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

Already for Marx, an important consequence concerning the extraction of surplus value in commodity production is that surplus value is transformed into what we call today an asset. The asset in this context is a means by which surplus value can be preserved on the one hand and accumulated on the other. If this were not so, it would not be produced in the first place. That is why Marx called his book Capital and not The Commodity. A peasant could still rent land from the feudal nobility and borrow money to buy seed with, borrowing only if he assumed that the future harvest would be able to serve as collateral for the debt incurred. The future crop was thus a potential pledge before it even became a commodity in the marketplace. Thus, two financial products – the debt and the collateral – were created at the same time as a consumer product was produced. When in later historical phases the capitalist appropriated the means of production, these functioned as a means of preserving and at the same time accumulating the surplus value produced by the workers. However, the functioning of the means of production was not only to act as a means of producing surplus value, but at the same time they embodied financial assets that served as collateral for the incurrence of 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 touches upon at this point. It must be further shown today what role financial capital and financial markets play in capitalist reproduction, and first in the ongoing reproduction of commodity markets. Today, capital is a system whose accumulated real wealth also depends on the provision and organization of liquidity by the financial system and its financial markets, in which the price sums of financial assets can rise with some 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 the value of an asset. If liquidity means money that is virtually bound in a financial asset, this is only possible if the asset is currently not in the monetary form. If liquidity actualizes or becomes money, then the asset’s liquidity is thereby eliminated. Consequently, the asset can never remain perfect in its liquidity, and in this sense liquidity appears as an intensive consequence of the extensive property of the security denoted in money. Liquidity is a functional relation between the time of delay and the time of realization of the asset. Liquidity can thus be understood as an endogenous moment of the financial system itself. Money ultimately measures the gap between the liquidity or price of an asset and its liquidation value (monetizability). The financial system thus makes capital relations more effective in general, but these are now themselves heavily dependent on liquidity, which is perpetually increased by the trading of assets. Marx treated liquidity purely as a realization problem – either as a monetary return from investment or as the repayment of a loan – and the possibility that a corporate risk would be hedged and precisely thereby increase liquidity in financial markets could not have occurred to him.

Marx mostly assigned financial instruments exclusively to the sphere of circulation, analyzing their function separately from the operation of the technologies or physical means of production that store past wealth while enabling future demand for produced goods. In Marx’s case, when it comes to value (analogous to energy and matter), there seems to be mostly a kind of conservation principle, whereby the growth of real accumulated wealth can never be greater than the profits produced and realized in industrial production in a given period (multiplied by the rate of surplus value discounted by the rate of investment), so that any increase in the value of physical capital or constant capital in the form of the financial instruments does not occur in his case at all, or is considered purely fictitious wealth. (Cf. Meister 2016: Kindle edition: 2702ff.) For Marx, therefore, the real growth of an economy can never be greater than the industrially produced profit. But this can no longer be true for contemporary capital, the financial system and its financial instruments, because the assets themselves are means of financing to initiate and expand investments in „real industry“.

Marx` esoteric argument regarding the reproduction cycle of capital is that the production of goods and services always creates investor demand, for financial resources to maintain, accumulate and increase surplus value, with financial resources being produced in the same process as the production of goods and services. Thus, the production of goods today must necessarily be linked to the physical production and accumulation of asset values.

We now ask the following question regarding the operation of the financial system: what new types of financial assets must emerge today to both secure and expand capitalist reproduction as a whole, and how does the variable relationship between asset markets and consumer goods markets produce conditions to which new movements respond in social conflict? Marx sees in Capital that the new types of financial assets used for the purpose of accelerating capital accumulation are to be distinguished from money. For Marx, the general formula of capital cannot be simply G-G` – money leading to MehrGeld, but rather, in order to be able to generate real wealth, there must first be a monetary investment that functions differently from money in commodity exchange. Marx sees that surplus value is produced by wage labor, which in turn has the function of increasing the effective demand for the goods produced by the workers. However, Marx does not see that surplus value is maintained and accumulated by purchasing means of production, which not only serve as a means (constant capital), but also function as assets, which in turn serve as a hedge against the danger that parts of the goods produced will not be realized and that bankruptcies will occur because of this. The purchase of productive goods (constant capital) represents a partial solution to the problem of how to maintain and accumulate wealth without hoarding money. The concept of constant capital is now also understood as a relatively liquid asset, insofar as capitalist production must be financed and the surplus resulting from it reinvested in new means of production.

The production of financial instruments is definitely to be conceived as an alternative to saving money, in that it preserves and accumulates real wealth. For a financial investor, this means that the purchase of financial assets must be compared as a version of the formula G-W-Gwith the formula G-G – the former now conceived as a strategy of hedging the value. Indeed, in the formula G-W-G` there are two substitutes for W (commodity), namely the monetary capital invested in labor (W) and the monetary capital invested in productive assets, which, and this is now the crux of the matter, function on the one hand as means of production, but on the other hand as more or less liquid collateral used to generate new cash.

For Robert Meister (ibid.), the mode of relative surplus value production1 immediately introduces the logic of the financial system into the mode of production, and his analysis is also concerned, among other things, with examining what effects the operations and methods of the financial system have on the proper reproduction of the social relations between labor and capital. (Lee/Martin 2016: Kindle edition: 6801f.) Let us attempt a first explanation: the surplus value produced in a given phase of production can (if it is not simply hoarded as money) be maintained in the next phase only through an expanded reinvestment in means of production and raw materials, on the one hand, and augmented, on the other. Without augmentation, there is no preservation of capital. Capital also invests in labor when it expands productive capacity because it hopes for a spread between the labor value of money (the contribution of workers to GDP) and the money value of labor (wages). However, there are various arbitrage opportunities for firms to increase profits, especially if they operate with different technologies and different productivities, but these arbitrage opportunities are also eliminated in the process of equalizing movements to average profit rates, otherwise for a dominant firm to maintain and expand extra profits would be endless, ultimately ending in monopoly. There are two different arguments in Marx’s analysis and critique of the general formula G-W-G`. With respect to absolute surplus value, the argument consists first of all in the fact that the application of labor power makes possible the production of surplus value created by the workers, who are paid a smaller share as wages with respect to the total value they produce, with which they can buy those consumer goods which they themselves produce as a class.

In the case of relative surplus value, the argumentation is different: Marx comes closest to the problem of representing the relation between commodity production and the production of assets in his analysis of relative surplus value production in Capital Vol.1. Relative surplus value production, when it comes to the financial system, is based on its first maxim, the law of uniform price. This states that two identical units of commodity should be sold at the same price regardless of the firms‘ respective costs, whatever the forms of production in which raw materials are transformed into finished products by machinery and labor. However, the company is given a positive arbitrage opportunity in terms of its investment in means of production if it is able to have more units of goods produced in a given labor time than its competitors. The creation of arbitrage via more effective transformation of raw material (as one part of constant capital) is part of the increase in productivity through investment in new machinery (as another part of constant capital). The extra surplus value is generated here not by hiring new workers or, say, by labor intensification, but by the fact that the finished product can be sold at a lower price (per unit) than the same product to the competition. This accumulation of wealth through the relative production of surplus value is quite real and material, insofar as it derives from arbitrage with respect to constant capital, and not from absolute surplus value, to which corresponds an increase in labor time or a growing number of jobs.2 The esoteric Marxian argument, moreover, 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` concept of relative surplus value production leads to questions of real accumulation, where in the last instance it is the logic of financialization that expresses itself in relative surplus value production and finally also leads to the general law of capitalist accumulation. This law describes the creation of an increased production capacity (of constant capital) with the simultaneous growth of the surplus population, which, due to the use of labor-saving techniques, can no longer be brought to wage labor at all.

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

The middle term of the formula G-W-Gcannot be understood simply as a commodity productively applied in the production process, but must also be understood as a hedged portfolio priced out as capital. The hedge itself, being a marketable contract, has no use value other than its exchange value. It is quite obvious that for large corporations, such as General Motors, the productive assets are part of their own portfolio, which of course includes bonds or options on the productive assets. Randy Martin registers at this point a shift from G-W-G to G-D-G`, where D stands for the derivative that is now consubstantial to the productively consumed goods and, moreover, also drives the self-movement of capital. (Ibid.: 347) For example, by buying options on a commodity it needs for its production processes, a company can increase its own creditworthiness, which is affected by the risk of rising commodity prices. At the same time, the operations of a whole host of other actors are affected by the price index of that commodity. In the process, risks are duplicated, multiplied, and transferred to other spaces.

Marx shows in Capital Vol. 3 that there is already a problem of realization for enterprises, among other things, when they invest qua credit in means of production, which 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 possibly no longer be serviced. (Ibid.: 6801f.) This is a problem that indicates that it is essential to hedge the investment. The realization problem differs from other financial instruments in that the assets here are related to produced means of production and are not solely financial vehicles or assets of accumulation. Insofar as those assets have a use-value that goes beyond their mere liquidity, they are not purely financial products whose use-value consists solely in realizing a price in a differential-immanent movement that generates returns in the financial markets. Failure to realize the market price for a final product, or to sell it below the average price, results for the firm in a decrease in monetary funds and a reduced ability to use all raw materials and to utilize capacity/machinery to generate new, larger monetary funds.

Now, what Marx could not know, that is simply that the realization of the produced commodities can be hedged by the fabrication of puts and calls on options related to the means of production and raw materials; they thus tend to preserve at least the value of the investment in machinery and in raw materials during the period in which they are transformed into final products. Nor could Marx know that with the fabrication of options it is possible to intervene in the price of a finished product, which fluctuates in the market. Today, the existence of a market for puts and calls, the continuous possibility to permanently price and monetize the option, generates enough liquidity for the underlying market of production and consumption goods to tend to eliminate the risks for their realization. The value of products is now increasingly preserved and at the same time accumulated in the form of financial assets, trading at 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 an alternative to storing value through money, where there is little risk that the asset cannot be realized immediately at its market price. To finance an asset that is not fully liquid, a liquidity premium must then be paid, either by executing a hedge or buying collateral that is more liquid than the asset itself. The liquidation value of the asset will in turn be the money received when the pledged collateral is sold, 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.

Thus, a firm’s capitalist 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 debt. A call is captured here as the right to acquire a potentially infinite surplus, and a put is an instrument to limit loss. They are both derivative means to indicate whether it is worthwhile for a company to invest in a new capital stock in order to increase its capital stock and its profit, the capital stock being just one of the means to increase profit, the complementary form of which today is the financial asset, by which one also sees that the relative surplus production is just a way to exploit the spreads in a particular market. Thus, without pricing out the calls and puts and trading them in the derivatives markets, it is not possible to run a well-hedged portfolio today, consisting of debt and bonds, with the portfolio having liquidity at all times. The formula G-W-G` therefore also always describes W as a portfolio consisting of debt 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 that are in turn related to the parity of puts and calls. Therefore, according to Meister, the investment in W must satisfy the following equation:

Stock + Put=Debt + Call. (Meister 2016: Kindle edition: 3044)

This formula implies a simple identity: if one owns a capital stock and a put that contains a downside hedge, then a return on an investment can be replicated that is equal to owning a call that satisfies the possibility of participating in a more, related to the capital stock plus the present value of a credit. One can now use puts or calls to obtain a fully hedged portfolio, which in turn allows a return at least equal to the risk-free interest rate. Thus, the G-W-G` spiral involves a double arbitrage opportunity, namely, on the one hand, playing with spreads in the valuation of machinery and labor, assuming that the wage can neither be invested nor insured, and on the other hand, a fully hedged portfolio based on call-put parity. The basis for hedging is the loan as well as the return on the investment. If this return of money, which always remains related to the credit that the firm borrows, is the paradigm of the portfolio side of G-W-G‘ and this is also related to the investments in wages, then the effects of the financial system on the production processes of firms are far more complicated than Marx elaborated.

In derivative markets, commodities are not priced according to their values, but with respect to an uncertain value related to the future. When a commodity (e.g., a house) is sold before it physically exists, derivatives impute production to circulation by ascribing floating and contingent values to the commodity. Classical commodities have no liquidity, insofar as no economically realizable options are embodied in them. Therefore, the wage laborer cannot invest, he must spend his money entirely on consumption, and must therefore continuously offer his labor power on the labor market in order to earn the money for his consumption. However, every other commodity except 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 understanding them as an investment in one’s „human capital,“ they should be understood as a kind of tax paid to financial capital.

Marx assumes the worker, when he enters the labor market, to be unworthy of credit and free of debt, and it is precisely these characteristics that make him a wage-earner, which means that he must buy his means of subsistence exclusively with his wages. Wage labor, for Marx, is therefore a social relation by which workers are forced, beyond their exploitation, to spend the money immediately on commodities after receiving the wage: the money received as wages cannot thereby function as an asset that preserves and extends value. The question that arises here is this: How can capital guarantee the consumption of the working class if it has to keep accelerating accumulation via technological and, at the same time, labor-saving innovation? In this country, in order to achieve this goal, it seems adequate for wage workers to incur additional debt in addition to receiving a wage. Thus, the reproduction of labor power has long ceased to run on wages alone, but also on various financial instruments such as student loans, mortgage loans, health care, insurance, automobiles, condominiums and consumer loans, which are granted to households by special credit companies at sometimes 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 government to be sold to third parties who manage them as future investments. In this way, student loans function like the infamous mortgage loans that were blamed for the 2008 financial crisis. Today, an increasingly large portion of the consumption basket of wage earners is used to buy financial products, think health insurance and real estate loans, with these products in turn serving to create new financial instruments that function as vehicles for the accumulation of further wealth. And the precariat in particular is now absolutely dependent on other financial funds besides wages to survive at all. The surplus population, on the other hand, is excluded from the sale of labor power as the means of subsistence and participates in financial funds generated in informal or state sectors. For Marx, in accordance with the law of capitalist accumulation, it was quite clear that in the final consequence capital accumulation leads to a huge global surplus population. The wage-earning workers of the global North generally still receive sufficient wages from the capitalists to at least ensure their subsistence and, in some cases, to generate effective demand for the mass products of consumption. In the period of Fordism, this was indeed also the case on a mass scale. Today, however, in many cases the wage is only part of the amount needed to buy the means of reproduction, so that various financial products are now needed to sustain household consumption and to insure their dependents against illness, old age, etc. But these possibilities remain uncertain – they must therefore be hedged and thus financed, and this in view of the fact that their timelines and their costs remain contingent with respect to future events.

1 Relative value added production explains the effects of capital resulting from technological innovation that increases productivity in a firm. Individual capital, which is comparatively more productive, can sell the individual good more cheaply than its competitors because of the reduction in value, thus realizing for itself a larger share of the social mass of value. With the cheapening of food the value of the commodity labor power decreases, so that also the share of the variable capital falls in relation to the constant part (increase of the organic composition of the capital), but this cheapening leads just also to the fact that the labor power must produce less value for its maintenance, with what the share of the surplus value in the total product increases again. But this applies only to individual capital; for total capital the compensatory effect applies only if the number of productively applied labor-power increases in absolute terms. This is the aspect of labor power, 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 in Das Kapital, Marx makes an analytical division of the time of production (of capital) into labor time and functional time of machinery. (Cf. Bahr 1983: 434) According to Bahr, the same can be said of the functional time of machinery as of labor time, which is to be reduced by the methods of relative surplus-value production per unit. Now, fixed capital or machinery possesses its own function times, which, insofar as they are purchased quantities for the enterprise, must be reduced like the labor time entering into the individual product. And insofar as the functional time per unit of product decreases – this can happen through increased economies of scale, innovation, rationalization and automation, etc. – there is no reason why machinery, or today digital technology, should not be understood as a source of surplus value just as much as living labor, if the new products, for a given labor input, realize a selling price for the firm that is higher than the purchase price of raw materials, means of production, wages, interest, etc., insofar as this selling price is due to technologically induced rationalization. Consequently, individual capital is able to increase its share in total social production even if it succeeds in reducing its production times per unit by making machine function time more effective – and not just by compressing working time – and thus in reducing internal costs. A company achieves an extra profit over competing companies precisely when it succeeds in selling its products, which have fallen in price per unit due to the application of new technologies, more cheaply than those of other companies. Production costs per unit fall faster in the most productive industries than in other industries as a result of the application of specific technological innovation. With a penetration of new technologies in a whole industry, with which the extra profits disappear again, the socially necessary and valid working and functional times condense on a more general level; according to Marx, average profit rates settle down on a new level, whereby these are capped again and again by new wave movements originating from further technological innovations or disturbances.

However, this is a representation of an ideal process, implying that efficiency (minimum material input per unit of output) per se means economic efficiency (minimum cost per unit of output) and economic efficiency consequently means maximum profit. However, this may not always be true from several points of view, because a) it may even be efficient for the individual capital to use inefficient techniques or even to sell inefficient products, b) 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 markup, in order to then keep this price stable over longer periods or to adjust it to cyclical demand. c) it also happens, of course, that in some firms there is virtually no „real value added“ qua labor power, but they nevertheless absorb/realize a part of the total input of abstract labor at the level of total capital, so that the internal productivity standard is almost irrelevant.

2It is important to note the difference between arbitrage in production and in financial circulation. While the former is related to relative surplus value 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, volatility, and utilization.

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