[...] What do we make of a system where the rise and fall of whole economies appear to hinge on the performative speech acts of central bank chiefs, or on the confidence and credulity of increasingly fickle investors (Marazzi 2008, 13–36); of a system where stock markets are so jittery and interwoven that they can tumble because of a leaked memo at a Fortune 500 corporation? What do we make of a system that, ultimately, is in the grip of imaginary money, where nearly unfathomable flows of immaterial wealth define and determine the material lives of nearly everyone on the planet? There is something here about the relationship of culture and economics that troubles our established understandings and frameworks.

So, similarly, finance may never have a moment when a financial asset accurately and unproblematically refers to a real-world value (whatever that is, and we would have good reason to question anyone who proposed that there is some accurate measure thereof). And, indeed, as we shall discuss, this is the fundamental root of its crises. But finance as a sector, in spite of this, is useful. It is useful because, as I shall illustrate, it is an essential element of capitalist accumulation, in spite of its problematic relation to the reality it aims to measure. In the same way as metaphor facilitates and occludes social violence, finance disciplines and (mis)measures the financialized capitalist economy, with typically tragic consequences.

financiers internalize a culture of risk management and are guided by an imagined relation to a highly circumscribed future.

[...] Finance’s goal, according to Lazzarato, is to compel us all to imagine ourselves as “financiers of the self,” and embrace precariousness, risk, and economic and existential insecurity. For Lazarrato, debt and finance operate biopolitically: they are techniques of power whereby both bodies and whole populations can be enlisted into the reproduction of capitalist power relations. Finance’s ultimate objective, then, is not simply profit but the creation and reproduction of compliant subjectivities, workers germane to a decentralized and disorganized form of global capitalism.

Importantly, Marx makes the key point that a stock or bond is, in essence, a claim on the future surplus value yet to be extracted from labour. In other words, a share in BP may have a price for which it exchanges on the speculative market, but its underlying value is really a claim to a certain share of surplus value yet to be extracted from its workers as they are, in turn, compelled to exploit the planet. For Marx, the vast majority of financial wealth was, ultimately, fictitious. The price of financial assets was a hallucination, a conjecture created when multiple claims to the same underlying surplus value were sold to multiple parties. As long as all the capitalists did not seek to claim the real surplus value at once, the fictitious capital could continue to function and could, in fact, “double and triple” as promises built upon promises. Should they all attempt to exchange their fictitious capital for the assets for the material wealth or productive capacity it claims to represent, this would lead to a crisis. The full consequences can perhaps only be seen today, when, before the financial crisis, the total circulating value of over-the-counter derivatives contracts was estimated to be at least 70 times the total planet’s gross domestic product, and when in one day the volume of speculative currency transfers alone equalled the world’s annual economic output (Foster and Magdoff 2010, 58). Fictitious capital indeed

[...] For Harvey, fictitious capital represents not a claim on actually existing value but a share of future surplus value yet to be extracted (2006, 265–268). But, for Harvey, finance does not exist purely as the realm of elite skulduggery, it is a crucial set of economic institutions by which capital “fixes” its inherent tendency towards overproduction and, as such is an essential, if crisis-prone, component of capitalist accumulation. In order for capital to expand, it requires mechanisms by which multiple otherwise competitive capitalists can pool their resources to undertake ventures that are too risky or too large for any single capitalist to undertake alone (270–273). As capitalists are not by their nature cooperative, a financial system becomes necessary which can put capital to work, rather than sitting in a vault in the money form. Colonial expeditions, railways, mines and certain forms of technological innovation are all examples of aspects of capitalism that require this sort of financialized collaboration between otherwise competitive capitalists. These necessitate a speculative market. However, one problem, as Marx noted, is that, for various reasons, it is easy for the financial sector to become more profitable than other sectors of capital, and it increasingly comes to dominate the economy as capitalists seek to invest in speculative returns based on the difference between the buying and selling prices of various securities (Harvey 2006, 316–324). But, since finance does not actually produce any “real” value itself, its increased power means a gradual widening of the gap between the price of financial assets, which might be said to escalate geometrically, and the actual underlying value of labour to which those assets lay claim, which might increase only arithmetically.

The reasons why capital never accurately measures the value of labour as embodied in commodities are varied, but one key reason is the tremendous influence of finance and banking over the value and quantity of money. At no moment has capitalism been free from the influence of finance, and at no moment has finance failed to produce fictitious capital – that is, freely circulating claims to future surplus value that act as money and so distort the ideal capitalist economy. The result is that, for this and other reasons, there is always more capital than value to which it has a claim, and this excess fictitious capital, while to a certain extent necessary to overcome certain crises in capitalist economics, fundamentally and essentially skews capital’s reckoning of value. As I have argued elsewhere (Haiven 2011), capital consistently mis-imagines value. Price is an essential but inherently flawed means of measuring underlying value.

The gap between the two is a productive lacuna in Marx’s work which allows us to pinpoint a key element of capitalist crisis

[...] financial crises occur when the gap between fictitious capital and the real value it claims to represent becomes too great. The culture of belief and credulity that underscores the financial sector and the proliferation of fictitious capital stutters or grinds to a sickening halt [...] Financiers stop returning one another’s calls and cease to accept one another’s metaphors for wealth. There is a necessary contraction that brings the volume of fictitious capital into greater proximity to the volume of actually existing labour power. Some financiers’ claims to that labour power must be sacrificed, or other social resources must be privatized or liquidated to fill the shortfall, which is precisely what is happening in our current age of austerity. [...]

The reason why the idea of fictitious capital is useful is because it draws our attention to the way that finance foments and depends on the production of social fictions.

[...] Drawing on Marx’s crisis theory, which (basically) holds that capitalism is based on fundamental contradictions which can never be resolved, only elevated to a higher level of abstraction and violence, Luxemburg sought to show how the inherent limits of capital manifest themselves in destructive wars (notably the First World War), colonial relations of seemingly non-capitalist exploitation (slavery, unfree labour, etc.) and inter-capitalist rivalry. Importantly, for Luxemburg and others, all these more abstract, systemic processes are driven by the growth and increased power of the financial sector. War, colonialism, financialization and monopolies are all Pyrrhic strategies by which capital reproduces itself by elevating its inherent contradictions to a higher level.

So, we can understand financialization as a terrain of struggle and friction between different spheres and cycles of reproduction: the reproduction of capital writ large

[...] we can understand “fictitious capital” writ large as the way capital spins a crucial social fiction about the nature of the world. Like all fictions, this is not merely a harmless story. It has incredible power. Financialization represents the dawning supremacy of fictitious capital over all other means of explaining and imagining (global) society. Financialization has become the dominant narrative of our times, and therefore shapes the imaginations of all varieties of social actors in ways that fundamentally orient their reproduction, largely towards its own reproduction. It becomes the metanarrative that increasingly influences and shapes social fictions throughout the social fabric.

we can understand “fictitious capital” writ large as the way capital spins a crucial social fiction about the nature of the world.

[...] while finance might be a modality of social fiction which functions by telling a performative story about the world, it is a story that is, essentially, almost nonsense: a frenetic jumble of metaphors built on metaphors that never resolve into a coherent or linear narrative. Wealth is generated not by seeing the greater narrative in the market, but by spinning out new metaphors and abandoning them once they have done their work. The system is held together not by internal coherence, but by sheer momentum. Corporate strategy, disciplined by stock markets and financial institutions, is increasingly guided by frantic short-term efforts to secure higher financial returns, rather than by any long-term concept of fiscal sustainability, let alone any commitment to workers or consumers. Government policy, guided by the influence of bond markets, eschews any pretence to long-term planning and seeks largely to manage potential risks to the future profitability of transnational capital. Even individuals, driven increasingly by the dictates of debt or lonely financial acumen in a “liquid” world without guarantees, have difficulty envisioning the future as anything more than the endless continuation of the present (see Žižek 2010). As Jameson (1997) observed over 15 years ago, financialization is part and parcel of a postmodern moment of late capitalism wherein social narrative at all levels has been reduced to a jumble of relationalities.