The Economic Crisis and Fictitious Capital: Ernst Lohoff and Norbert Trenkle Discuss the Economic and Financial Crisis – Part 2 of 3
While both neoliberal and Keynesian theorists prefer to interpret the crisis as a problem of supply- or demand-side valorization, Ernst Lohoff and Norbert Trenkle claim that the bourgeois economy suffered a heart attack with the onset of the IT age when the increasing replacement of human labor with technology crowded exponentially larger numbers of people out of waged labor than it took in while retaining labor as the fundamental source of profit. It is a change that they say can only be compensated with speculative capital, or what is known as “fictitious capital.” The quantity of property titles traded on the financial markets whose value can only be realized in the future but that are traded as capital in advance, such as derivatives, futures, options, etc., has increased dramatically in recent years and exceeds the value produced by the real economy many times over.
But this displacement of accumulation from production into the sphere of speculation does not eliminate the valorizationproblem. Instead, it moves the problem to a more profound level – with all the more serious consequences. If faith in the realization of future value should collapse because it is foreseeable that the real-economy basis that the property titles correspond to has eroded then, in the view of the authors of Die große Entwertung (The Great Devaluation), the entire chain letter-style system will also collapse. Part 2 of our conversation with Ernst Lohoff and Norbert Trenkle about the economic and financial crisis.
Reinhard Jellen: What caused the present crisis?
Norbert Trenkle: When we look at the causes, we have to distinguish between the two major layers of the crisis. The base level crisis of the valorization of value is, as has already been said, a result of the acceleration of productivity development, which makes labor increasingly superfluous. The third industrial revolution is playing a critical role in that. While there were also powerful drives toward rationalization in earlier phases of capitalist development, for instance in the 1920 and ’30s when Fordist production methods were introduced, new sectors of industrial mass production were also opening up at the same time and they required massive additional labor. That expansion of commodity production into new fields compensated for the rationalization effects so that ultimately even more labor what used than before.
But in the third industrial revolution, this compensation mechanism isn’t working anymore because restructuring the production process based on information technology means shifting a society’s productive power to the level of knowledge or, more precisely, to the application of knowledge to production. The foundations of capital valorization are called into question as a result because this leads to an absolute displacement of labor power across every sector of value production that can no longer open up new industries to make themselves competitive.
RJ: So what is fictitious capital and what is its role in the current crisis?
Ernst Lohoff: Fictitious capital is essential for understanding the second layer of the crisis. It is a term that Marx introduced as distinct from functioning capital. He showed that capital doesn’t just transform the production of potatoes, steel, textiles, etc. into commodity production in the course of its development but that money capital itself also becomes a tradable commodity.
What happens in that process is astonishing. The initial capital suddenly gains a dual existence as a result of the sale. On one hand, the initial capital is now held by the borrower or the company issuing the shares, but at the same time the creditor or the shareholder holds a mirror to the initial capital, namely a property title (loan, share, etc.) that represents a momentary claim. This doubling is no mere fiction, as the term “fictitious capital” may seem to suggest. It doesn’t just exist in people’s minds. It acquires an objective social existence in the form of securities as long as the certified claim appears to be redeemable. That is a claim to future value and it represents capitalist wealth in exactly the same way as the value that is squeezed out of the functioning capital of labor.
This kind of increase in capital through preliminary capitalization of future value was marginal to the point of irrelevance to the long-term development of capital accumulation in Marx’s time, but over the past 30 years it has become an actual source of capitalist wealth. In order to maintain capitalist production despite the fact that labor is being made increasingly superfluous due to gains in productivity, larger and larger portions of future, fictitious value have been pumped into the present. As a result, the structural crisis of valorization has been postponed for the time being.
RJ: And where is that getting snagged?
EL: Unfortunately, a system based on anticipation of future value production can only function like a chain-letter system and as such it is squeezed from two sides: On one side, the longer this insane form of capitalism keeps reprocessing itself, the faster the toxic assets of a capitalist future that has already been consumed will pile up skyward. The debts of the past cannot disappear without consequences. Either they have to be refinanced or social capital will be destroyed through the nullification of fictitious capital.
“The debts of the past cannot disappear without consequences”
On the other side, the rising tide of ever newer property titles can only find a market if it somehow seems plausible that the promise to pay and the profit outlook on the part of borrowers and other property title sellers can be fulfilled. When that cannot be guaranteed anymore, the bubble bursts and there appears to be a “financial crisis” when in reality the only thing that has failed is the mechanism that has allowed the structural crisis of valorization to be postponed for decades. If you understand that, you know that the current crisis is far more dramatic than it is perceived to be. It is a systemic crisis in the strictest sense of the term: a crisis that genuinely calls the capitalist system of wealth production into question.
RJ: What will be the consequences of the austerity policies that are being implemented by the financial and political classes as a solution to the crisis?
NT: Two things have to be kept separate when we talk about austerity policies. Austerity in the sense of setting official goals, specifically as a path toward budget consolidation, is a Fata Morgana. So new debt will have to continue on its own because states have been left with no option other than to continuously pump untold billions into the banking and finance system in order to postpone its collapse for as long as they possibly can. They do this because there will be catastrophic consequences if they don’t. But these billions can’t come from real value creation. They can only be raised by repeatedly anticipating future value.
“The consequences for most of the population are devastating”
So states have to do everything in their power to ensure their creditworthiness and to do so as if they were in a position to consolidate their budgets over the long term. And that is exactly what they are demonstrating through brutal austerity policies with respect to every social sphere that is considered pure ballast from the perspective of fictitious capital: welfare systems, public services, education, etc. The official version of this story is actually quite revealing in the distinctions they are making between sectors that are “systemically relevant” and “not systemically relevant.” The fact that the consequences for the majority of the population and for material wealth production are devastating needs no further explanation. It’s enough just to look at Greece and Spain, where what is being implemented is exactly what sooner or later will threaten the countries that haven’t been quite as seriously affected by the consequences of the crisis yet.
RJ: Why are they opting for this policy of impoverishment?
NT: They’re not doing it, for instance, to create a “sustainable” society or to avoid leaving excessive debts for “our children,” as the self-righteous, pathetically insincere political jargon puts it. They’re doing it just to continue the accumulation of fictitious capital. The price of that keeps getting higher, however, because this is no longer a matter of keeping the abstract-wealth production machine running by sucking in future value even as that machine is ground to a halt by high productivity. Above all else, what has to be prevented instead is the collapse of the towering mountains of irredeemable payment promises. For that reason, most of the newly created fictitious capital flows back into the financial sector directly and less and less of it enters into circulation in the real economy.
“Towering mountains of irredeemable payment promises”
Consequently, demonstrative austerity policy is reaching a point where it is becoming counterproductive even for the narrow-minded purpose of accumulating fictitious capital. Where it is taken to its extreme, as in Greece and Spain at the moment, it is leading directly toward economic depression – and that also affects the banking and finance system. That is slowly dawning on the hardliners among the German and European austerity tsars. For that reason and, of course, because of the massive protests, new growth and stimulus programs are now being discussed, but it remains to be seen whether or not those programs will be implemented in time, before the deluge starts. Hopefully they will be given that they might at least slow down the impoverishment drive.
Of course even in the best-case scenario this would only create a delay because those programs are subsidized by the same fictitious capital. It follows, then, that their supporters, such as France’s new President Hollande, are not challenging austerity as such at all. They just want to give it a slightly different form. They’re also chasing after the illusion of a balanced budget and are ultimately willing to demand that the populace make every possible sacrifice for that fiction. From that perspective, we can expect loads of cruelty from a possible red-green governing coalition in Germany in the coming year.
RJ: n your book, you write that, “Sooner or later there must come a point when the level of productive power is longer compatible with the capitalist form of wealth.” But aren’t there always tendencies that counteract a crisis while it is ongoing or else afterwards?
EL: Marxian crisis theory links two elements together. On one hand, Marx supports the theory that capital is heading toward an insurmountable historical limit due to the development of productive power. On the other hand, he also examined the course of periodic crises that interrupt the progression of capital accumulation over and over. In his crisis theory, both of these elements are bound together in that the basic problem of capitalism, the subordination of material wealth production to the sorry objective of valorization of value, always appears during those periodic crises.
“A Buddhist way of understanding crises”
Even more so than in other areas of society, the discussion on the left is dominated by a marked tendency to downplay the present crisis. Accordingly, the problem of periodic crises is viewed in isolation and the possibility of a historical limit is simply crossed out. The result is a kind of Buddhist way of understanding crises according to which crises are nothing more than pure “self-correcting crises.” The come and go for all eternity and ultimately they only strengthen capital. This also comes up in Marx – where he has something entirely different to say about the periodic crises. “The crises are always but momentary and forcible solutions of the existing contradictions. They are violent eruptions which for a time restore the disturbed equilibrium.” For him, the overarching element is the constant intensification and accumulation of new contradictions.
Our argument in the book directly picks up directly on the Marxian idea of a historical limit and places it in the third industrial revolution. The fact that the destruction of capital in times of crisis restores the profitability of the surviving capital and can therefore become the starting point for a renewed accumulation drive is not a reference to the problem of the historical limit but strictly to periodic crises. It assumes that a new drive of self-sustaining capital valorization can start after the overcapacity has been corrected. But that is exactly what is fundamentally ruled out under the conditions of the third industrial revolution.
Part III of this interview can be found here.
 Capital, Vol. III, pg. 249. International Publishers, New York: 1967.