Marx's Economics for Anarchists - Chapter 6

The Post-War Boom and Fictitious Capital

This is chapter 6 of my new book, "Marx's Economics fo Anarchists; An Anarchist's Introduction to Marx's Critique of Political Economiy." This chapter discusses the prosperity which followed World War II, its causes and limitations, and whether it contradicts the concept of the epoch of capitalist decline. It particularly considers Marx's concept of "fictitious capital."

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The Post-War Boom and Fictitious Capital

After the end of the Second World War, most economists predicted a return to depression conditions. This included most bourgeois economists as well as almost all Marxist economists. This did not happen. Instead there began a new period of prosperity, sometimes even called the “Golden Age” of capitalism, which lasted for about thirty years.

There was relatively high employment; houses and cars for most (white) working families; usually only the husband had to work; higher education for their children; and “labor peace” in big industries between management and the unions. In apparent contradiction to the theory of permanent revolution, fascism was overcome in Europe (except for Spain and Portugul) and bourgeois democracy restored. Increasing numbers of colonized nations won their political independence. To most people, it looked as if any notion of capitalism being in decline was preposterous. The only enemy was the totalitarian and atheistic “Communist” states.

Still there remained some problems. On the world scale, capitalism remained unable to industrialize the poorer nations. Even the Western European countries took decades to rebuild their prosperity. “Communist” and nationalist revolutions continued to happen in the poor countries (especially China, Korea, Vietnam, Yugoslavia, and Cuba) and Italy and France had large “Communist” parties. The imperialist countries continued to get into colonial wars (the biggest for the US being in Korea and Vietnam). As mentioned, the existence of nuclear weapons was something to worry about.

Meanwhile even in the US, there were pockets of poverty (the “Other America”). The whole of the South was impoverished and held back by its vicious anti-Black laws. The unions abandoned their efforts to organize the South. Millions of African-Americans lived under a form of totalitarian repression. A right-wing anti-communist hysteria swept the nation, driving leftists out of the unions and out of employment, attacking freedom of speech and association. The economy as a whole still went through business cycles, from boom to bust, even if in a shallower, more moderate, fashion than before.

Causes of the Post-War Prosperity

If, as I claim, capitalism has been in its epoch of decline, then it is necessary to ask some questions:
What caused this post-World War II boom (even with its limitations)? Did it disprove the concept of the epoch of the decay of capitalism? My answer, briefly, is that what the Great Depression could not do to restore capitalism to apparent health, the world war could do.

The Depression could not do enough to destroy the values of constant capital, but the world war destroyed constant capital itself — factories, machines, roads, buildings, and raw materials went up in flame all across Europe and Asia. These were rebuilt after the war with the most modern, productive, technology.

Similarly the value of variable capital — the commodity labor power — went down with the massacres and social destruction of the war around the world. It took decades for the educated and skilled workers of Europe to regain their pre-World War I standard of living. In this case, though, capitalism also benefited from thirty years of working class defeats, of failures to make revolutions, and of successful counterrevolutions, with the horrors of Nazism and Stalinism. That culminated in the period right after World War II, when social democratic and Stalinist parties held back working class struggles everywhere.

The US economy was pumped up through the massive stimulus of military spending, far more than the New Deal had ever attempted. The state took wealth from all of society and concentrated it into the hands of a few “centralized and concentrated” semi-monopolies. High levels of military spending continued after the war, both of conventional armed forces and of nuclear-armed missiles and bombers. President Dwight Eisenhauer was to call this the “military-industrial complex,” and some Marxists called it the “Permanent Arms Economy.” It was also referred to as “military Keynesianism” or “weaponized Keynesianism.”

Concentration was increased on a world scale as international imperialism was reorganized. The British empire (and the French, the Dutch, etc.) was essentially superceded by the hegemonic rule of US capital. The dollar became the dominant world currency.

In the US, the war was followed by an expansion of debt and speculation, particularly in the fields of FIRE (finance, insurance, and real estate). Meanwhile there was an explosion of the automobile industry, which expanded the steel, rubber, and glass industries, highway construction, and resulted in the construction of suburbia.

These forces countered the long-run tendencies of stagnation and decline. They did not run out of steam until the middle of the 1960s. From 1970 to the mid 70s, the world capitalist economy began to slide downhill again (with ups and downs), deeper into stagnation.

The Limits of the Post-War Boom

Liberals wondered, if the state could spend so much money on war and preparing for war, why not get the same economic effect by spending funds on socially useful causes: healthcare for all, new schools, the natural environment, houses for the homeless, etc.? Liberals have called for a “new New Deal.”

In the most abstract sense, this could be done. Western European countries, which had had influential social democratic or “Communist” parties, provide more and better social services than the US does (beginning with universal health coverage) — within the limits of capitalism. However, there are class reasons why the capitalist state nnot provide vast funds for social purposes. Even in Western Europe, social services have been under fierce attack for some time, although they start from more benefits than the US population ever had.

Quite simply, the capitalist class does not intend to let a large chunk of its collective profits (total surplus value) be handed over to the working class. This would cut down overall profit, and politically strengthen the workers. With more social support to fall back on, the workers might be more willing to strike and to demand higher pay. Socially useful products, such as houses, food, medical care, etc. would compete on the market with the same commodities made by private capitalists. Ideologically, if the US population saw that the state could provide a high level of benefits and could produce needed products, then it might think, “Why do we need the capitalists?” The workers might start thinking in terms of some sort of socialism. This would not do, from the viewpoint of the bourgeoisie. This is not why they have a bourgeois state!

On the other hand, military spending is acceptable because it is a direct state subsidy to big capitalists. It does not compete on the market place (no one makes nuclear missiles for private sale, not legally). It channels value to some of the biggest corporations. It has its own ideological justification (“defense”), so it can be ignored when the politicians cut social benefits for workers and the poor.

I am focusing on the economic effects of military spending, but I do not deny that it does have its uses for the empire. The US does need materiel in order to invade little countries. Even nuclear missiles are supposedly useful for deterring nuclear attacks from enemies, although this reaches crazy thinking (since any use of such “weapons” would destroy both the attacker and the defender).

But the economic basis of military spending become obvious every time the government considers adding new weapons or canceling old ones. The companies which make them throw their lobbyists into high gear. They whip up the workers who make these products to demonstrate and organize. The politicians from the areas where they are made (and even from completely separate areas) demand the construction of this product, just as their capitalist masters (donors to their re-election campaigns) tell them to.

But armament spending has an inherent weakness. When tractors, for example, are produced, they can be used by farmers to grow things. If bulldozers are built, they can used in the following production cycle to make buildings. But what if the government pays businesses to produce tanks? Once in existence, the tanks either stay at home, producing nothing, or they are sent abroad, where they destroy things. This is even more true for intercontinental nuclear missiles. Much value goes into making them, but they are not to be used and hopefully will never be used. Whatever their political or military significance, economically they are the same as paying people to dig big holes and fill them in again.

Suppose the government decides to make some missiles. It has a fund of money, some from taxes (ultimately from the pool of surplus value) and most from borrowing (selling bonds). It pays a capitalist firm to make them (including what the firm counts as profit). The firm buys necessary material (constant capital), such as steel and machines. The firm hires workers (variable capital) to make the missiles. At the end of this process (1) the government has gone deeper into debt, (2) but the buyers of the government bonds count themselves as having new wealth, (3) the firm has profits which it pays out to its stockholders and/or saves for further investment, (4) the workers have their wages which they spend on consumer goods, health care, and sending their children to college. BUT while all this paper (bonds, stocks in the arms company, money) has increased and continues to circulate, there are no new products on the market! The paper wealth which is circulating is what Marx called “fictitious value” or, when used as capital, “fictitious capital.”

It is sick enough to think of an economic system which sustains itself (in large part) by preparing for mass nuclear death. It is even sicker to have an economy which sustains itself by effectually producing… nothing. This is the epoch of capitalist decay.

Fictitious Capital

Marx referred to “real capital (commodity-capital and productive capital)” (Capital III, 1967; p 476). This is distinct from “imaginary” or “fictitious capital,” such as treasury bonds. These represent past loans of money to the state, money which has been spent by now. What the bond-holders have is “a firm claim upon a certain portion of the tax revenue…. These promissory notes, which are issued for the originally loaned capital long since spent, these [are] paper duplicates of consumed capital” (same; pp. 476-477). Yet they can be bought and sold as though they were real. Marx goes further:

“Titles of ownership to public works, railways, mines, etc., are indeed… titles to real capital….They come to nominally represent non-existent capital. For the real capital exists side by side with them and does not change hands as a result of the transfer of these duplicates from one person to another…. As duplicates which are themselves objects of transactions as commodities, and thus able to circulte as capital-values, they are illusory….This type of imaginary money wealth not only constitutes a very considerable part of the money wealth of private people but also of banker’s capital…” (same; pp. 477-478).

Nor are arms production or other forms of public expenditure the only creation of fictitious capital. When houses go up in price in a housing bubble (but nothing new has been added to the housing, and there is no new real wealth), this is ficticious capital. When oil is produced and the profits do not take into account the future need to pay for reaching hard-to-get oil, that is fictitious capital. Rent of land which has not been improved by human labor is fictitious capital. Wealth created by primary accumulation is fictitious capital.

When there is speculation on stocks and bonds, with increasingly remote relations to the real economy which they supposedly represent, this is ficticious capital. When ever more complex financial “instruments” are created, so complex that even those who design them have difficulty understanding what they really stand for, this is fictitious capital. “Everything here appears distorted, since in this paper world, the real price and its real basis appear nowhere, but only bullion, metal coin, notes, bill of exchange, securities…. The entire process becomes incomprehensible…” (same; p. 490).

During times of prosperity, it is taken for granted that the paper wealth represents real wealth and can be turned into real wealth whenever needed. Meanwhile the paper (or blips on a computer screen) is bought and sold, exchanged and rearranged, making everything look prosperous and profitable, despite the stagnation in the real economy.

Especially when the profit rates of the real economy stagnate or decline (due to the falling rate of profit and the growth of monopoly). Then there is pressure to make money by investing in ever-more fictitious capital. This has been called the “financialization” of the economy. This refers to the increasing investments in loans and exotic derivatives. (It does not necessarily refer to Hilferding’s and Lenin’s theory that the banks dominate the capitalist monopolies; this was true only for a while. What is true is that the banks have become semi-monopolies and are integrated with the rest of ologopoly-financial capitalism.).

In a downturn, suddenly there is a dash to turn the paper into real products, or to make sure that they do represent real commodities (e.g., gold or houses or machinery). The need for goods and services which have been produced by socially-necessary labor reasserts itself, as the economy goes from fictitious value to real value. It turns out that there is much less value than there has been fictitious value. As in a game of musical chairs, a lot of capitalists have nowhere to sit.

A big crash, at the end of a business cycle, would clear away a lot of that fictitious capital. But the long prosperity which has modulated the cycle has prevented such crashes. Therefore the amount of fictitious capital — of debt and financial speculative instruments — has continued to increase to mountainous proportions, of government and private forms. Which continues to put pressure on the system for a real, big, crash to re-stablize the system.

Unproductive consumption

Marx divided the economy roughly into a Department I (producing constant capital) and Department II (producing consumer goods). Mostly Department II provides for the working class (variable capital). The workers need their food, housing, healthcare, and entertainment, in order to reenter the cycle of production — that is, to go to work the next day.

The capitalists also consume commodities, of course. However, their gourmet meals, mansions, and yachts are luxuries; they do not reenter the cycle of production, because the capitalists are not necessary for production. Marx treated this as a sliver of Department II, unproductive consumption. It is distinct from the productive consumption involved in using up goods in the process of producing surplus value. The capitalists’ unproductive consumption iof luxuries is paid for entirely out of the capialist’s revenue (using up surplus value, not creating it). The middle layers of society mostly work for the capitalists (directly or indirectly) and are paid for out of surplus value (they do not create new surplus value).

With arms spending and similar forms of wasteful production, there has been an enormous expansion in this “luxury” production. Some post-Marx Marxists prefer to put luxuries, arms production, and similar waste, into a Department III. These are nonreproductive production, or unproductive consumption.

Government arms production, fictitious capital, primitive accumulation, and financialization went a long way to keep capitalism going after World War II. The apparent prosperity lasted for about 30 years. Since then it has been downhill and getting worse. There is a reassertion of the underlying tendencies of the epoch of capitalist decay. That is what we are now living through and will continue to live through, I believe, until there is either a collapse of civilization or a working class-led revolution.

My reason for discussing the post-war boom was not to lead up to an analysis of the current economic crisis or to predict the future. It was to demonstrate that the period of apparent prosperity did not contradict the concept of the epoch of capitalist decay. Also to show that Marx’s concept of fictitious capital is useful for understanding the world today.

Chapter 7 will be on the Marx and Engels' theory of state capitalism.

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Previous parts:

Chapter 5 - The Epoch of Capitalist Decline
Chapter 4 - Primitive Accumulation at the Origins of Capitalism
Chapter 3 - Cycles, Recessions, and the Falling Rate of Profit
Chapter 2 - The Labor Theory of Value
Chapter 1 - An Anarchist's Introduction to Marx's Critique of Political Economy