Fictitious Capital

Capital that exists independently of the movement of real capital, in the form of securities such as stocks, bonds, and public debt, and that brings a certain income to its holders on a regular basis.

Fictitious capital arose with the emergence of loan capital, presupposes the existence of interest-bearing capital, a result of the separation of the property and the use of capital, a derivative form of interest-bearing capital. Fictitious capital is not real capital, does not have value in itself, it can neither serve as a symbol of value nor play a role in the production process but is only a certificate of capital property and right to profit. As Marx said, these securities are titles to value—just as paper money. Even if they are reliable withdrawal certificates of income (such as treasury bonds), or certificates of property of real capital (such as stocks), the money-value of the capital they represent is completely fictitious. The certificate nature of capital property and right to profit represented by fictitious capital determines that it is legally entitled to claim a part of the surplus-value that the corresponding capital should obtain, and can also be purchased and sold in the securities market at a price determined by the principle of capitalization of interest. The formation of fictitious capital is called “capitalization”.

Fictitious capital is based on real capital, but it is also another set of capital independent from real capital. Thus, in quantitative terms, with the development of interest-bearing capital and credit system, financial derivatives arising on the basis of securities will make it possible to have several sets of capital corresponding to real capital. As a result, fictitious capital grows much faster than real capital, as Marx pointed out: “All capital seems to double itself, and sometimes treble itself, by the various modes in which the same capital, or perhaps even the same claim on a debt, appears in different forms in different hands.” The appearance of fictitious capital was able to expand the accumulation of money and promote the centralization of capital, thereby increasing the efficiency of economic operations of society. However, when commercial and banking credit is overinflated, or when credit is used to an alarming degree, fictitious capital may become speculative capital, causing false prosperity and even leading to the outbreak of an economic crisis.