Lecture
: "financialization" and beyond. Developing the total corporate-network market as an adequate universal form of its hegemony, contemporary corporate capital also generates the adequate means for this. Money as the universal equivalent — a measure of value (worth) and a means of circulation (vital activity) for all commodity production — acquires new properties in the present epoch, properties that are a product of its prior evolution. That evolution, let us recall, passes through the following historical-logical stages.
1. Starting point: money as a special commodity (gold, silver) that historically performs the function of the universal equivalent in commodity relations, both under capitalism and even before it. Within the theoretical analysis of capitalism, this level of analysis corresponds to the abstraction of simple commodity production.
2. Money as a product of capital: the circulation of money is determined by the laws of motion of commodity capital and money capital.
3. Money as credit money under the continued gold standard (money expresses the price of commodities, predominantly commodities in material production), supplemented by fictitious capital, in particular by bank and government securities. The rate ("price") of the latter is expressed in money as a relatively independent commodity — the universal equivalent (although represented in the form of banking-system assets). The origin of paper money is credit-based in character, developing through private bills of exchange, serving as an instrument of commodity credit, to bank bills, and then to the bills of state treasuries and state banks. Thus treasury notes and banknotes appear — continuously circulating bills that could at first be redeemed for gold coin, but later could not. The form of paper money, having a credit nature, passes through the following chain of development:
a) Paper money replacing gold in the function of a means of circulation: banknotes freely convertible into gold coin, which circulate in parallel with it.
b) Paper money replacing gold in the functions of a means of circulation and a means of payment: banknotes freely convertible into gold coin, which do not circulate in parallel on commodity markets (the gold-coin standard).
c) Paper money replacing gold in the functions of a means of circulation, a means of payment, and partly a means of accumulation (a store of value): the gold-exchange and gold-bullion standards.
4. The evolution of money under imperialism as the first stage in the evolution of late capitalism: the growing influence of monopolies on price (but not on money as such), the development of financial capital into the primary form of capital, and the undermining, though not the elimination, of the gold standard.
5. The evolution of money under conditions of social-state regulation: the undermining of the objective foundations of money as a commodity — the universal equivalent — as a result of powerful state regulation, the development of various norms and forms of association among working people and citizens as alternatives to the power of money, the abandonment of the gold standard, and the final transition to a system in which a deliberately state-regulated aggregate — freely convertible currencies, above all the dollar — becomes a substitute for money as the objective universal equivalent. The transition to the "dollar" standard (the Bretton Woods system) creates even stronger illusions that the entire "mystery" of money is simply its... quantity. The quantity theory of money triumphs. From this point on, economists' attention is devoted almost exclusively to the problems of the quantity of money in circulation and the derivative questions of inflation, issuance, budget deficits, reserve requirements, debt, exchange rates, and so on. "Financial fetishism" in economic theory becomes a reflection of the dominance of financial processes in economic practice.
The preconditions for financialization have been created, but it is kept within tolerable bounds by the still-strong state regulation that ensures the reproduction of capital in the real sector — and thereby the foundation for paper money as a representative of the movement of real capital. Thus, paper money of a credit nature ceases to be a real equivalent-commodity (gold, silver) set apart from the rest of the commodity world. It then also ceases to be a real representative of such an equivalent-commodity (the gold commodity). But does it remain an ideal representative of the equivalent-commodity? Yes, because the laws of monetary circulation, based on the movement of the commodity — the universal equivalent — continue to operate even with respect to paper money, which is not really connected to such a commodity (but is connected to the movement of all other real commodities and therefore obeys the laws of that movement). Thus the ideal connection expressed in the law of monetary circulation remains. However, the development of fictitious capital and of the modern financial market, and the formation of virtual capital, begin to erode this connection as well.
6. The present-day situation, on which we shall dwell in more detail. The emergence of virtual capital and of the virtual money that serves it is the newest stage in the evolution of the forms of capital's existence. At the starting point of the formation of virtual capital lies the separating-out of money capital as one of the functional forms of industrial capital (in Marx's terminology, this is capital functioning in the sphere of production, moving according to the formula M—C—M', so that below we shall speak of productive capital). In separating out, money capital begins to function as loan capital. Its institutional shell is the credit system (banks, investment companies, pension and insurance funds, etc.) On the basis of the development of credit operations, the development of fictitious capital becomes possible — titles of ownership to invested capital that circulate separately. Here not only is capital-as-property separated from capital-as-function, but ownership itself is separated from the object of ownership. The institutional embodiment of fictitious capital is the stock market, on which various titles of ownership circulate — bills of exchange, shares, bonds, warrants, dock and warehouse receipts, futures contracts, mortgages, and so on, along with the derivative securities formed from them. These two groups of institutions — the credit system and the stock market (together with the insurance and currency markets) — form the financial market. Originally, both loan capital and fictitious capital, as well as the credit system and stock market that organize their functioning, served to service the movement of productive capital as a whole, mobilizing and redistributing temporarily free monetary funds. In this way the possibilities for the expansion of capital were pushed beyond the limits of what an individual capitalist could accumulate. However, these possibilities were still limited by the aggregate potential for mobilizing temporarily free monetary funds across the whole of social capital.
The situation changes when the valuation of the fictitious capital circulating on the financial market becomes significantly detached from the valuation of the actual capital represented by the securities — initially simply because of the relative independence of the stock market. Under the dominance of the total "web" market, this relative independence is used by large corporate capital to manipulate the prices forming on the stock market. This creates, first, broad opportunities for purely speculative operations, based on the high degree of uncertainty in the valuation of securities, a valuation under the manipulative influence of large capital, which extracts financial profit on this basis. Second, this creates a real appearance of the possibility of attracting from the stock market monetary capital that significantly exceeds the amount of actual capital.
This possibility extends not only to the stock market but also to the market for loan capital, since credit operations secured by securities become widespread (with the valuation of the latter detached from the valuation of actual capital). Such backing for credit issuance, no longer based on the value of actual capital, thereby creates not only the possibility of expanding capital beyond the real mobilization of temporarily free monetary capital (and of demand growing beyond real incomes). Along with this comes a substantial growth in the risk associated with the eventual discovery of a mismatch between the value of actual and fictitious capital. It is precisely on this basis that fictitious capital is transformed into virtual capital, that is, into capital whose valuation is indeterminate, whose location — owing to the frequency and multi-stage nature of transactions — is likewise indeterminate, and whose owner, for the same reason, is vague and elusive. The indeterminacy of valuation goes so far that at certain moments it is impossible to say whether the given capital is worth anything at all — that is, whether it is capital at all.
Virtual capital is that fictitious capital (see the definition of fictitious capital in the main text — Chapter 10, Section 10.4) which becomes detached from the value of actual capital under the influence of the manipulative effect of large corporations on the prices forming on the stock market. Virtual capital acquires a simulative value consisting in the creation of an appearance of its capacity for boundless growth.
At a certain historical period (the 1970s–1990s), virtual capital served as an effective instrument for resolving the contradictions of capitalism associated with the overaccumulation of productive capital. The outflow of relatively surplus capital into the financial market meant, first, using an outlet to relieve the production sector of overaccumulated capital, and second, it helped create additional demand that did not initially reveal its fictitious (or, more precisely, virtual) character. This situation helped to smooth out the fluctuations of the capitalist industrial cycle. However, even with the most powerful manipulative influence of large capital on stock-market prices, it is impossible to eliminate the fundamental connection between fictitious capital — even one that has acquired virtual properties — and actual capital. Capital overaccumulated in the sphere of production may find temporary, effective employment in the financial market and may even help expand demand in the production sector. However, this situation does not eliminate the fact of the overaccumulation of actual capital but merely postpones its economic realization. Economic growth resting on a fictitious (virtual) expansion of demand ultimately runs up against a real shortage of actual money capital or income. When it becomes apparent that real monetary demand does not correspond to what is represented by virtual financial instruments, the market is forced to compulsorily limit the expansion of actual capital (as happened, for example, with the American — and not only American — construction industry, which led to the collapse of the mortgage market in 2007–2008 and then to a general economic downturn). The transformation of fictitious capital into virtual capital can therefore soften cyclical economic crises while simultaneously creating the danger of their considerable intensification. Close attention is required to the outcome of this sharp increase in the significance of the financial market for all sectors of the economy and of the strengthening reverse influence of finance on the sphere of production — a phenomenon that for more than a decade has usually been designated by the term "financialization"*. The latter is characterized by many specific features, among which the following have become the most significant. First, a qualitative and quantitative shift in favor of the financial sector (transaction volumes growing at an accelerating pace, higher rates of profit, an outflow of human and other resources into this sphere, the formation of new institutions, etc.). Second, the almost determining influence of this sector on the entire system of resource allocation and coordination (the directions of investment flows, decision-making, the structure of prices, etc., throughout the economy are now determined largely by the state of the financial sector...) In addition, the priority development of financial capital triggered a wave of deregulation; financial speculation became a "regulator"-substitute for state influence on the economy.¹
Financialization thus appears as a concrete form of manifestation of the manipulative influence of large capital under conditions of the total network market of "webs." Third, property relations have changed substantially (the system of ownership rights to constantly "wandering" fictitious capital is a subject for a special study of its own), as have relations of income distribution. Finally, the entire system of social reproduction has acquired many specific features, among which are the sharply increased dependence of this process on random factors, riskiness, the instability of the economic system, short-termism, and other traits that have given substantive grounds for calling this system "casino capitalism." The result of this process has been the formation of a particular type of human behavior oriented toward financial transactions as the principal mode of livelihood and behavioral model. As financialization develops, "homo finansus" (a category introduced into scholarly use by I. Levina²) becomes almost the dominant type of personality (and this is characteristic not only of entrepreneurs but also of consumers). Even this brief and incomplete list of the main features of the process of financialization allows us to register certain qualitative changes in the nature of capital. Before formulating them, let us note that the characterization of the phenomenon of financialization given above corresponds largely to the widely known list of characteristics of the modern financial system that are singled out as nearly universally accepted by a broad range of researchers abroad and in Russia — characteristics that in the present case will be subordinated to the logic of the unfolding process by which money (and its functions) is transformed from a phenomenon of the nationally regulated and socially oriented economy of late capitalism into money as the virtual product of the fictitious financial capital of the neoliberal stage of global capital hegemony. Information technologies created the preconditions for a transition from paper money to the dominance of electronic money. These preconditions create adequate grounds for the fusion of money "in the narrow sense of the word" (the M1 aggregate) with fictitious capital on a global scale, giving birth to virtual fictitious capital (below the authors will specifically comment on the significant reverse influence of this new form on its content — capital). Accordingly, the function of a measure of value is performed predominantly not by money "in the narrow sense of the word" but by a new economic phenomenon — a synthesis of money as M1 and various forms of fictitious capital "living" in financial information systems — namely, "virtual money."
Virtual money is a separated-out monetary form of the movement of virtual capital. It appears chiefly in the form of electronic money and acquires an indeterminacy of value content caused by the indeterminacy of the valuation of virtual capital. Like the valuation of virtual capital, the valuation of virtual money is subject to the manipulative influence of large corporate capital.
The financial market becomes the principal spontaneous regulator of the movement of such money (or, more precisely in this case, of fictitious capital), which is where virtual money "lives." The latter, under the influence of globalization, is increasingly worldwide in scope and increasingly independent of the regulation of the movement of money "in the narrow sense of the word," which is carried out predominantly at the national level. The processes of issuance (especially credit issuance) and other national financial regulators are strongly dependent on the state of the financial market (which, let us stress again, has become global). Consequently, the movement of money, its functions as a means of circulation and a means of payment, are increasingly determined by fictitious capital as a concrete-universal phenomenon. Moreover, it is easy to empirically confirm the emergence of a new aspect of the movement of money in this function: up to 80 percent of the transactions serviced by money are connected not with the movement of goods and services but with the movement of various forms of fictitious capital, credit resources, money, and money surrogates. The role of world money is performed by a complexly organized system of certain national currencies (based on the dollar) and their aggregates (the euro). The characterization "complexly" is significant here — the degree of complexity of the system is such that it becomes fundamentally "closed" to tracking its vital activity. It is amenable to conscious influence only as a "black box" (in the cybernetic sense of that concept), and even then only with a probabilistically (and in many cases unreliably, as exemplified by the world crisis of 2008–2010) predictable "output" in response to a given "input." At the same time, the "quality" (in particular, the stability, exchange rate, etc.) of such money depends to a decisive degree on the world financial market. The role of a store of value (savings) is performed predominantly by monetary deposits in the largest banks and other financial institutions, where these deposits "fuse" with fictitious capital and come under the decisive influence of the latter (in the sense that their movement depends both on investments in securities made by the banks and on the quotations of securities issued by the bank itself, and, ultimately, on the state of the world financial market). Drawing on these facts, we may conclude: on the whole, under contemporary conditions the functioning of money in the narrow sense of the word is qualitatively and quantitatively determined by global (world-wide) virtual fictitious financial capital.
This is a new quality of financial capital, one that the latter acquires as a result of the dialectical union of both its former qualities (fictitious capital, and financial capital as its sublation), described long ago by Marx, Hilferding, Lenin, and others, and new qualities engendered by the unfolding of (1) information technologies (the quality of "technical" virtuality) and (2) the corporate-network market (the corporate-network structure of the financial market). This capital, unlike the "ordinary" fictitious capital of the nineteenth century, is already "in itself" (3) fused with productive monopoly capital (in the United States, even real-sector corporations, on the eve of the global financial and economic crisis, derived up to half their profit from financial speculation); but unlike "ordinary" financial capital, having passed through the spiral of the "negation of the negation," it has (4) once again broken away from the vital activity of real capital (productive, commercial, and even loan capital) and formed a special space of its own virtual life (partly correlated with the world financial market). Moreover, having passed through the stage of social-state control of the mid-twentieth century, it, on the one hand, (5) "sublates" that stage as a result of the fusion of transnational financial (and other) corporations, national states, and international financial institutions, and on the other hand (6) to a certain extent overcomes this power of national-state regulation, breaking free into the open expanse of global financial speculation. Under these conditions, the basic functions of money (when considered at the essential, deep level — the level of the actual determinants rather than the perverted forms) are performed, as we noted above, also by this capital, which is at the same time a multiply-mediated perverted form of capital, detached from material production, of capital as the basis of the capitalist mode of production. Thereby money becomes virtual both in its technological nature and in its social form. In the first case, this is a product of the development of information technologies, which create (1) a kind of special — virtual — reality replacing gold (and paper), and (2) the possibility of unlimited movement and transformation of forms within information networks and financial systems.
The properties originally required by the quality of money as the universal equivalent (divisibility, durability, and so on), which formerly found adequate embodiment in the material properties of the gold metal, now find — cryptocurrencies included — an even more adequate embodiment in electronic media. The latter make it possible to express monetary sums of any size on a medium of arbitrarily small size, to move them almost instantaneously to virtually any point, to store them for as long as desired without any significant costs, and so on. All this allows us to draw an elementary and well-known, yet important, conclusion: the electronic form of money does not itself create worldwide virtual fictitious capital (and the modern world financial market as one of the forms of its concrete existence), but without this form such capital would be technically impossible: transactions of two to three trillion dollars a day (the volume of operations on world financial markets over the last decade) cannot be carried out without computers and the Internet. In the second case, money is virtual in a different sense — a socio-economic one: it has no material medium independent of the state of social processes. The gold commodity was and remains a measure of value for as long as relations of commodity production and exchange exist. Virtual money, as a product of the total corporate-network market (the latter finds in virtual money an adequate measure of the value of commodities — themselves increasingly virtual — and a means for its own functioning) and of virtual financial capital "living" in information networks, is entirely dependent on the state of the total market and of virtual capital. It "lives" only for as long as fictitious financial capital persists. The collapse of the speculative component of the latter (which, on the eve of the crisis, accounted for — according to various estimates — 80 to 90 percent) would be a simultaneous collapse of virtual money.
Contemporary money reaches the limit of virtuality in cryptocurrencies, behind which there looms, not even remotely, any foundation in the form of a mass of commodities circulating on the market. The connection of cryptocurrencies with the mass of commodities, or with other currencies for which they may be exchanged, is accidental, guaranteed by no one, and has no economic basis. Moreover, cryptocurrencies are not even a direct product of virtual capital. Whereas behind "ordinary" virtual money there still stands, at least, the movement of aggregate social capital — however virtual — as well as the economic and political authority of the state, behind cryptocurrency stands, at best, the private initiative of a small private segment of virtual capital. That said, should states begin to use cryptocurrencies, this would put in their hands an additional instrument for manipulating the financial market, no worse than other virtual financial instruments — and even possessing additional technological capabilities for controlling financial transactions.
The virtuality of money in this case means not only its electronic form but also its probabilistic, unstable, chance-driven existence, not rooted in value created by abstract social labor. Money, from being the "absolute" universal equivalent (a product of universal abstract labor) fused with a stable natural form (gold or silver), is transformed into an amorphous aggregate of the products of the vital activity of virtual capital — an aggregate that is qualitatively heterogeneous and only probabilistically (virtually) performs the role of a measure of value, a means of exchange, and still less a means of accumulation. The property of paper money of being merely an intermediary of circulation, possessing no value of its own, reaches its apogee in virtual money, for the latter does not even have the guarantees — created by national-state regulation — that paper money has. Virtual money, as a product of world fictitious capital, receives no such guarantees. Each of the particular kinds of this virtual money (and they are global by their very nature) will, with one or another probability, perform this or that of its functions tomorrow or the day after. This applies to national currencies as well (they too exist almost exclusively as electronic entries in one account or another at one bank or another), and to bonds, and to any other components of the M2, M3, and M4 aggregates. Before continuing our inquiry, let us stress: even in the twenty-first century, alongside virtual money, a certain small portion of real money also persists — gold and other precious metals, as well as national currencies and hard currencies, represented not so much by cash notes as by non-cash money. The latter, too, may take electronic form, but in this case it is not socially virtual to the extent that it is based on the real economic wealth (value) of a given country or group of countries (as in the case of the euro), and to the extent that it is protected from the influence of world financial market conditions. Let us return to virtual money. The union of an electronic medium and a virtual social form transforms virtual money into a special (financial) super-network, a "web of webs" (which naturally has its own "spiders"). Thus virtual money as a "super-network" (a network being the "universal equivalent") acquires a special role — that of the universal, [semi-]spontaneous regulator of the "network market," for it plays the role of universal "appraiser" (NB! it also performs the function of a measure of value) of company-networks and, indirectly, of all commodities, plus a universal means (mechanism, intermediary, master) of transactions. At the same time, the transition of such money from virtual to real existence, and the degree to which it performs its functions (in particular, the degree of liquidity), turn out to be bound up with a threefold problem. First, with an enormous risk (this is an inevitable consequence of its virtual socio-economic form, which is a product of virtual capital), which (NB!) turns this risk itself into a commodity of a special kind. The virtuality (probabilistic and unreal character) of money (of fictitious capital) thereby multiplies, on a scale never seen before, the system of diverse kinds of economic activity concerned with risk. The probabilistic nature of most transactions on financial markets turns them into a special sphere in which the production of a commodity (the creation of value by social labor) is replaced by a game of possible gains and losses, and by insurance of gains and against losses. Thus is born a sphere of capital movement ("business") that is speculative in the strict sense of the word (not connected with the production of real goods) and has an entirely virtual nature. Its objects, its "means of production" (probabilistic models of random processes), and its results are all virtual. Note that, right up to the world financial crisis, this was the fastest-growing sphere of business. As such, virtual money — and hence also the "network market," of which it is the measure and means of development — is, second, potentially unstable, for it depends on the spontaneous development of the state of world virtual capital. The double virtuality of money noted above (in its medium and its social form), together with the speculativeness and instability of the financial sphere that it generates, all this requires high transaction costs (for maintaining insurance institutions, protecting property rights, and so on, up to and including protecting information from hackers). Third, such money is in real dependence on the functioning of particular institutions of global capital. This last point requires special comment. Almost for the first time in the preceding centuries of capital's evolution, a certain limited circle of the largest corporate structures (financial corporations, the central banks of a number of states, the IMF, the World Bank, and certain other¹ mutually fused systems) acquires economic (and partly political) power that was previously concentrated only in the objective, impersonal phenomenon of world money.
1 Let us stress: today the institutions that regulate the monetary system (national states, the IMF, and so on) frequently pursue, in their actions, narrow corporate interests rather than the interests of those forces which they formally represent (for example, all the citizens of a given country).
Meanwhile, these structures (1) increasingly fall (as a result of re-privatization) into the hands of "new private owners" (let us repeat: this may apply even to institutions that formally retain state or supra-state status); they privatize real property rights and power, and not [only] objects. At the same time, they (2) become ever less subject to the control of any social forces whatsoever, owing both to globalization, which reduces the role of national state control, and to the general degradation of the social state, of real democracy, and of the diminishing role of associations of working people and citizens characteristic of the neoliberal period. Finally, these institutions (3) operate in an increasingly adequate environment created by the total network market. Such structures, representing global virtual capital, once again become (as "sublated" money) the universal measure and the principal means of livelihood of the global economy and society. Thus, the new quality of virtual money, in contrast to the money of the era of classical and even early monopoly capitalism, consists in the fact that, on the one hand, its new — electronic — "medium" substantially simplifies and eases the system of transactions, making them potentially trackable, controllable, and regulable on however large a scale one likes. It is significant that this possibility is all the greater, the more intensively the dependence of the world monetary system on the largest financial institutions develops — institutions whose scale and role turn them into agents potentially capable of carrying out such regulation. But, on the other hand, the social virtuality of money (a consequence of its being a product of global virtual capital, a special super-network, a "web of webs")
taking shape as a result of the spontaneous interaction of private fictitious financial capitals and the private financial institutions representing them, makes this super-network a "black box." All this lends virtual money the properties of instability, turning the performance of its functions into a probabilistic, uncontrolled, risky process. As such, virtual money-capital, on the one hand, creates the possibility of transforming the sphere of financial transactions into a special sphere of the economy, detached from production and swelling at an accelerated rate (owing to the possibilities both of obtaining speculative income and of rising transaction costs), and, on the other hand, is itself an adequate mechanism and form for the expansion of that sphere. By way of comment, let us allow ourselves an image: money — that single universal and all-embracing "genie" of the market world, capable, in Shakespeare's words, of making all that is black white¹ — has now found itself in a new "bottle." Originally that bottle was gold, and no one owned all the gold. Then the role of the "bottle" was played by treasury notes and other paper issued by the national state, which only temporarily issued substitutes for gold and represented the interests of a broad circle of separate capitals in their contradiction with the rest of society (while gold alone remained world money). Now, however, the role of the "bottle" (NB! on a world scale) passes to electronic phenomena produced by a limited circle of predominantly private transnational corporate structures.
An even closer image may be this: before our eyes, this "bottle" is increasingly rapidly diffusing, dissolving into the computer systems of the world's financial institutions, and control over this visibly melting "bottle" (money "sublated" in virtual capital) lies in the hands of a relatively narrow circle of increasingly privatized structures — yet even from them it slips away, since the "genie" keeps growing and growing. At the same time, the most important thing is that these structures are in a state of active struggle with one another and themselves try to set the rules of this struggle. Thus corporate capital acquires a universal mechanism for putting its hegemony into practice — virtual money. However, the genie itself — world virtual money developed to its most powerful (at any rate, of those known today) form — is by its very nature uncontrollable by anyone's subjective conscious influence. As a result, financial corporations, on the one hand, turn out to be a function of a process of spontaneous movement of world capital (in computer networks and, much more rarely, on real markets) that is largely beyond their control; on the other hand, they are the personification and private owners of this capital. Thus this capital becomes a hyper-realized threat of deregulation.
VIRTUAL CAPITAL — fictitious capital (see the definition of fictitious capital in the main text — Chapter 10, Section 10.4) that becomes detached from the value of actual capital under the influence of the manipulative effect of large corporations on the prices forming on the stock market. Virtual capital acquires a simulative value consisting in the creation of an appearance of its capacity for boundless growth.
VIRTUAL MONEY — a separated-out monetary form of the movement of virtual capital. It appears chiefly in the form of electronic money and acquires an indeterminacy of value content caused by the indeterminacy of the valuation of virtual capital. Like the valuation of virtual capital, the valuation of virtual money is subject to the manipulative influence of large corporate capital.
A.3.1. What are the stages by which money became detached from its original commodity (gold) basis?
A.3.2. How does money become a product of capital?
A.3.3. Why does contemporary money appear as a product of virtual capital?
A.3.4. What determines the virtual character of contemporary money?
A.3.5. What is the role of modern information and telecommunications technologies in the development of virtual money?
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