) that price and value most nearly coincide, once all or most fictitious capital has been eliminated.

“Total value”, then, is the cost, in today’s socially necessary labor time, of reproducing existing labor power and capital plant on a world scale, within the “closed system” of only capitalists and workers. Total value is what is acting today in the downward pressure on prices in a possible deflationary bust. “Total value” is therefore determined by the labor time socially necessary for the deployment of labor power, plant and resources in a new cycle. Anything exceeding that value is fictitious. Anything holding back that process of “value valorizing itself” is fictitious.

People such as the Aufheben group who critique my definition of fictitious capital insist that in Marxist terms fictitious capital can only come from the credit system, and that there is nothing fictitious, for example, about overvalued fixed capital.

Such a criticism is wrong-headed on a number of levels, both in terms of Marx’s own framework in Capital, as well as in terms of the as well as in terms of the unfinished nature of Capital, as it relates to the solution to the schema of expanded reproduction at the end of vol. II.

Underneath “everything else”, the fundamental contradiction of capital is its need to mix with living labor to expand as capital, and the simultaneous tendency to expel living labor power from the production process. Capital needs the cost of reproducing labor power as the universal standard of exchange, and at the same time periodically aborts that standard by the very technological progress spurred by its necessary innovation. The obstacle to the expansion of capital at a certain point becomes capital itself. With time, the cost of reproducing V relative to C becomes too small to serve as the universal standard of exchange, the “numeraire”, and value becomes an obstacle to further social reproduction.

Fictitious capital enters the picture when we move from this (very real) closed system of only capital and workers to consider the interaction between the closed system and its valorization of the total capital in the capitalist titles to wealth in the form of profit (stocks), interest (bonds) and ground rent (titles to landed property).

For in spite of the logic of the relationship of C to V in the pure system, real existing capital in the form of the paper titles to wealth—the only forms that capitalists know in practice—are not merely, like the M-C-M’ movement of capital in the pure model, a social relationship of production; they are paper claims on future wealth, wherever that wealth may come from.

Further, unlike capital described in the pure model of vols. I and II, these real-world paper claims can only exist in a capital market regulated by a state and its central bank (again, introduced only in vol. III) , i.e. backed by the armed might of the state and the state’s power to tax. It should never be forgotten that stocks, bonds and titles to income from landed property long preceded the full dominance of capitalism per se, and that in the proto-capitalist transition in Europe between the 15th and 19th centuries, the first phase of capital’s primitive accumulation off of feudalism, such paper claims were in essence state-backed licenses to loot, as in the charters issued by mercantile states to tax collectors from the French peasantry, to African slave traders, to the Spanish looters of the New World, or to the English sea dogs who looted the Spanish looters. Contemporary Marxists sometimes forget that stocks, bonds, mortgages, insurance, state debt instruments and even central banking preceded historically the dominance of value relations in the immediate process of production. What differentiates capitalism from mercantile proto-capitalism is precisely the preponderance of the immediate process of production in providing wealth (as surplus value) to valorize the paper claims, but because of the ongoing reality of primitive accumulation in world capitalism, these paper claims never really lost–far from it–their original character as state-backed licenses to loot wealth from inside or outside the pure system.

We see this looting today in the trillions in debt crushing the economies of the Third World, and such countries being obliged to ravage their resources to merely service the interest on this debt; we see it in massive environmental destruction. We see it in the global warming occasioned by fossil fuel emissions, emissions from technologies and fuels that a healthy society would have long ago scrapped and superceded. We see it in the flood of immigrants from the bankrupted regions of the world ruined by decades of debt service. We see it in the proliferation of U.S. type workfare programs and of the working poor, where millions are employed at starvation wages performing infrastructural work previous done by blue-collar workers paid at reproductive levels.

In all these cases of non-reproduction, there is fictitious capital at work.

Let us now consider the history of these licenses to loot backed by the armed might of the state as they developed in their contemporary form.

In the 1890-1914 period, world production was increasingly chafing under the constraints of British world hegemony, expressed most immediately in the City of London as the center of world finance, the system of sterling balances, the gold standard, national limits to expansion, and (above all British and French) colonial customs zones. (The economic exploitation of the colonies made up a larger part of world commerce in 1900 than did the exploitation of the Third World ca. 1970, prior to a certain Third World industrialization (the Asian tigers, Brazil, Mexico, more recently China). The rise of U.S. and German industry had eclipsed British industry. But above all, it was necessary to recompose accumulation to take account of a greatly increased standard of labor productivity on a world scale, laying the foundation for a new boom. This was accomplished by the 1914-1945 “Thirty Years War”, won by the U.S.

In 1918, the costs of European reconstruction from World War I already exceeded the capacity of any private capital market. German war reparations to Britain and above all France had to be financed by loans to Germany underwritten by the U.S. government. This arrangement was formalized by the Dawes Plan (1924) and the Young Plan (1929). But the collapse of U.S. financial markets in 1929 put an end to this international flow of capital, and a new arrangement had to await the end of the great depression and World War II.

This was achieved in the arrangements creating the International Monetary Fund, the World Bank, the GATT (General Agreement on Trade and Tariffs, predecessor of today’s WTO), followed by the Marshall Plan.

The mechanism was as follows. The U.S. emerged from World War II with greatly expanded industrial capacity ( an important part of it military) and towered over the war-ravaged industrial bases of Europe and Japan. But it also emerged from the war with a state debt of $250 billion, quite small in today’s terms but about 110% of U.S. GDP at the time. (This was an unprecedented figure for capitalism during the prior century.)

Through the Bretton Woods system, the U.S. placed the world on an explicit dollar standard. Britain, ca. 1900, had achieved a sterling standard within its colonial and quasi-colonial (e.g. Argentina) sphere of influence. Britain’s chronic balance-of-payments deficits with that sphere were not settled up in gold (as they were with France, Germany, and the U.S.) but were recycled into the City of London and thereby enabled the British financial system to finance further balance-of-payments deficits. Thus the British sphere of influence was on a de facto sterling standard.

The U.S. extended this arrangement to the entire world. First, it imposed drastic devaluations on Britain, France and Germany, devaluations which were codified into the Bretton Woods fixed-rate system that lasted until 1971-73. Then, through Marshall Plan loans, it financed massive U.S. exports for the reconstruction of Europe, thereby preventing the post-World War II depression expected by many.

The U.S., through the Bretton Woods system, by making the artificially overvalued dollar (and, until 1967, sterling) reserve currencies to be held alongside gold in all the central banks of the world, thus achieved an unprecedented control over world money. All goods coming to the U.S. from Europe and Japan (not to mention the underdeveloped world) contained an element of “loot” as described above. All American acquisitions of capital plant, real property, etc., above all in Europe, involved a similar dimension of looting. The bargain-basement sales of British assets abroad to repay Britain’s war debts before and after 1945 involved similar looting. This wealth passed into the balance sheets of U.S. capitalism, private and public, quite independently of the profits produced in the immediate production process in the U.S. itself, as might be derived from the mechanisms described in the first part of vol. III of Capital. But for theAufhebencomrades and others like them, such looting through the credit system has nothing to do with the valuations of fixed capital.

But such considerations are merely openers. More importantly, I have said previously that Aufheben et al. do not take seriously the phenomenon of capitalization which is, in the course of the business cycle, how capitalists calculate the value of fixed capital and against which the calculate a rate of profit. Capitalization is, further, the link between fixed capital and the crdit system.

To see this in the “embedded theory” of real history, let us return to the story of U.S. dollar imperialism after World War II.

While the U.S. was obviously the most advanced capitalist economy after 1945, it in fact displayed a stagnant undertow of real significance for our story. It was hit by recessions in 1948-49, 1953-54, and above all in 1957-58. The Korean War of 1950-53 had made possible the consolidation of permanent “peacetime” arms production that took up 5-7% of GDP into the 1990’s (and which is rising again today). Starting in particular with the 1957-58 recession, more and more American direct investment in production was in Canada, Europe and (after the mid-1960’s) in Asia. European reconstruction had been completed ca. 1952, with state-of-the-art technologies, already putting pressure on the overvalued dollar and thus the whole Bretton Woods system.

It is in the link between the unraveling of this system that we see the link between overvalued fixed capital and the international credit system as a whole.

The U.S., with its vast foreign military installations, its foreign loans and, increasingly, its direct investment in overseas production, was running balance-of-payments deficits from 1950 onward (while the balance of trade remained favorable until 1971, the year the Bretton Woods system collapsed). These dollars accumulating abroad were at first useful to European and Asian reconstruction. But after the 1957-58 recession, they began to become a glut, and the crisis of the overvalued dollar became more apparent. (The “Euro-dollar” market, a separate “offshore” dollar-denominated banking system, began at the same time with $30 billion. Total U.S. dollars held abroad today amount to $10 trillion.) Thus began the process, hopefully reaching its paroxysm today, whereby foreign holders of “nomad dollars” reinvested them in U.S. capital markets, enabling the U.S. to run further overseas deficits, and to buy foreign assets with overvalued dollars. It was in essence buying foreign assets with its own debts.

This financing of the U.S. economy with its own balance-of-payments deficits intersected the fictitious element of U.S. fixed capital in the following way. As the rest of the world, rebuilding after the war with cutting-edge technology, caught up with and then surpassed more and more sectors of relatively stagnant U.S. industry, the fixed capital of the latter was already, in reproductive terms, (i.e. current replacement costs) ready for devalorization. But contrary to Aufheben and others who inhabit the pure model of Capital of only capitalists and workers, capitalists strongly resist the immediate devalorization of their capital assets wherever and whenever possible. (One need only look at Japan over the past ten years, where the central bank, through the banking system, has kept massive real estate and industrial assets at bloated paper values.) Capitalist titles to wealth, such as the huge corporate bond market, are discounted in U.S. capital markets, ultimately underwritten by the Federal Reserve Bank, exactly as Marx described the Bank of England’s operations in discounting bills of exchange in the London money markets of the 19th century. These discounting operations are in turn facilitated by the recycling of the U.S. balance of payments deficits as described above. Further, as overvalued corporate assets place a further squeeze on profits, the system grants credit to ailing firms, consumers, and to foreigners. These procedures give rise to a “bubble” which is circulated through the international system, a bubble that is further propped up by the forms of primitive accumulation described earlier.

The deep U.S. recession of 1957-58 was, as indicated earlier, the beginning of the crisis of Bretton Woods and hence of U.S.-dominated “dollar imperialism”.  It marked the beginning of the de-industrialization of the U.S., as profitable investment in production slowed dramatically and shifted overseas. It is the stellar example of how overvalued fixed capital of indebted corporations is not immediately written off but passes into general circulation through the credit system. Rosa Luxemburg identified, in expanded reproduction, a surplus of actual goods that had to be sold (realized) outside the pure model (i.e. in the non-capitalist world); she underestimated the extent to which the expansion of credit (still at an early stage in her lifetime) could sell this surplus both inside the closed model to capitalists and to workers, and outside the pure system to non-capitalist strata, and thus ultimately circulate as fictitious capital requiring valorization. It circulates as a bubble of hot air, of potential illiquidity (non-convertibility to cash on demand, as in a sell-off crisis) as long as the combination of surplus value and loot (as defined earlier) sustains the paper claims it makes up.

Recession hit the U.S. economy again in 1960-61. More importantly, recessions in Europe and Japan in 1964-66 pointed to the end of the postwar boom, and to the further unraveling of the Bretton Woods system. Thus in November 1967 the British pound was devalued and eliminated as a second reserve currency (again, like the U.S. today, due to an unsustainable balance-of-payments crisis), and in March 1968 the dollar crisis brough the system to the edge of complete collapse. In 1971, the U.S. severed the dollar from gold and in 1973 the fixed-rate system was scrapped for good. The world sank into the worst downturn (1973-75) since the war. The world went, in Michael Hudson’s concise formulation, from a standard of “paper gold” to a standard of “paper paper”, and has been on a de facto dollar standard ever since. U.S. dollars have never ceased to accumulate abroad, now estimated at a net indebtedness of $2 trillion ($8 trillion in U.S. holdings abroad against $10 trillion held by foreigners). The U.S., like Britain before it, has become a vast rentier economy, and any attempt, following the Aufheben methodology, to isolate U.S. corporate profits in the pure model of only capital and workers is doomed to be a misguided empiricist exercise. (If this essay seems to be U.S. centered, it is only because the world economy is, for now, also U.S. centered.)

Thus the perturbations of the fixed rate system that became clearly visible in 1958 (fluctuations of the free-market price of gold, creation of the Euro-dollar market) was not merely a monetary-credit phenomenon, stemming from credit markets, but was the first clear sign of a roving mass of dollars, ultimately traceable to the inflated book value of U.S. corporations, that had to be valorized alongside (and was indistinguishable from) the profit, interest and ground-rent corresponding to an actually available surplus value. Through the mechanism of credit, this fictitious book value of fixed assets circulates through the system as a whole.

We can briefly sketch subsequent events, which amount to a bloating of this pyramid of credit beyond anything thought possible in the mid-1970’s, even though the basic “story” is in place. The U.S. reflated out of the 1973-75 downturn but only exacerbated all the problems described above. By 1978, inflation in the U.S. was approaching 15% and America’s creditors were watching their dollar-denominated assets depreciating through inflation by the year. The price of gold went from $168 per ounce in spring 1978 (up from the government-determined rate of $35 per ounce that had prevailed for four decades up to 1975) to $900 per ounce in January 1980 as a mass rush out of dollars threatened (as in spring 1968, or summer 1974) to bring down the whole system in a deflationary crash. Those assets had to be protected and the coming to power of Thatcher in Britain in 1979 and Reagan in the U.S. in 1980 was precisely oriented to using the action of the central bank to prevent a general deflation of assets by aborting reproduction of both labor labor and of capital plant to the benefit of profit rates. Here again, as with the developments following the 1957-58 recession in the U.S., or as in Japan since 1990, we see the central bank acting through the credit system to prevent immediate devalorization of all forms of paper claims to wealth at the expense of the “real” economy of production and reproduction. In the 1980’s, the U.S. government ran the highest deficits (relative to GDP) since World War II, deficits once again financed by foreigners, above all the Japanese. In 1984 the U.S. shifted from its position as the world’s largest creditor to the world’s largest debtor and has never looked back. The 1980’s saw the proliferation of hostile corporate takeovers, leveraged buyouts, and junk bonds while two million industrial jobs disappeared. In the late 1980’s, as much as half a trillion was added to the Federal debt in by the meltdown of the savings and loans banks, tied to the real estate bubble of the previous decade. From the Mexico and Brazil crises of 1982 to the Mexican “tequila crisis” of 1994, by way of the near-collapse of the U.S. banking system in 1991 and the actual collapse of the bond market in 1993, U.S. crisis management was about keeping the growing bubble of illiquidity circulating on a world scale through the M-C-M’ movement, whatever the consequences for material reproduction. In 1997-98 came the Asia crisis in which the IMF had to lend South Korea $80 billion in exchange for opening its economy to foreign (i.e. U.S.) investment, and exacted draconian austerity measures from other vulnerable countries (Indonesia, Thailand) in exchange for bailout loans. In 1998 came the bankruptcy of Russia and the bailout of the hedge fund Long Term Capital Management (the latter with $1 trillion in implicated, potentially illiquid assets at stake). In 2000 came the end of the “high tech” bubble and the beginning of three years (and counting) of depressed world stock markets and possible world deflation. In 2001 came the Argentine bankruptcy proceedings. At this writing, the Federal Reserve Bank has been attempting to massively reflate the U.S. credit system, now openly talking about a possible deflationary meltdown. Since the 1970’s, fictitious capital has proliferated in previously unknown forms (or hitherto undeveloped forms) as “securitized financing”, hedge funds, and derivatives (the latter estimated today–though no one really knows–to involve $100 trillion globally).

Early in this essay, I referred to the pre-capitalist origin of stocks, bonds, and titles to landed property, as paper claims to future wealth, as being licenses to loot backed by the power of the state. I cannot imagine a more concise definition of how fictitious capital has operated in the post-1970’s “neo-liberal” world. Nor can I imagine anything more wrong-headed than the way in which groups like Aufheben focus on the distribution of the rate of profit over the immediate process of production, naively imagining total profits of enterprise to correspond to some real expanded social reproduction, or never even posing the question of some relationship. Neo-liberal ideology originated precisely in Britain and the U.S., the two successive financial centers of actually existing capitalism, the two countries which under “Keynesian demand management” had de-industrialized into rentier economies supported by net loans and loot from elsewhere, covering over the underlying decay of real reproduction. What became necessary in the late 1970’s was to intensify the availability of loot to keep total capitalist paper afloat. The IMF and World Bank “structural adjustment programs” bled the Third World dry from the 1970’s onward, but this was hardly enough. The leveraged buyout craze of the 1980’s was more the appropriate model: to seize existing wealth wherever it could be found, and to dismantle real assets, whole regions and millions of working-class lives for the quickest possible return on investment, leaving only rubble behind. The war cries of de-regulation carried this looting process from the hollowing out of British and American industry to the current campaign to “break down every Great Wall of China”, namely the neo-mercantile states which continued to be more productivist for the simple reason that they did not benefit from being one of the global financial centers. The collapse of the Soviet bloc opened previously unimagined horizons of “free inputs” of a highly-skilled work force available at bargain basement rates and similarly dazzling natural resources to be hauled off. The opening of China after 1978 was a similar breakthrough. The regimes of Latin America which had benefited from the crisis of 1929-1945 to achieve some modest development behind high tariff walls were broken down one by one. Then the Japanese deflation after 1990 and the Asia crisis of 1997-98 provided the U.S. with an unprecedented opportunity to beat the drums for “reform” and “shareholder value”, attacking the “antiquated” statist development model (which had, in Taiwan, South Korea, and Singapore produced the only serious counter-examples to the hundred destitute countries that applied IMF recipes). The U.S. success in forcing open South Korea and buying up bankrupt assets after 1997 was “shareholder value” in action. Now the “shareholder value” model is knocking at the doors of the even richer pickings in the Europe of Maastricht.

These developments of the past 25 years confirm, in my opinion, the forgoing analysis and historical narrative, and show that Marxists lacking the above conceptual framework from Marx, Luxemburg and others who worked the same vein of analysis are all too prone to view such developments as normal capitalist development, and incapable of distinguishing out-and-out retrogression from “business as usual”. If this essay succeeds only in forcing a debate on the meaning of expanded social reproduction for an understanding of Capital, it will have achieved its purpose.