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[Text of 2012 Deutscher Memorial Lecture] Seasons of Self-Delusion: Opium, Capitalism and the Financial Markets

by Jairus Banaji, 5 September 2013

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Published in: Historical Materialism 21.2 (2013) 1–17

The first appearance of the term ‘fictitious capital’ in Volume III of Capital is in the heading of Chapter 25 (‘Credit and Fictitious Capital’), yet curiously the term itself appears only twice in the main body of the chapter and on neither occasion is it Marx himself speaking. The first occasion is an excerpt from the Yorkshire banker Leatham who, as early as 1840, discusses the humungous circulation of bills of exchange, adding that this was what today we might call a completely unregulated market. ‘The bills of exchange are not placed under any control, except by preventing the abundance of money, excessive and low rates of interest and discount, which create a part of them, and encourage their great and dangerous expansion.’ ‘It is impossible to decide’, Leatham continues, ‘what part arises out of real bona fide transactions, such as actual bargain and sale, or what part is fictitious and mere accommodation paper, that is, where one bill of exchange is drawn to take up another running, in order to raise a fictitious capital, by creating so much currency. In times of abundance and cheap money this I know reaches an enormous amount’.1 So here fictitious capital is used to refer to accommodation bills (‘mere accommodation paper’), that is, those bills of exchange that were either purely speculative or part of an outright swindle. The second occurrence of fictitious capital in Chapter 25 comes in a parenthesis inserted by Engels, who described the speculation in bills of exchange that involved massive over-trading to India and other parts of Asia (in 1847) as a ‘method of creating fictitious capital’ and a ‘fraudulent procedure’ to boot.2 Marx himself refers to this as ‘swindling in the East India trade, where bills were no longer drawn because commodities had been sold, but rather commodities sold in order to draw bills which could be discounted and converted into money’.3 For Marx this was a ‘credit swindle’, and he himself was careful to describe it simply as a ‘system of fictitious credit’, a method where ‘fictitious credit was created by means of accommodation bills’. (This in a piece he wrote for the New York Daily Tribune in 1858.) He states here, ‘The latter were discounted chiefly by joint-stock country banks, which rediscounted them with the London bill brokers. The London bill brokers, looking only to the endorsement of the Bank, not to the bills themselves, in their turn relied not upon their own reserves, but upon the facilities afforded to them by the Bank of England’.4

This introduction should hopefully have done three things. First it suggests that Chapter 25 is not where we should look for Marx’s understanding of fictitious capital, even if the chapter heading promises something in that direction. Second, that bills of exchange were pivotal to the nature of Victorian capitalism. And third, that the financial system of the City involved an ‘entire interlocking system of London brokers, banks, discounting and accepting houses’ and, of course, the Bank of England.5 It was the Bank that stood behind the London bill brokers or discount houses, as they came to be called, and it was the Bank’s ‘last resort’ facility that in some sense sustained what Leatham had called the ‘enormous superstructure of bills of exchange’.

It is in Chapter 29 (‘Banking Capital’s Component Parts’) that we get a better sense of what Marx means by fictitious capital.


Seasons of Self-Delusion: Opium, Capitalism and the Financial Markets [PDF]
by Jairus Banaji
in: Historical Materialism 21.2 (2013) 1–17