(All quotes from Capital in the following are from the Vintage editions of vol. I (1976) (Fowkes translation) and vol. II (1981) (Fernbach trans.), and from the Penguin edition of vol. III (1991 reprint) (Fernbach). Italics within Marx quotes are mine unless otherwise indicated.)

(Note: In spring 2000 the British ‘Aufheben’ group wrote a lengthy critique of my text The Remaking of the American Working Class, which had been circulating on the Internet for several years. It was undoubtedly the most comprehensive critique I had received. For various reasons, I did not write a reply until October 2002. Both their critique and this reply are available on the Break Their Haughty Power web site. The following transforms the letter to Aufheben into a more formal article, and aspires to be readable on its own, as a polemic against a number of widespread misreadings (in my view) of Marx.)

Too many readers of Marx’s Capital fail to notice that the work as a whole is organized as a “phenomenology”, directly taking over the method employed by G.F.W. Hegel in his works, the Phenomenology of Mind and the Logic. As one writer put it many years ago, attempting to read Capital without a grounding in German philosophy (and Marx’s emergence from it) is tantamount to studying advanced physics while innocent of higher mathematics.

One fundamental aspect of this “methodological” question is the shift in the last part of vol. II of Capital from simple to expanded reproduction. Most readers of Capital come to it with a “tool kit” of prejudices acquired from their immediate political and social milieu,  (and one of course influenced by the dominant society),  a “tool kit” usually imbued with various “hard-headed” ideas about an “early” and a “late” Marx, about Marx as being a completion of the “political economy” of Smith and Ricardo (and not the critique of political economy, as the sub-title of his book suggests),  that this “late Marx” was an “economist” in the way that Keynes or Milton Friedman are (in fact) economists, and so on.

“Labor Time Embodied In The Commodity”: Ricardian and Marxian Value Theory

One of the most deeply-rooted prejudices about Capital pervading the militant milieu, and which can be supported by abundant quotes from vol. I,  is that Marx considers the value of a commodity as “determined by the socially necessary labor time embodied in it”. The “immanent critique” of an opponent’s viewpoint developed by German critical philosophy is precisely to use it as a naïve starting point, and to explode it from within. Thus, Marx says in the first chapter of vol. I:  (p. 129 of Vintage): “What exclusively determines the magnitude of the value of any article is therefore the amount of labour socially necessary, or the labour time necessary for its production”. Or Vol. I (p. 340): “Its (labor power’s) value, like that of all other commodities, is determined by the labor-time necessary to produce it.”

If the curious reader opens Ricardo’s Principles of Political Economy and Taxation, he or she reads at the head of Chapter One: “The value of a commodity, or the quantity of any other commodity for which it will exchange, depends on the relative quantity of labor for which is necessary for its production…” Isn’t Marx then squarely in the lineage of British political economy?

Again in vol. I, p. 129, just above the previous formulation: Marx writes “How, then, is this value to be measured?. By means of the quantity of the ‘value-forming substance’, the labor, contained in the article”.

Felton Shortall, (whose book The Incomplete Marx, does not make most of the elementary blunders of Marx readers,), is quite right to emphasize (p. 209) that already in pt. 3 , Ch. I , vol. I Marx moves (to use Shortall’s language) from a Ricardian “embodied” labor theory of value to an “abstract social” labor theory of value, emphasizing the important Marxian idea that value is not a thing but a relationship. Nevertheless, that does not yet get us fully out of the “Ricardian” elements of vol. I, and much later in the same volume Marx is still saying : “And how do we measure this value? By the quantity of labor contained in it.”(p. 675)

Now, what does the “fully Marxist” vol. III of Capital, which dialectically supercedes the viewpoint of  vol. I and most of vol. II, say about the same question? (p. 238): “The value of any commodity…is determined not by the necessary labor time that it itself contains, but by the socially necessary labour-time required for its reproduction.” (our italics) (Shortall ‘s book—to take one example of Marx commentary– mentions this in passing (pp. 402-403) but does not link this shift systematically to the structure of the three volumes of Capital.)

(Before proceeding any further, I want to make it clear that I hardly think Marx was still a “Ricardian” –if he ever was–when he published vol. I  in 1867. (he had after all written vols. II and III and Theories of Surplus Value when vol. I was completed). What I mean, once again,  is that he is developing an immanent critique: begin with the terms and concepts of the enemy (i.e. political economy) and explode them from within.)

From Simple to Expanded Reproduction and from the Individual to the Total Social Capital: The Break At The End of Vol. II of Capital

This division is anything but simplistic. The vantage point of production of vol. I, what Marx calls “the immediate process of production”, and the total capital vantage point of the end of vol. II and all of vol. III, or that of reproduction, is the fault line between the widespread reductionist reading of Capital and the viewpoint defended here. What is locally true for an individual capital may not be true at the level of the total social capital.

This may strike many as an esoteric debate, (perhaps for the simple reason that few leftist militants ever finish Vol. I). But even those who do seriously read all three volumes and the essential vol. IV (Theories of Surplus Value), because of various reductionist prejudices imported from the dominant society and echoed in the broad left milieu, are still blasé about the shift from simple to expanded reproduction. Their attitude is basically: “What’s the big deal about expanded reproduction? It’s just an increase of simple reproduction.
Isn’t that just what capitalists call ‘growth’?”

The “phenomenological” organization of Marx’s Capital ,  in my view, goes against the grain of that view. The demarcation of vols. I and II (NB: I mean of course up to the introduction of expanded reproduction at the end of vol. II)  means that vols. I and II are intended as a “closed system” with all kinds of things held constant, and explicitly so. The most important Marxist theoretician after Marx to point this out was Rosa Luxemburg, whom I follow—up to a point. Even Henryk Grossmann, Luxemburg’s arch- critic, said something like (I’m sorry I don’t have the direct quote) “despite her errors, Rosa Luxemburg was quite right to point out that the end of vol. II  blows the abstract schema of vols. I and II sky high”. In other words (coming even from her critic), vols. I and II are a “heuristic device” designed to demarcate a pure capital “in itself” (the single firm), permitting us to then jump into the actually existing capital, “in-and-for-itself” so to speak (expanded reproduction and the total social capital) and to isolate essential elements.  Many readers of Capitalhave a reductionist reading of Marx from the neglect of the full implications of this transition, namely the “apples to oranges” leap  from simple to expanded reproduction, and all that implies. It blinds them, later, to the full scope of “fictitious capital”. Marx somewhere calls the method of dialectical critique “making the petrified relations dance” and that is exactly what the transition from vol. II to vol. III does.

Using Marx quotes is of course not the most elegant form of argument, but in this case is a useful (and necessary) point of departure. on the heuristic assumption of vol. 1: from vol. II, p. 565 (first line of Ch. XXI): “We showed in vol.  I how accumulation proceeds for the individual capitalist.”

But much more important and substantively, for at least vol. II (and, I will show in a moment, vol. I as well): vol. II p. 470 (3rd page of Ch. XX): (all italics, once again, are mine)

“As long as we were dealing with capital’s value production and the value of its product individually, the natural form of the commodity product was a matter of complete indifference…This was always simply an example…What we were dealing with then was the actual immediate process of production which presented itself at each turn as the process of an individual capital…But this merely formal manner of presentation is no longer sufficient once we consider the total social capital and the value of its product…


Simple reproduction on the same scale seems to be an abstraction, both in the sense that the absence of any accumulation or reproduction on an expanded scale is an assumption foreign to the capitalist basis…”

The vol. I and II model assumes simple reproduction, i.e. no growth of the productive forces.

The issue, then,  is not merely the distinction between the individual and the total social capital; it is about the heuristic nature of vols. I and II, the “merely formal manner of presentation” of everything up to that point,  with which the end of vol. II constitutes a fundamental break.  The argument in Vol. I is illustrated in terms of the ‘single capitalist enterprise’.

Marx is even clearer on this point, as regards vol. I (cf. above) and vol. II: “What we were dealing with in both Parts One and Two, however, was always no more than an individual capital, the movement of an autonomous part of the social capital.” (vol. II, p. 429)

Let us pursue Marx’s methodological division further. In the introduction to Ch. 23 on simple reproduction in vol. I, he writes (p. 710): “We shall therefore begin by considering accumulation from an abstract point of view, i.e. simply as one aspect of the immediate process of production.”(The “immediate process of production” once again, is the sole focus of vol. I, and this remark anticipates the formulation on the “merely formal method of presentation” quoted above.) A few pages later (p. 714), Marx again refers to “our present viewpoint”, (which is actually a mistranslation from the German “von unserem bisherigen Standpunkt”, “bisherigen” meaning “from our standpoint up to now”, i.e. the guiding assumptions of vol. I): “From our present viewpoint it therefore seems likely that the capitalist, once upon a time, became possessed of money by some form of primitive accumulation…” i.e. once again our temporary assumption of the viewpoint of the individual capital.

Marx drops the outlook of the individual capital in vol. II in the Introduction to Part Three (vol. II, p. 427ff): “the immediate process of production” (i.e. the outlook of vol. I-LG) “is its process of labor and valorization…”the process of capital’s reproduction includes, on top of this immediate production process, the specific process of circulation with its two phases” (i.e. the outlook of Parts I and II of vol. II-LG); “but each individual capital forms only a fraction of the total social capital…” (i.e. the outlook of the remainder of vol. II and the entirety of vol. III).

We can use, again, use Shortall’s The Incomplete Marx as a proxy for contemporary muddling of this issue, because it is in other ways a quite sophisticated reading of Capital.  But, like most readers,  Shortall’s presentation of the end of vol. II is generally consistent with the widespread leftist militant attitude cited earlier: it doesn’t see the transition to expanded reproduction in “apples to oranges” terms.  In a book with such a title, given all the ink that has flowed over the question since Luxemburg (e.g. Bukharin, Grossmann, Sweezy), it is more than a little surprising to find no discussion whatever of this, particularly in light of Engels’ statement describing the  difficulties of editing vol. II (from p. 86 of the Vintage edition ): “the third part, on the reproduction and circulation of the social capital, seemed to him strongly in need of revision. In Manuscript II, for example, reproduction was treated firstly without regard to the money circulation that mediates it, and then once again taking this into account.”

In short, chapter 21 of vol. II is one of the most incomplete parts of Capital. As Luxemburg says in The Accumulation of Capital(Routledge edition, 1963, pp. 139-140)

“This brings us back to the old question: How, and by whom, is the accumulated surplus value to be realized?


Marx was well aware that his seemingly water-tight scheme of accumulation did not cover this point adequately, and he himself kept reviewing the problem from various angles…”

And then:

“After the breakdown of all conceivable attempts at explaining accumulation, there, after chasing from pillar to post, from A I to B I, from B I to A II, we are made to fall back in the end on the very gold producer, recourse to whom Marx had at the outset branded as “absurd”. The analysis of the reproductive process, and the second volume of Capital finally comes to a close without having provided the long sought-for analysis to our difficulty.” (p. 154)


“chapter 21…of the whole book is the most incomplete. It comprises thirty-five pages of print in all and breaks off right in the middle of the analysis” (p. 169).

While I don’t fully agree with Luxemburg’s solution to the problem of accumulation, though (as the following will show) I fully agree with her demonstration that Marx did not finish the book, and that this incompleteness centered on the question of expanded reproduction, the total social capital and money (pointing to the credit system).

Where Engels says that Marx felt that Part III of vol. II was “strongly in need of revision”, and where Luxemburg says that the chapter on expanded reproduction “breaks off right in the middle of the analysis”,most reductionist readers, like our contemporary example Shortall,  see no problem whatever. He says (p. 343 of Incomplete) “We need not examine any further Marx’s analysis and illustration of the “schema of expanded reproduction”…What is important is that it can be clearly seen that the exacting and complex conditions of proportionality that arise with the ‘schema of simple reproduction’ become further compounded in their expanded form which applies to the normal development of the capitalist mode of production”.  (And indeed, there is no insuperable problem of proportionality in capitalism or in Capital; our disagreement lies elsewhere) This is what underpins the general attitude that “expanded reproduction is just an increase of simple reproduction”: in other words, completely linear thinking. (The link to fictitious capital generated by the firm will become apparent later.)

The Capital Relation and Non-Capitalist Classes, Strata and Regions

Another source of misunderstanding flowing from the organization and the incomplete nature of Capital is  the non-existence, in vols. I and II,  of other classes and parts of the world outside of capitalism  This does not merely mean  landowners who collect capitalist ground rent (who appear in the latter part of vol. III and who are the third of the threegreat classes), but also peasants and petty producers (artisans, shopkeepers, etc.) with whom the “closed system” of the capital-relationship interacts, as well as to the “parasitic unproductive appendages to the capitalist class”.  Most contemporary Marxists pay little or no attention, “methodologically” speaking, to the fact that “capitalist classes” for Marx are the bourgeoisie and the proletariat, and that many strata both within capitalist countries and in the rest of the world being pulled into full-blown capitalism stand (for purposes of the dynamic of the system) outside of the capital relationship. This includes unproductive wage laborers in capitalist society, who consume surplus value and do not produce it (e.g. state civil servants). They have the status of “capitalist house servants”; today we are more apt to call them “civil servants”. (One might recall the already (in 1867!) massive unproductive “service class” mentioned in Vol. I, pp. 574-575). While they might well, as wage-laborers,  become part of the revolutionary class, it is necessary to underscore (for understanding accumulation) that they occupy a different relationship to the valorization process from that of  productive workers. Similarly, peasants pulled from petty production in Latin America and Africa to work in the metropolis (i.e. U.S.,Europe) come “free” to capitalism in a form of primitive accumulation, i.e. capital does not pay for their reproduction prior to their insertion into wage labor., or after their expulsion from it (and usually not even really while they are in it).

Vol. I and most of vol. II, once again, are a “closed model” consisting of only proletarians and capitalists. It is important to make the point, which I do not encounter very often, that this “capital relationship” between the two capitalist classes is an important heuristic device for understanding how the “open model” (expanded reproduction and the total capital) interacts with all people outside that relationship.

But the point goes much further. Most readers tend not to make much of the fact that capitalism, for Marx, is by definition an incomplete system, one that is “synchronically” in relationship to non-capitalist strata and populations today, as well as being “diachronically” a transition from feudalism to socialism. This is not to get into a debate, once again, about Luxemburg’s specific solution to the problem of accumulation (although one can presume most Marxists would agree—assuming they pose the question at all– that capitalism does interact forcefully with such populations “outside” the system). It was classical political economy that tried to conceive of capitalism (in practice) as a pure, closed  system, “eternalizing” it: as Luxemburg put it “only a socialist can really solve the problem of the reproduction of capital. Between the Tableau Economique and the diagram of reproduction in the second volume of Capital there lies the prosperity and decline of bourgeois economics, both in time and in substance” (Accumulation, p. 106).

Abstraction From The Material Conditions of Production and Reproduction; Permanence of Primitive Accumulation

One finds in the broad militant milieu today, along with a widespread (and welcome) new interest in Capital,   a “text-bound” relationship to the functioning of capitalism, which does not look at how it operates historically, either in the past or particularly in the present (as we shall see when we get to fictitious capital). Luxemburg in her Anti-Critique(Monthly Review, 1972) refers to many of the critics of Accumulation in the same way. “Capital accumulation as the historical process develops in an environment of various pre-capitalist formations, in a constant political struggle and in reciprocal economic relations. How can one capture this process in a bloodless theoretical fiction, which declares this whole context, the struggle and the relations, to be non-existent?” (pp. 61-62). The answer to expanded reproduction “cannot come from any arithmetical operations with fictitious numbers on the paper, but only from an analysis of the socio-economic relations of production” (p. 67). She cites the hypothetical case of a capitalist who is proposing to start a railroad and who presents charts and graphs to demonstrate that it will be profitable: “ Now, what would one say to a man who exclaimed: You ask, where will the profit of the 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).

I’ll say it loud and clear: primitive accumulation is a permanent feature of capitalism, and further, this permanence is intimately related to fictitious capital. Capitalism began with centuries of primitive accumulation off the petty producers (peasants, artisans) of Europe, and continues that process in various parts of the world today. But I’ll go even further: the same phenomena, which might be enlarged into the broader term “exchange at non-reproductive levels”,  (in more vernacular terms, looting),  occur both inside and outside the system: in “unequal exchange” in international trade, in non-replacement of fixed capital plant, in non-replacement of infrastructure, in the destruction of the environment (i.e. non-reproduction of nature), and finally in driving wages even within the capital relationship below levels that reproduce labor power, all serving to shift C (constant capital) and V variable capital) to S (surplus value) to prop up capitalist titles to wealth. Do such phenomena exist? There is only one way to know, which does not consist in text-bound readings of Capital but in looking concretely at whether or not they occur in historical or contemporary reality.

Production and Unproductive Labor In the Framework of the Total Social Capital

Another element of the “hard-headed” militant reading of Capital is a vol. I, point-of-production view of unproductive labor. This goes hand in hand with the idea that the value of a commodity is determined by “the labor time embodied in it”. For this reductionist reading, backed up by quotes from Theories of Surplus Value, productive labor is labor that produces surplus-value for a capitalist. Take the question of military production. Military production is mainly unproductive, except for the technological spinoffs that may enter the civilian economy. Seeing that individual firms indeed make a profit from military production, the reductionist reader  again fails  to distinguish between the closed vols. I and II model and the open expanded reproduction model, tied as it is not to the “single firm” (closed model) but to the total social capital. What might be a “profit” locally for one firm may not be a profit at the level of the total capital. Here I reiterate a part of the Marx quote above which I previously omitted. This is, once again, from vol. II, p. 470: (and once again, my italics) “As long as we were dealing with capital’s value production and the value of its product individually, the natural form of the commodity product was a matter of complete indifference for the analysis, whether it was machines or corn or mirrors….In so far as the reproduction of capital came into consideration, it was sufficient to assume that the opportunity arose within the circulation sphere for the part of the product that represented capital value to be transformed back into elements of production, and there into its shape as productive capital…But this merely formal manner of presentation is no longer sufficient once we consider the total social capital and the value of its product. The transformation of one portion of the product’s value back into capital, the entry of another part into the individual consumption of the capitalist and working classes, forms a movement within the value of the product in which the total capital had resulted; and this movement is not only a replacement of values, but a replacement of materials, and is therefore conditioned not just by the mutual relations of the value components of the social product but equally by their use-values, their material shape.”

Marx makes a similar point in vol. I (pp. 726-727): “Accumulation requires the transformation of a portion of the surplus product into capital. But we cannot, except by a miracle, transform into capital anything but such articles as can be employed in the labour process (i.e. means of production), and such further articles as are suitable for the sustenance of the worker (i.e. means of subsistence)…In a word, surplus-value can be transformed into capital only because the surplus product, whose value it is, already comprises the material components of a new quantity of capital.” (These “material components” are another way of saying what Rosa Luxemburg said, namely these issues cannot be settled by textbook exegesis but by a concrete investigation of the material conditions of accumulation.)

There it is, at any rate,  in a nutshell,. The reductionist reading that does not see a break in the final chapter of vol. II  not only misses the qualitative leap from the single firm model to the total social capital model, but also misses the link between expanded reproduction in its concrete material form and the total social capital. When Marx says in Theories of Surplus Value that anything that produces surplus value for a capitalist (a prostitute in a brothel, a teacher in a private school, etc) is productive labor, he is speaking in terms of the closed model, the single firm.  One might step back and think for a moment: What is capital for Marx? It is “value valorizing itself”, a valorization process (sich-selbst verwertendes Wert, in German). It is, in vols. I and II,  a “circuit” (German: Kreislauf; in expanded reproduction it becomes a spiral; the use of “circuit” throughout vols. I and II is yet another sign that we are in simple reproduction)  that acts on itself. In terms of the total social capital, productive labor is labor producing something which is “productively consumed” either as expanded means of production or expanded productive labor.  So: in what Department are tanks and guided missiles? Certainly not Dept. II. Are they then Dept. I: means of production? Production of what? How does a tank return to means of production, like a transport vehicle might, and continue to function as capital? The production of tanks, like that of the consumer goods used by state civil servants, are in their concrete form deductions from surplus value, not additions to it.  Productive labor for a vol. III total social capital reading of Marx is labor whose product can be consumed in expanded reproduction in either Dept. I or II.

(Some Marxists concede the  “grain of truth” in this analysis of military production (without any reference to the problematic above) by saying it occurs against revenue. It also occurs against the state debt, which Marx identifies as totally fictitious in vol. III. Given that state expenditure (at all levels) is about 40% of US GDP, that’s a pretty big “grain of truth”. But it’s still secondary to the more fundamental analytical point.)

Fictitious Capital As Paper Claims on Wealth With No Corresponding Surplus-Value

The profit realized by the capitalist producing tanks begins to circulate as part of the total paper claims on wealth to which no surplus value (which, once again, always appears in the material form of either Dept. I or Dept. II) corresponds. It becomes a fictitious title to future wealth.

The capitalist class as a whole has in practice no means for distinguishing between these two types of profit, which appear to it only as money prime in the M-C-M’ process of valorization. Periodic crises are needed to destroy the growing gap between total paper claims and actual surplus value. The gap can, as indicated earlier, be mitigated by the different forms of non-reproduction that shift C (constant capital) and V (variable capital) to S (surplus value); to recognize this, however, one requires the concept of the total capital and of the open system which interacts with various “free” inputs from non-reproductive exchange (looting of nature, of non-capitalist populations, of capital plant and infrastructure, of working class reproduction).

It is now essential to turn to the question of fictitious capital, which, while always having been present in capital accumulation, has assumed a particularly acute importance in the post-1973 crisis. It is above all important , for a Marxist approach,  to link fictitious capital to devalued fixed capital in the “immediate process of production” as a counter to all the non-Marxist theories of fictitious capital today: e.g. the neo-Austrian Richebacher, the Left-Keynesians Minsky and Doug Henwood (in Wall Street), various theories of “casino capitalism”, etc. None of these theories see any lawful relationship between the “immediate sphere of production” and fictitious capital. Marxists must, or fall into some version of monetarism.

An increment of fictitious capital begins in the “immediate process of production” and is then discounted by the operations of the credit system and the central bank. The point is important because it flows from the anarchy of production (the existence of multiple firms) and it has implications for the global fate of the system.

First, the anarchy of production. The concept of the total social capital is known only to Marxists and has no practical existence in capitalist practice itself: capitalism is by definition a system of what Kant calls “heteronomy”, where each isolated fragment (the individual, or the firm) following its own self-interest , most of the time manages to arrive at a result (a totality) that is qualitatively different from a mere “sum”of these individual “maximization principles”, a result regulated by the law of value.  That “result”, in normal times,  is the expanded material reproduction of the world simultaneous with the accumulation of capital. In abnormal times, i.e. times of crisis, the absence of a practical vantage point on the total social capital is “compensated” by breakdown crisis, a form of retrospective (‘post festum”)  “planning” that eliminates the excesses that come directly from the anarchy of production. By wiping out fictitious claims on wealth of all types, including the value of fixed capital devalorized by increases in the productivity of labor, by depressing the price of labor power below its reproductive value, the “retroactive planning” of a crisis re-equilibrates conditions for a new expansion, on a new numeraire set by higher labor productivity, in which an acceptable rate of profit again becomes possible.

Now, on the related point of the global fate of the system. Once again, I agree with Rosa Luxemburg up to a point when she said “Although (capitalism) strives to become universal…it is immanently incapable of becoming a universal form of production.” (Accumulation, p. 467). This is, to reiterate, why the concept of the “closed model” (only capitalists and workers) is so important: capitalism interacts with the “free inputs” that come from different types of non-reproductive exchange from outside the system. (The latter, again, are realities to be determined by concrete research; they don’t exist in the abstract schema.)

Luxemburg’s flaw was not in asserting the importance of this interaction or in the many examples she gave of it (in the final historical chapters of The Accumulation of Capital) . Her error was rather in failing to recognize that the “unsaleable surplus” on whose realization Marx floundered in Ch. XXI of vol. II was solved (for a time) by capitalism through the extension of credit, both inside the closed model (i.e. to capitalists and more recently to workers) and outside it (i.e. imperialism). Luxemburg tended to view the interaction between the closed model and non-capitalist strata (peasants, artisans) and non-capitalist regions (colonies) as a sale of goods through the system of international loans, that pulled the non-capitalist strata and zones into primitive accumulation (non-reproduction through exchange) and therefore propped up the system. But as far-reaching as her model was, a subordinate error was not to recognize how far credit both inside and outside the system could circulate not merely real goods but fictitious values generally, as long as this was compensated in the ways I have indicated.

Fictitious Capital Originates As Fixed Capital Devalued By Increased Labor Productivity

But because Marx did not finish Capital, this link between fixed capital devalued by the increased productivity of labor and fictitious capital circulated by the credit system (which is discussed abundantly) leads many “orthodox Marxists” to assert that if we abstract from finance and credit we cannot talk about fictitious capital. Nothing, in reality,  could be further from the truth. Let’s look at some examples of how fictitious capital arises in the production process itself. We can acknowledge, as a kind of paradigm,  that the advent of the automobile wiped out the capitalized value of even the most advanced technology for producing buggy whips. Closer to the present,  a great advance in public transportation and maglev train transport infrastructure would wipe out the value of a great deal of fixed capital for automobile and truck production (and oil).  Thus, if (hypothetically) thermonuclear fusion power one day proved feasible and clean, it would wipe out massive fixed capital in fossil fuel (oil, coal) production and use. Most generally, if Marxism is right in asserting that the cost of reproducing total V is the standard (numeraire) for all value, then any cheapening of the material content of V by greater productivity ultimately cheapens all commodities.

But it is not necessary to look at such multi-sector examples, or hypothetical general ones: we have extreme cases of the creation and wiping out overvalued (and hence fictitious) fixed capital within sectors right in front of us.

a) In the late 1990’s, changes in the design of switches increased the through-put capacity of fiber-optic cables by 100 times,  making 98% of all such cables previously laid worthless.

b) In the mid-1990’s, Texas Instruments spent $500 million building a new chip plant that never opened because while it was under construction a more powerful chip was developed elsewhere.

c) as we speak, Intel has $5 billion sunk in the development of its new Itanium super-chip. Already the head of Google, anticipated as one of the main potential customers, has said the entire project may be wrong-headed and that computing might be headed in a completely different direction. A rival company, Advanced Micro Devices, is coming out next year with Opteron, which may completely undercut Itanium. Unless Intel’s bet on Itanium pays off profitably, it will be sitting on a mass of sunk fixed capital costs as worthless as the old fiber-optic cables.

d) finally, (New York Times, 10/16/02), it is “the rapid pace of the technology development driven by Moore’s law—the doubling of computing capacity every 18 months—that has created the industry’s financial crisis.…Taking on huge debt burdens during the telecommunications industry build-out of the 1990’s was out of sync with the rapid depreciation and obsolescence of computer-based equipment.”

All of these are cases of fixed capital being rendered worthless or near-worthless by increases in productivity by some other firm. These, combined with the broader and more general cases mentioned earlier, are all examples of fixed capital assets being rendered fictitious by technological advance, generating a fictitious value that has (initially) nothing to do with the credit system, up to the moment when massive devalorization wipes it out.

This very phenomenon is articulated quite nicely by Shortall in The Incomplete Marx, (pp. 402-403) but without seeing the link to the credit system.  “ A machine purchased ten years ago may have taken 1000 hours of social labour to build; but now, as a result of an increased productivity of labour, it may be possible to purchase a similar machine which has taken only 500 hours of labour to build… Yet it  was this old value that the capitalist reckons as part of her advance of money capital and which she seeks eventually to recover, together with the requisite amount of profit, over the lifetime of the machine through the depreciation charges added to the value of the commodities it serves to produce. “

The fundamental error of this “orthodox” reading (which, in a book called The Incomplete Marx is remarkably confident about the completeness of many unsolved problems in the manuscripts Marx left) is a failure to grasp the full meaning of “capitalization”.  This basic capitalist accounting concept is the way in real capitalist practice the market price  of all capitals is determined. Capitalization is, moreover, what actually links the closed vol. I and II system to the credit system, but it is not yet the credit system. It is here that  attention to what capitalist practice actually does, as opposed to the pure model of the individual capital developed in vol. I and II, is decisive.

Moreover, Marx specifically discusses capitalization,( in vol. III, Book Four, Ch. 29,
p. 597 and ff of Penguin edition: “The formation of fictitious capital is known as capitalization.”) The orthodox reader will quickly point out that this subject is first approached in the discussion of the credit system, but such orthodoxy is simply wrong.  The important point for our discussion is that Marx here presents the capitalization of shares, i.e. equity, which are not from the credit system but the paid-in capital of the firm.  Marx does mention shares as only one among many types of capitalist paper that are discounted in the operations of the credit market, but there is already a direct link between the credit system and the sphere of production.

All readers agree that Marx discusses fixed capital devalued by technological innovation. But he also uses the notion of “capitalization” long before getting to the credit system, as the very definition of capital accumulation: “all capital…is transformed into accumulated capital, or capitalized surplus-value” (vol. I, p. 734). In vol. II he makes the link between this capitalized surplus-value and the credit system:

“This latter cases shows us how not only the capital accumulated, but also a part of the capital originally advanced, can be simply capitalized surplus-value.


Once the development of credit intervenes, the relation between the capital originally advanced and the capitalized surplus-value becomes still more intricate.” (vol. II, p 395).

This is as far as the exegesis of Marx quotes from this incomplete book will get us. I just want to drive home two  points, the question of capitalization in the context of expanded reproduction, and the question of the specific material content of production in the circuit of self-expanding value (i.e. the widespread entrapment in vol. I and II, single-capital notions of unproductive labor and the lack of attention to expanded social reproduction).


What is capitalization? It means, as we know, that a stock paying 5% annual dividends or a bond with a 5% annual rate of interest, in an environment in which the general rate of profit is 5%, is “worth” $100. Nothing controversial there. But most orthodox readers pay no particular attention to the fact that capitalization is how capitalists determine the market value of all forms of income. A hundred-year old tenement in a New York slum producing a stream of rental income is “worth”a capitalization of the profit over maintenance costs, taxation, etc; a decrepit factory, whose fixed assets have long since been fully depreciated, and whose workers for good measure are paid below the reproductive wage, can be run into the ground and still be “worth”a capitalization of the cash flow generated minus expenses, etc.; a municipal bond paying the general 5% annual rate of return with a cash flow coming from taxing the working class below reproductive levels and eliminating various parts of the total social wage is “worth” $100, etc. Most text-bound Marxists think that, all other things being equal, this average 5% rate of profit expressed in cash generated as rent, or profit, or interest, necessarily has its counterpart in some equivalent surplus value, as indeed profit does in vols. I and II (obviously not rent or interest income). But that is exactly where, without concrete attention to the real accumulation process, abstract formulations from Capital  without attention to whether such assertions are confirmed by the real world, will not take us very far. Yes, the average rate of profit within in the framework of the total social capital determines the real rate of profit specific to that decrepit individual factory, except that the factory’s “value” in reproductive terms is zero or less than zero. Its market value—its capitalization– is totally fictitious. Its “profit” in terms of cash flow is actually a drag on the profit determined at the level of the total social capital. Its fictitious character is a claim on the surplus value produced by other capitals. All the above-mentioned cases, in fact, constitute paper claims on wealth that have no correspondance in surplus-value and therefore circulate as fictions.  In all the high tech cases cited earlier, as long as those firms continue to pay dividends (not even considering the kind of inflated profit-reporting that has recently come to light) at current rates of capitalization and manage to conceal their largely or fully devalued fixed assets, their capitalized market values are fictions relative to the total social capital. Only their elimination through bankruptcy or a generalized systemic crash eliminates the fictitious component of capitalized market values.

Further, the claims on wealth represented by these fictitious titles can be circulated much farther through the operations of the credit system, as long as, on a world scale, there is sufficient surplus value generated to continue valorizing them, i.e. allowing them to complete the M-C-M’ circuit. This surplus value can come from “inside” the immediate production process through the normal functioning of the system , and it can come from primitive accumulation and what I call “exchange at non-reproductive levels” both inside and outside the immediate production process: looting of fixed assets, non-reproductive wages for workers, primitive accumulation of the classical type, incorporation of “unpaid labor” (unpaid in the full reproductive sense) of peasants into the wage-labor work force,  and looting of nature.  To see this, however, requires looking beyond the reproduction schema to actual accumulation: is capitalist valorization actually expanding the reproduction of society and nature or is it cannibalizing society and nature?

Further, typical (e.g. heteronomic) capitalist accounting methods compel (as Shortall indicates) individual capitalists to show a profit against the historical costs they paid for their fixed capital in the past when its current value is determined by the cost of reproducing it today. What has caused this devalorization except increased labor productivity, i.e. expanded reproduction? And does this expanded reproduction proceed in a linear fashion, as our typical militant might suggest,  as just an increase of simple reproduction? I think not, and at any rate that can only be determined by looking at real conditions. That has certainly not been the case in high tech, as even the capitalists and their press (e.g. the NYT article of 10/16/02) have been compelled to admit. That is certainly not the case if we consider how different “clusters” of new technologies and resources over the past 200-odd years have periodically rippled through the whole system in the “apples to oranges” way, e.g. the system-wide impact of the dynamo, or of petroleum, or improved transportation. There is no meaningful linear measure of the social productivity of labor from the 1820’s to the 1920’s to today, and the same would be true for any linear valuation of fixed capital over such periods. The idea that expanded reproduction is something qualitatively distinct from simple reproduction is only visible when we move from the individual capital to the total social capital, a distinction about which I have provided ample documentation in the three volumes of Capital.

Why is it necessary to argue about this? We have to argue about it because Karl Marx, in the posthumously edited manuscripts of vols. II and III,  nowhere writes in black and white in Capital  that “the capitalized market value of devalorized fixed assets is fictitious”,  and “that in real-world expanded reproduction the credit system circulates these fictitious values far beyond their origins”. (I claim no originality whatsoever in developing this “reading” of Marx; all I did was start with the “total capital rigor” of Luxemburg and its development by some people who took up and modified that problematic in the critical direction I previously indicated.) But, on the crucial points at issue, Marx did indeed say things that the mainstream view takes into account either inadequately or not at all. I’ll reiterate them one last time: 1) the shift in perspective between vols. I and II on one hand and vol. III on the other as the shift in perspective from the individual capital in “the merely formal mode of presentation” (including, most of the time, simple reproduction) to the total social capital approach in the framework of expanded reproduction;  2) following from the latter, the question of unproductive labor, as linked to the concrete material form of commodities and their suitability to return to the circuit of capital as either Dept. I or II goods; 3) capitalization as the bridge between the immediate sphere of production and fictitious capital.

“Early Marx”, “Late Marx”

There remains the question of how these issues relate to the so-called “early Marx”.  It is exactly the case that for Marx, capital is the reified inversion of human creative powers, and self-valorizing value, value relating itself to itself, is the inversion of labor power as a self-reflexive “relationship that it relates itself to itself”. A number of readers (starting perhaps with Lenin) have noticed the influence of Hegel’s Logicon Capital ,  but one should also note the link to Hegel’s Phenomenology of Mind. The social relationship capital is so to speak Hegel’s World Spirit, i.e. human powers as a whole seemingly moving by themselves independent of the activity of real men and women, and labor power is the direct materialist supersession of Hegel’s World Spirit, in which those powers are “re-appropriated” consciously. To demonstrate this adequately would require a longer look at the 1840’s Marx than space permits here, but I will just hit the relevant high points. This does relate in fact relate to the reductionist reader’s lack of attention to capitalism as an inherently incomplete and unstable system, as a transition between feudalism and socialism, and to its interraction with the non-capitalist world. Or as Luxemburg says, once again, “Although (capitalism) strives to become universal…it is immanently incapable of becoming a universal form of production.”  What this means concretely is that in capitalism,  concrete “universality” has no practical existence for any class or individual. Universality exists only as the unconscious “something else” that makes a partially coherent result (the reproduction of the world) out of everyone blindly pursuing his or her individual interests. It is what makes the whole “greater than the sum of its parts”.  It exists, in capitalism, only as the total social capital, of which the capitalists as individuals or as a class are unaware and on which they cannot act, and as the “mass strike” class-for-itself existence of the working class, pointing beyond capitalism.  Rosa Luxemburg was right in saying that only a socialist could solve the problem of expanded reproduction, and discover the concept of labor power, because only a socialist looks beyond capitalism to conceive of a society in which universality would have a practical concrete existence for individuals.

Very briefly, Marx looked at Feuerbach’s critique of religion, in which Feuerbach had showed that the infinity of God was the inverted form of the infinity of human powers. But Marx—as is widely known– rejected Feuerbach’s “contemplative” materialist alternative of Man, “squatting outside the universe”, and replaced it with the “sensuous human praxis” of the ‘Theses on Feuerbach”, where he breaks with “all previous materialism” (including Feuerbach’s) which “do not understand that activity is objective” (I quote from memory). That is precisely where the “subjective side”enters. Human activity is inverted into value and capital in this transition between feudalism and socialism, and creative human activity (labor power as a relationship that relates itself to itself) existed before capitalism and will be the means and the goal of communism: “the multiplication of human powers as its own end”.

What Marx does in the concept of labor power is to realize practically, as potential universal labor, the abstract and alienated universal “labor” of Hegel’s Prussian monarch. There was expanded social reproduction before capitalism (otherwise, as Luxemburg points out in her critique of Lenin (Ilyin) in Accumulation, “we would never have progressed beyond the Paleolithic scraper”), and there will be expanded social reproduction in communism, focused once again on the “production for production’s sake”, not in the Ricardian sense of capitalist productivism but in the communist sense of creativity.

To conclude. The “thread” that links Marx before he began the critique of political economy to the Marx of CapitalTheories of Surplus Value and beyond is the fate of individual creativity in bourgeois society. In such a society, creativity is contingent, is only “mediately” social, by turning its production into commodities. Its “realization” is incidental to the “goal of production”, namely accumulation. This is another way of saying that universality has no concrete practical existence in capitalism. In communism, the goal of production (and reproduction) will be creativity, and the latter will become immediately social. That is Marx’s project from beginning to end, to fuse the creative powers of the individual with the social, to bring (1844 Ms.) the “abstract citizen” back into the concrete existing individual. Capital is labor power in contradiction with itself, and it is that same schism, critiqued in the 1840’s writings, now relocated in the heart of the critique of political economy.