Problems ‘Metastasized’ To Threaten Economy Worldwide, Report Says…

^^^^^
CB: yea, socialism or barbarism .

capitalism will not end in socialism “automatically”. It might end in barbarism, nuclear war or eco-catastrope, “automatically”. We want it to end in socialism. So, what we want won’t happen “automatically.

http://en.wikipedia.org/wiki/Fictitious_capital

Fictitious capital is a concept used by Karl Marx in his critique of political economy. It is introduced in the third volume of Das Kapital, a manuscript which Marx never edited for publication.

Fictitious capital could be defined as a capitalisation on property ownership. That ownership itself was very real and legally enforced, and so were the profits made from it, but the capital involved was fictitious in the sense that it was not backed by any real physical asset value or earning power.

Fictitious capital could also be defined as “tradeable paper claims to wealth” but this definition disregards that tangible assets themselves may under certain conditions also gain a vastly inflated value, far beyond what they are really worth.

Contents [hide]
1 Origins
2 Effects
3 Illustration
4 See also
5 References

[edit] Origins
Marx saw the origin of fictitious capital in the development of the credit system and the joint-stock system.

Governments and banks could create additional money or credit, which generated purchasing power unrelated to the value of real production or real consumption, or to the real value of physical assets owned.

They could also issue debt securities of various kinds which could be traded in, regardless of whether these were backed by assets or deposits, and which became objects of speculation.

Companies could likewise issue share certificates that were speculated in. Again, this caused fluctuations in asset values unrelated to what a business and its production were really worth.

[edit] Effects
The general effect was that:

the market value of physical and financial assets could, backed by credit, be driven up and artificially inflated by some margin, purely as a result of supply and demand factors which could themselves be manipulated for profit. That margin of value could, however, just as suddenly disappear, if large amounts of capital were withdrawn.
profit could be made purely from trading in a variety of financial claims existing only on paper.
profit could be made by using only borrowed capital to engage in (speculative) trade, not backed up by any tangible asset.
In addition, changes in underlying technology of a competitor, such as a labor saving advance, can render market value of paper claims to an asset “fictitious.” Many features of modern global capitalism reflect the impact of such changes. Thus, a business firm may attempt to prop up the market value of its stock by increasing the rate of exploitation of its work force in order to keep up with the innovating firm. Other firms may attempt to use legal sanctions in the form of, for example, intellectual property law to prevent competitors, or potential competitors, from developing labor saving advances.

[edit] Illustration
Marx cites the case of a Mr Chapman who testified before the British Bank Acts Committee in 1857:

“though in 1857 he was himself still a magnate on the money market, [Chapman] complained bitterly that there were several large money capitalists in London who were strong enough to bring the entire money market into disorder at a given moment and in this way fleece the smaller money dealers most shamelessly. There were supposed to be several great sharks of this kind who could significantly intensify a difficult situation by selling one or two million pounds worth of Consols and in this way taking an equivalent sum of banknotes (and thereby available loan capital) out of the market. The collaboration of three big banks in such a maneouvre would suffice to turn a pressure into a panic.” (Das Kapital Vol. 3, Penguin edition, p. 674).

Marx added that:

“The biggest capital power in London is of course the Bank of England, but its position as a semi-state institution makes it impossible for it to assert its domination in so brutal a fashion. None the less, it too is sufficiently capable of looking after itself… Inasmuch as the Bank issues notes that are not backed by the metal reserve in its vaults, it creates tokens of value that are not only means of circulation, but also forms additional – even if fictitious – capital for it, to the nominal value of these fiduciary notes. And this extra capital yields it an extra profit.” (ibid., p. 674-675, emphasis added).

[edit] See also
Capital accumulation
Economic bubble
Speculation
Stock market bubble

[edit] References
Karl Marx, Das Kapital, Vol. 3.
Makoto Itoh and Costas Lapavitsas, Political Economy of Money and Finance.

One could argue that the world has been living in an unreal economy since the beginning of the 20th Century at the origin of finance capital ( imperialism-monopoly capitalism). The world “ended” with WWI and then with the crash of the 20’s and then with WWII.

Here’s the way I see it: at the beginnings of finance capital, the “bubbles” created by finance capital were capable of being covered by the expansion of goods and services in a relatively immature capitalist economy. The crash of 1929-1932 was a crisis in investor confidence. They could have continued like they were doing; they chose not to.

Today, however, the bubbles of the present-day finance economy are way beyond anything that can be made into an increase in goods and services. The economy has hit what James O’Connor calls the “second contradiction of capitalism,” in which ecological limits are an undertow to capital’s growth-imperative.

Capitalism won’t end automatically. Has to be ended consciously by masses.

Actually, capitalism could end of its own accord; it could cause such ecosystemic destruction that what was left of economic culture and of ecosystem resilience was unable to support the profits system. Abrupt climate change could knock the remaining survivors into the Stone Age. And the “masses” would play no part in ending capitalism as such.

http://archives.econ.utah.edu/archives/pen-l/2008w11/msg00058.htm

Capitalism won’t end automatically. Has to be ended consciously by masses.

http://www.guardian.co.uk/business/2008/mar/20/creditcrunch.hbosbusiness

Or. as the Sydney Morning Herald put it in their headline:

“Hunt for trader who rorted $217m in a day

“British authorities have launched a hunt for a stock market trader who may have made over $217 million in a “modern day bank robbery” after an attack on the share price of the country’s biggest mortgage lender.”

It seems the rats are leaving the Titanic, but not without looting the ship’s safe first. Didn’t we learn it from the Brits?

The US has long inhabited a world of make-believe – of a war that demands no sacrifice, of a consumer boom that demands no payment, of a power and prosperity that seemed America’s birthright, whatever events in the real world.

Pardon my impudence as a mere non-economist, but isn’t the world economy still a world of make-believe?

Remember Henry Liu’s discussion of dollar hegemony:

To prevent speculative and manipulative attacks on their currencies, the world’s central banks must acquire and hold dollar reserves in corresponding amounts to their currencies in circulation. The higher the market pressure to devalue a particular currency, the more dollar reserves its central bank must hold. This creates a built-in support for a strong dollar that in turn forces the world’s central banks to acquire and hold more dollar reserves, making it stronger.

So dollar hegemony was the firewall that elite world-society used to block out the firestorm that was (and is) the $1 trillion/day global currency exchange. The firewall will crumble, as the Fed prints more currency to prop up the illusion of capitalism as usual. They’ll probably go looking for another firewall, another “world of make-believe.”

I don’t hear anything from anyone losing their belief in capitalism. I don’t see any politicians actually addressing this situation. Here in my locale I see a tent city in Ontario, a city council promising the same old NIMBY politics, and an ecological disaster waiting to happen. Illusion reigns supreme.

To say so out loud would be an offence against American optimism, but the unspoken truth is that the good old days are gone, probably for a very long while. Like its predecessors, this particular financial meltdown has brought fear verging on panic. The difference, however, is that it is destroying not only wealth. It is also destroying illusions.

The US has long inhabited a world of make-believe – of a war that demands no sacrifice, of a consumer boom that demands no payment, of a power and prosperity that seemed America’s birthright, whatever events in the real world. Now those fantasies are yielding to the truism coined by Herb Stein, a top White House economic adviser in the 1970s. If something can’t go on for ever, it won’t.

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