How Marxism today has to read Capital and how it has to analyze the current capital relations.

Even for Marx, an important consequence of extracting added value in the production of goods is that the added value is transformed into what we now call an asset. In this context, the asset is a means of preserving added value on the one hand and of accumulating it on the other. If this were not the case, it would not be produced in the first place. That is why Marx also called his book Capital and not The Commodity. A farmer could still rent land from the feudal aristocracy and borrow money to buy seeds, but he only took out a loan if he assumed that the future harvest would serve as collateral for the debts incurred. The future crop was thus a potential pledge even before it became a commodity on the market. So with the production of a consumer product, two financial products – debt and security – were created at the same time. In later historical phases, when the capitalist appropriated the means of production, they functioned as means of preserving and accumulating the added value produced by the workers. However, the functioning of production goods was not only to act as a means of producing added value, but they also embodied financial assets, which served as security for taking on future debts and thus as material for the creation of new financial products.

The fact that financial products are not only instruments of circulation, but also provide means for the accumulation of real wealth, is the problem that Marx at least raises here. Today it must be shown further what role financial capital and the financial markets play for capitalist reproduction, first and foremost for the ongoing reproduction of commodity markets. Today, capital is a system whose accumulated real wealth also depends on the provision and organisation of liquidity by the financial system and its financial markets, where the price sums of financial assets can rise in a certain independence from the output of commodities and far beyond their growth rates. Capitalist production must ever be pre-financed, and the fact that asset markets grow faster than the material output of industrial production is a logical consequence of capitalization, but at the same time always tied to certain historical conditions.

We define liquidity as the nominal relation between the maturity and value of an asset. If liquidity means money that is virtually tied up in a financial asset, this is only possible if the asset is not currently in monetary form. If the liquidity is updated or becomes money, then the liquidity of the asset is eliminated. As a result, the investment can never remain perfectly liquid, and in this sense liquidity appears to be an intense consequence of the extensive nature of the security denoted in money. Liquidity is a functional relation between the time of delay and the time of realisation of the asset. Liquidity is therefore to be understood as an endogenous moment in the financial system itself. Finally, money measures the gap between the liquidity or price of an asset and its liquidation value (monetizability). The financial system thus generally makes capital relationships more effective, but these are now themselves heavily dependent on liquidity, which is constantly increased by the trading of assets. Marx has treated liquidity purely as a realization problem – either as a monetary reflux from the investment or as the repayment of a loan – but he has not been able to see the possibility that a corporate risk would be hedged and precisely so increase liquidity in the financial markets.

Marx has mostly assigned the financial instruments exclusively to the circulation sphere and analysed their function separately from the functioning of the technologies or physical means of production, which preserve the past wealth and at the same time enable a future demand for produced goods. In the case of Marx, when it comes to value (analogous to energy and matter), there usually seems to be a principle of conservation, whereby the growth of real accumulated wealth can never be greater than the profits produced and realised in industrial production in a given period (multiplied by the rate of added value discounted by the investment rate), so that any increase in the value of physical capital or constant capital in the form of financial instruments does not occur in Marx at all, or is not possible as a result of the increase in the value of the physical capital or constant capital in the form of financial instruments.(cf. Meister 2016: Kindle-Edition: 2702ff.) For Marx, the real growth of an economy can therefore never be greater than the industrially produced profit. However, this can no longer apply to contemporary capital, the financial system and its financial instruments, because the assets themselves are financing means to set in motion and expand investments in the “real industry”.

Marx’ esoteric argument regarding the reproductive cycle of capital is that the production of goods and services always creates a demand from investors for financial resources that serve to preserve, accumulate and increase added value, whereby financial resources are produced in the same process as the production of goods and services. The production of goods today must therefore be inevitably linked to the physical production and accumulation of asset values.

With regard to the functioning of the financial system, we now ask the following question: what new types of financial assets must emerge today in order to safeguard and expand capitalist reproduction as a whole, and how does the variable relationship between asset markets and consumer goods markets create conditions to which new movements in social conflicts respond? Marx sees in capital that the new types of financial assets used to accelerate capital accumulation must be distinguished from money. For Marx, the general formula of capital cannot simply be G-G’ – money that leads to more money – but, in order to generate real wealth, there must first be a monetary investment that functions differently from money in the exchange of goods. Marx sees that wage labour produces added value, which in turn has the function of increasing the effective demand for the goods produced by the workers. Marx does not see, however, that the added value is preserved and accumulated by buying means of production that not only serve as means (constant capital), but also function as assets, which in turn serve as a hedge against the danger that parts of the produced goods are not realized and therefore insolvencies occur. The purchase of the production goods (constant capital) represents a partial solution to the problem of how wealth can be preserved and accumulated without hoarding money. The concept of constant capital is now also understood as a relatively liquid asset in so far as capitalist production must be financed and the surplus resulting from it reinvested in new means of production.

The production of financial instruments should definitely be understood as an alternative to saving money by preserving and accumulating real wealth. For a financial investor this means that the purchase of financial assets as a version of the formula G-W-G must be compared with the formula G-G` – the former now understood as a strategy of hedging value. In the formula G-W-G there are two substitutes for W (commodity), namely the money capital invested in labour (W) and the money capital invested in capital goods which, and this is now the crux of the matter, act on the one hand as means of production, but on the other hand as more or less liquid securities used to generate new cash.

For Robert Meister (ibid.), the mode of relative value-added production1 immediately introduces the logic of the financial system into the mode of production, his analysis also being concerned, among other things, with examining the effects of the operations and methods of the financial system on the proper reproduction of the social relations between labor and capital. (Lee/Martin 2016: Kindle-Edition: 6801f.) Let us try a first attempt at explanation: the added value that is produced in a given production phase can (if it is not simply hoarded as money) in the next phase only be preserved and increased through an expanded reinvestment in means of production and raw materials on the one hand and on the other. Without propagation, there is no preservation of capital. Capital also invests in labour when expanding production capacities, because it hopes for a spread between the labour of money (the contribution of workers to GDP) and the monetary value of labour (wages). However, there are different arbitrage possibilities for companies to increase profits, especially if they operate with different technologies and different productivity, but these arbitrage possibilities are also eliminated in the course of the compensatory movements to average profit rates, otherwise for a dominant company the maintenance and expansion of the extra profit would be a very important step.

Marx has two different arguments which play a role in his analysis and criticism of the general formula G-W-G`. With regard to absolute added value, the first argument is that the application of labour enables the production of added value created by the workers, who are paid a lower share than the total value they produce, with which they can buy the consumer goods they produce as a class.

In the case of relative value added, the argumentation is different: Marx comes closest to the problem of the representation of the relation between the production of goods and the production of assets in his analysis of relative value-added production in capital vol.1. When it comes to the financial system, relative value-added production is based on its first maxim, the law of the uniform price. This means that two identical commodity units should be sold at the same price regardless of the respective costs of the enterprises, whatever the forms of production are, in which raw materials are transformed into finished products with the help of machines and labor. However, the company is given a positive arbitrage opportunity with regard to its investment in means of production if it is able to produce more units of goods in a given working time than its competitors. The creation of arbitrage via more effective transformation of raw material (as part of constant capital) is part of increasing productivity by investing in new machines (as another part of constant capital). The extra value here is not generated by hiring new workers or by labour intensification, but by the fact that the finished product can be sold at a lower price (per unit) than the same competing product. This accumulation of wealth through relative value-added production is quite real and material in so far as it stems from arbitrage over constant capital and not from absolute value-added, which corresponds to an increase in working hours or a growing number of jobs.2 Marx’s esoteric argument also remains related to the need for the final product to be realized in the market, which in turn remains dependent on the consumer goods sector and the financial sector (consumer credit), the latter influencing the former. Marx’s concept of relative value-added production leads to questions of real accumulation, whereby in the last instance it is the logic of financialization that expresses itself in relative value-added production and finally leads to the general law of capitalist accumulation. This law describes the creation of an increased production capacity (of constant capital) with simultaneous growth of the surplus population, which, due to the use of labour-saving techniques, can no longer be introduced to wage labour at all.

Two arguments therefore play an important role in the presentation and criticism of the general formula of capital G-W-G`. In addition to absolute value-added production, there is also relative value-added production, whereby first and foremost the financialization of production goods allows the capitalists to increase material output in production. This is done by investing in machines, raw materials, energy, software, etc. and simultaneously trying to reduce labour costs and the number of workers. The realization problem that inevitably follows from this includes the question of how it is at all possible to update and monetarize the produced goods as prices and thus generate further monetary funds. Marx deals with this problem in Capital Vol. 2, which is often understood as if it were only a question of the equilibrium of reproduction processes in and between the two sectors of production and consumer goods. The potential possibility that commodity values are not realized comes to light here and follows from this that no further monetary funds can be generated or realized in money (the non-realization is also inherent in the financial assets, unlike money, whose secret lies in the fact that it does not have to be spent).

The mean term of the formula G-W-G` cannot simply be understood as a commodity that is productively applied in the production process, but must also be understood as a hedged portfolio that is priced as capital. The hedge itself, which is a marketable contract, has no utility value other than its exchange value. It is quite understandable that with large corporations such as General Motors, the production goods are part of their own portfolio, which of course also contains bonds or options on the production goods. Randy Martin registers at this point a shift from G-W-Gto G-D-G, where D stands for the derivative that is now identical in essence to the productively consumed goods and also drives the self-movement of capital. (ibid.: 347) For example, a company can increase its own creditworthiness by buying options on a commodity that it needs for its production processes, which is impaired by the risk of rising commodity prices. At the same time, the operations of a number of other players are influenced by the price index of this commodity. Risks are duplicated, multiplied and transferred to other areas.

Marx shows in Capital Vol. 3 that there is already a realisation problem for companies, among other things when they invest qua credit in means of production that lose value during the production period, so that the manufactured products can no longer be sold on the market at the historical average price and the credit can then no longer be serviced. (Ibid.: 6801f.) This is a problem that indicates that the investment must be hedged. The realization problem differs from other financial instruments in that the assets here are related to the means of production produced and do not serve solely as financial vehicles or assets of accumulation. To the extent that these assets possess a utility value that goes beyond their pure liquidity, they are not purely financial products whose utility value consists solely in realizing a price in a differential-immanent movement that generates returns on the financial markets. The non-realisation of the market price for an end product or its sale below the average price results for the company in a decline in monetary funds and a reduced possibility to use all raw materials and capacity/machinery to generate new, larger monetary funds.

What Marx could not know is simply that the realization of the produced goods can be hedged by manufacturing puts and calls on options related to the means of production and raw materials; they thus tend to at least preserve the value of the investment in machines and raw materials during the period in which they are transformed into end products. Marx could still know that the fabrication of options could intervene in the fluctuating market price of a finished product. The existence of a market for puts and calls, the continuous possibility to permanently price and monetize the option, today generates enough liquidity for the underlying market of production and consumer goods to tend to eliminate the risks for their realization. The value of the products is now increasingly being preserved and accumulated in the form of financial assets by trading the spread between the market value of the asset, if it remains liquid, and the liquidation value of the asset.3 A fully liquid asset is also as good as cash and then also an alternative to the preservation of value through money, whereby there are hardly any risks that the asset cannot be realised immediately at its market price. In order to finance an asset that is not fully liquid, a liquidity premium must then be paid by either hedging or buying collateral that is more liquid than the asset itself. The liquidation value of the asset will in turn be the money you get when you sell the collateral pledged, and the liquidity premium will reflect the extent to which the original value of the collateral exceeds the value of the financial asset used to hedge it.

So a company’s capitalistic portfolio consists not only of bonds and debt, but also of the puts and calls of the options used to hedge. Without the correct design of the price movement of the puts and calls, there can be no robust recycling of the bonds and debts. A call is understood here as the right to acquire a potentially infinite surplus, and a put is an instrument to limit the loss. Both are derivative means that indicate whether a company is worth investing in a new capital stock in order to increase its capital stock and its profit, whereby the capital stock is just one of the means of increasing profit, the complementary form of which today is the financial asset, which also shows that relative value-added production is only one way of exploiting spreads in a particular market. Without pricing out the calls and puts and trading them on the derivatives markets, it is not possible today to have a well hedged portfolio consisting of debt and investment securities.

The formula G-W-G` therefore always describes W as a portfolio consisting of debts and capital stock as well as puts and calls. Unlike money, these are pure financial products and their relation can be fixed in a financial form that describes the parity of debt and capital stock in terms related to the parity of puts and calls. The investment in W must therefore fulfil the following equation according to Meister:

Stock + Put=Debt + Call. (Master 2016: Kindle-Edition: 3044)

This formula contains a simple identity: if you have a capital stock and a put that contains a downward hedge, then you can replicate a return on an investment that is equal to owning a call that fulfills the possibility of participating in a surplus, based on the capital stock plus the current value of a loan. You can now use puts or calls to get a fully hedged portfolio that in turn allows a return that is at least equal to the risk-free interest rate. The spiral G-W-G’ thus contains a double arbitrage possibility, namely on the one hand the play with the spreads in the valuation of the machines and the manpower, provided that the wage can neither be invested nor insured, and on the other hand a fully hedged portfolio on the basis of the call put parity. The basis for hedging is the credit as well as the return on the investment. If this reflux of money, which is always related to the credit the company takes out, is the paradigm of the portfolio side of G-W-G’ and is also related to investments in wages, then the effects of the financial system on companies’ production processes are far more complicated than Marx has said.

On derivatives markets, commodities are not priced by value, but by an uncertain future value. If a commodity (e.g. a house) is sold before it physically exists, then derivatives assume the production of circulation by ascribing floating and contingent values to the commodity. Classical commodities have no liquidity if they do not embody any economically viable options. Therefore the wage worker cannot invest, he must spend his money entirely on consumption and must therefore offer his labour continuously on the labour market in order to earn the money for his consumption. However, any commodity other than consumer goods has liquidity and can serve as a vehicle for the preservation and accumulation of capital. Financial products such as health insurance, pension funds and student loans are now part of a household’s cost of living, but rather than being seen as an investment in one’s own “human capital”, they should be seen as a kind of tax paid on financial capital.

Marx accepts the worker, when he enters the labour market, as unworthy of credit and debt-free, and it is precisely these characteristics that make him a wage earner, which means that he must buy his subsistence resources exclusively with the wage. For Marx, wage labour is therefore a social relation with which the workers, beyond their exploitation, are forced to immediately spend the money on goods after receiving the wages: the money received as wages cannot thus function as an asset that preserves and expands value. The question that arises here is this: How can capital guarantee the consumption of the working class if it has to accelerate accumulation ever further through technological innovation that saves jobs at the same time? In order to achieve this goal, it seems adequate here in Germany for wage earners to take on additional debts in addition to their wages. The reproduction of the labour force has thus long since ceased to be based solely on wages, but also on various financial instruments such as student loans, mortgage loans, health care, insurance, automobiles, condominiums and consumer loans, some of which are granted to households by special credit companies at exorbitant interest rates of up to 20%. Factors such as the level of debt, the development of wages and salaries and the level of interest rates play a role in the relationship between income and borrowing (debt currently accounts for 5-10% of income in Western countries). For example, student loans are divided into tranches by the state in order to sell them to third parties who manage them as future investments. Student loans thus function like the infamous mortgage loans that were blamed for the 2008 financial crisis. Today, an increasingly large part of the consumer basket of wage earners is being used to buy loans, hink of health insurance and real estate loans, where these products in turn serve to create new financial instruments that act as vehicles for accumulating further wealth. Today, the precariat in particular is dependent not only on wages but also on other financial funds in order to survive at all. The surplus population, on the other hand, is excluded from the sale of labour as a means of securing subsistence and participates in financial resources generated in informal or state sectors. For Marx, according to the law of capitalist accumulation, it was quite clear that capital accumulation would ultimately lead to a huge global surplus population. The wage-independent workers of the global North generally still receive sufficient wages from the capitalists to at least secure their subsistence and, in part, to generate effective demand for the mass products of consumption. In the period of Fordism this was indeed the case on a massive scale. Today, however, in many cases wages are only part of the amount needed to buy the means of reproduction, so that various financial products are now needed to maintain household consumption and to protect their relatives against illness, old age, etc. The demand for these products is also growing. However, these possibilities remain uncertain – they must therefore be hedged and financed, and this in view of the fact that their timelines and costs remain contingent on future events.

1 Relative value-added production explains the effects of capital resulting from the technological innovation that increases a company’s productivity. The relatively more productive individual capital can sell the individual goods cheaper than the competition due to the reduction in value and thus realize a larger part of the social value for itself. With the decrease in the price of food, the value of the commodity labour decreases, so that the share of variable capital also decreases compared to the constant part (increase in the organic composition of capital), but this decrease also leads to the fact that the labour has to produce less value for its preservation, with the result that the share of added value in the total product increases again. However, this only applies to individual capital, and the compensatory effect only applies to total capital if the number of workers used productively increases in absolute terms. This is the aspect of labour, but there is also the technological effect.

It was Hans-Dieter Bahr who noted in this context that in the 12th and 13th chapters of the second volume of The Capital Marx makes an analytical splitting of the production time (of capital) into working time and functional time of the machinery. (Cf. Bahr 1983: 434) According to Bahr, the same can be said of the functional time of the machines as of the working time, which is to be reduced with the methods of relative value-added production per piece. Now the fixed capital or the machinery has its own functional times, which, insofar as they are bought for the company, must be reduced, such as the working time that goes into the individual product. And insofar as the functional time per product unit decreases – this can happen through increased economies of scale, innovation, rationalisation and automation, etc. – there is no reason why the machinery or today digital technology should not be understood as a source of added value just like living labour, if the new products realize a sales price for the company which is higher than the purchase price for raw materials, means of production, wages, interest, etc., provided that this sales price is due to technologically induced rationalisation. As a result, individual capital can increase its share of total social production even if it succeeds in reducing its production times per piece by making the machine’s functional time more effective – and not just by compressing working time – and thus reducing internal costs. A company achieves an extra profit over its competitors if it succeeds in selling its products, which have fallen in price per unit due to the application of new technologies, cheaper than those of other companies. Production costs per unit fall faster in particularly productive industries than in other industries due to the use of specific technological innovation. With the implementation of new technologies in an entire industry, with which the extra profits disappear again, the socially necessary and valid working and functional times become more concentrated on a more general level;

According to Marx, average profit rates are levelling off at a new level, with these being cut time and again by new wave movements resulting from further technological innovations or disruptions.

However, this is an ideal process that implies that efficiency (minimum material input per unit of output) per se means economic efficiency (minimum cost per unit of output) and economic efficiency therefore means maximum profit. But this does not always have to be true from several points of view, because a) it can even be efficient for the individual capital to use inefficient techniques or even to sell inefficient products, b) the companies often make calculations in such a way that they determine average unit costs (costs at a given average level of output) to which they add an industry-standard surcharge in order to keep this price stable over longer periods, or adapt it to cyclical changes in demand, with the aim of achieving long-term profit rates at a constant level, and c) it also happens, of course, that in some companies there is virtually no “real value added” qua labour at all, but they still absorb/realise part of the total input of abstract labour at the level of total capital, with the result that the internal productivity standard plays virtually no role.

2The difference between arbitrage in production and financial circulation must be taken into account. While the former is related to relative value-added production, the latter is to be understood as an objectivation of abstract risk.

3Spreads are relational spaces that allow simultaneous movements in different directions; these movements appear temporally as intervals characterized by differences in speed, vola

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