Avoiding Sundays on the Long March Against ‘Correct’-Line Marxism: A Reply to Beverley Best

29th Aug, 2018

Capitalism with Derivatives

Avoiding Sundays on the Long March Against ‘Correct’-Line Marxism: A Reply to Beverley Best[1]

by Dick Bryan and Michael Rafferty


Beverley Best’s article in Historical Materialism journal carries the strange title ‘Political Economy through the Looking Glass: Imagining Six Impossible Things About Finance Before Breakfast’. Whatever such a paper may be about, its implicit claims to having the ‘correct’, clear, simple truth are indeed bold.

As it turns out, the paper is a review essay about Marxism and modern finance, and more particularly a critical evaluation of two books about financial derivatives (described perhaps in the spirit of Looking Glass temporal displacement as ‘recent contributions’, though they were published 14 and 12 years ago), along with some later research by the authors of the latter book. The latter book is Capitalism with Derivatives: A Political Economy of Financial Derivatives, Capital and Class. The earlier book was Financial Derivatives and the Globalization of Risk, by Benjamin Lee and Edward LiPuma. Ben and Ed can speak for themselves, so this reply to Beverley’s essay relates only to her engagement with our work.

A significant part of Beverley’s essay is polemical, asserting sweeping propositions we are said to advocate, which she then determines to disprove. So, let us tag some of those before we move to substantive issues. Beverley would have it that we argue that there is now “a new mode of capitalist accumulation altogether” (p. 77) (we are unsure what a mode of accumulation might be) and that that we believe we are witnessing “the displacing of the principal site of value-generation from production to circulation” (p. 78) (in anyone’s framing, that’s an oxymoron). She thinks we don’t understand the difference between abolishing value (a struggle against capital) and abolishing value theory (an anti-Marxism) (p. 93) As if!

Where her depiction is partially correct is that we do contend that some of “the traditional categories of critical political economy are no longer adequate to the analytical tasks” (p. 78) (though we would say to some analytical tasks). But we find puzzling her desire to prove, contra our work, that “traditional formulations of Marxian categories such as class, exploitation and value-form remain entirely relevant and, indeed, necessary for an accurate grasping of the mode of social domination in the era of financialization”. We are not in dispute over their relevance. Our question, however, is: whose version is ‘traditional’, is it always a virtue to be ‘traditional’ and what constitutes ‘accuracy’?

Our position, to state it clearly at the outset, is that the current period, like many that have preceded it, presents challenges to many ‘traditional’ Marxisms. Sticking to nineteenth century dichotomies between production and circulation, or finance and production when developments over the last few decades have been blurring these categories seems conservative for its own sake. And invoking a version of value theory that appears ahistorical risks confusing taxonomy with theory. We are instead inclined to the position of Karl Korsch (1935) who said that the only orthodox thing in Marxism is the method:

All the hotly disputed questions in the field of historical materialism – questions which when phrased in their general form are just as insoluble and just as meaningless as the well-known scholastic disputes about the priority of the hen or the egg – lose their mysterious and sterile character when they are expressed in a concrete, historical and specific manner.

Let us now turn to a few theoretical, conceptual and empirical arguments Beverley aims at our work. We won’t address every issue, but have picked a few of the core ones.

Fictitious Capital

Beverley spends significant space challenging our statements on fictitious capital, for she believes we do not understand its meaning and significance. She starts with the proposition that our argument is that “we no longer need the category of fictitious capital in the analysis of derivatives markets and financialization more generally” (p. 80). She then produces several quotes from us that clearly contend a critically different proposition: that finance should not be reduced to the category of fictitious capital. So, let us be clear. There can be double counting of capital when both the physical form and its monetary representation are both counted as ‘capital’. And we can readily call this ‘fictitious’, and hence ‘fictitious capital’. Our concern is that there are too many people who want to describe all or most of finance as ‘fictitious’. Beverley recounts:

[S]tocks, shares, bonds securities and financial derivatives are all examples of fictitious capital (p. 82)

That seems to cover a good part of finance – almost everything other than credit and financial advice.

But how significant is the concept of fictitious capital in building an understanding of contemporary finance in the context of value theory? Clearly, Beverley thinks it is pivotal. To explain, she gives the reader a common-sense illustration of fictitious capital in the form of a derivative. She describes a hypothetical I.O.U. arrangement with the reader and contends that this is ‘fictitious capital’ “because it does not constitute newly created capital ... [but] ... represents a redistribution of value between different pockets” (p. 83).

The trouble with Beverley’s illustration is that her I.O.U. isn’t capital at all (it is the interpersonal repayment for a lost bet). And it is not a derivative, either. What Beverley misses is that the nature of fictitious capital depends not on the form of the contract, but on the purpose of the loan. That’s the difference between money and money capital. If, for example, Beverley’s I.O.U. involved repayments from investing in industrial capital, then it might well be interest-bearing capital, and certainly not fictitious.

But let us move on. The growing liquidity of financial capital is surely one of the hallmarks of the era of financialisation. Its partial detachment from underlying, more fixed assets gives it ease and speed of turnover. Finance can move rapidly between different forms of fictitious capital, and just as easily into and out of interest-bearing capital. Fictitious capital is not so much a stock but a moment in the movement of capital. It may stay fictitious for literally fractions of a second before returning to the form of interest-bearing capital. Consistent with this, Beverley classifies financial derivatives as part of fictitious capital (double counting), although at another point she says that “derivatives are regularly converted into money capital” (p. 89). We can add: and vice versa, and not just regularly, but with enormous rapidity.

So, in her framing, capital can readily move between being ‘fictitious’ and ‘real’, and this is said to be theoretically vital. But, in reality (which is somehow a different domain from the ‘real’ that describes capital)m we cannot separate them. In a “concrete, historical and specific manner”, to use Korsch’s phrase, it seems very hard to disentangle fictitious capital from other forms of finance. Perhaps Beverley and we differ as to which analytical level is more important: our concern is that the concept of a discrete fictitious capital is being expected to do far too much analytical work that can never be validated empirically.

Production and Circulation; Productive and Unproductive labour

Beverley claims we believe there is production of value inside circulation. We do not hold that view – at least no more than she does herself. Nonetheless, her point of emphasis is that there is a “critical distinction between production and circulation in analysis, even if in reality these spheres are inseparable”. This is an interesting take on ‘traditional’ materialist method: the empirical inseparability is put entirely aside in favour of upholding conceptual distinctiveness.

But the ‘reality’ of ‘inseparability’ should surely tell us something about the difficulty of the analytical categories. In Volume II of Capital and in Part I of Theories of Surplus Value, we see Marx grappling with clarifying the distinction between productive and unproductive (circulation) labour. Marx, engaging Smith, Ricardo and the Physiocrats, takes us through any number of hypothetical illustrations – like the waged cook, actor, piano worker or clown who are productive of surplus value, but the jobbing tailor and servant, who exchange against revenue, and thereby are not (1962: 156-76). Marx also tells us that in the midst of processes that look circulatory there are processes of production: he talked, for instance, about transportation and storage as productive activities (1885: Ch.6). What are we to make of Marx’s deliberations 150 years on, as an engagement not with Physiocrats but with global finance? Has the clown become a financial service worker? Is transport now about fibre-optic cable and wi-fi? Is storage about satellites and blockchain? Maybe, but answering these questions is about being creative; not ‘traditional’. It surely has to be context-specific; not canonical.

Beverley recognises (pp. 90-91) that there is indeed commodity production within finance (perhaps readers will hear that as production inside circulation; but it makes sense to us!). “Financial products and services are themselves commodities that are produced and sold (or issued for a fee)” (p. 90). Derivatives, bonds and securities, earlier considered as fictitious capital when seen as the notional value of outstanding positions (p. 82), are here described, in another dimension, as commodities because they are produced by means of wage labour and capital.

In reference to derivatives she continues:

[T]he contracts themselves, as financial commodities, constitute commodity-capital, and again, exhibit the same characteristics of all commodities produced under these circumstances (p. 90).

As such, they are sites of value and of surplus value production. That might seem clear, but two critical issues follow. First, Beverley then contends that the conceiving and designing of contracts is the only dimension of commodity production and surplus value production inside finance (p. 91). But, if that activity is productive then, by the same logic, so too is the labour of brokers who, for a fee, provide the service of undertaking research, running the models, etc. to advise clients on what and when to buy and sell. The actual execution of the trade (pressing a button) can be understood as ‘unproductive’, but that act looks like a small part of the labour process. Further, maybe the fees charged for holding accounts with financial institutions are also productive: they are charges for the services of storage.

We are not here seeking to re-draw the line between production and circulation. Our point is simply that, when you open up the details of financial labour, the distinction between service production and circulation seems to be of little practical import. Those who want a clear delineation of ‘productive’ and ‘unproductive’ labour need clear, and empirically verifiable explanations of the portion of the costs, revenue and profits of financial institutions tied to the specific task of ‘trading’.

Second, of those workers who are ‘productive’ – and we can here focus on those identified by Beverley – what is the value of the commodities they create? What is the value of constant capital they use up, and what is the rate of surplus value they generate? Are they highly skilled with high productivity (Marx refers to skill as multiple units of labour)? Are they working with high technology? What is the organic composition of capital in derivative production: it appears to be high, but how do we value the intangible capital with which they work?

Unless we know these answers, we cannot know the values of the financial service commodities. We cannot tell what part of the costs, revenues and profit of ‘finance’ is attributable to productive capital (and what part is fictitious).

Regardless of these problems, Beverley thinks that:

The fees collected in this way [‘conceiving and designing of financial commodities’] do constitute a substantial portion of the profits of many financial firms (p. 91).

To emphasise, Beverley argues that this profit is not derived from circulation, but directly from surplus value production inside finance. We are not sure how her ‘traditional’ categories enable her to calculate that conclusion but we think it is probably right.

Nonetheless, a contradictory set of propositions now shatters her ‘traditional’ analysis when she wants to show how the dichotomies between productive/unproductive and fictitious/real are critical to understanding the current financialized era. She contends, pace Kliman and (she believes) Marx’s Capital (p. 87), that the challenge for contemporary capitalism is the scale of fictitious capital and unproductive labour:

[S]urplus-value becomes increasingly difficult to come by in quantities that make investment in productive industry worthwhile for the capitalist class,

and follows that up with the statement that:

 it is simply incorrect and profound mystification [for Bryan and Rafferty] to suggest that capital proceeds to invent new methods and mechanisms for creating value ... [like] commodifying risk. (pp. 87-88).

Yet she has just argued precisely the opposite: that there is significant commodity production in derivative and other financial products and it is creating significant value, surplus value and profit.

The measure of value and a politics that follows.

Beverley emphasises that accumulation continually hits barriers. But, in the current era, we believe this barrier is not, as she argues (and simultaneously disproves), the expansion of financial markets appropriating surplus in circulation.

The period popularly called ‘financialisation’ can also be framed as capital’s struggle to deal with the absence of a stable unit of account. At a basic level, capital cannot produce its own unit of account. This is a role for the state, albeit now under some sort of challenge from crypto currencies. But we know the unit of account is not stable. Interest rates and exchange rates can be volatile, and anchor asset measures like treasury bonds have also been volatile, especially associated with ‘quantitative easing’.

We have argued elsewhere that the rise of derivatives (most of them relate to interest rates and exchange rates) is associated with attempts by capital to hedge that volatility by trading the risks of exposure to interest rate and exchange rate changes. It is, no doubt, an ultimately unsuccessful strategy. But it’s the only strategy available.

This poses two questions for contemporary value theory. First, is capital’s (attempted) management of the unit of account, to create hedges against its volatility, itself a process of production, to compensate, as it were, for the state’s retreat? We are open-minded on this, but it perhaps frames the fictitious moment, in which the value of capital is being continually adjusted against financial volatility. Understanding that is necessary for the very conception of value in the current era.

Second, as Beverley reminds us, “for Marxism the category of value is, not least, an accounting category ... a definite magnitude (p. 94). So, with values of different monies of account volatile, how are prices of production (labour values transformed, via competitive criteria, into money prices) to be measured? Some value theorists might say that prices of production are denominated in an abstract money. But, for those of us who want something more materially grounded, the question of whether value is denominated in US dollars, Euros or bitcoin makes a real difference, and that difference is in a process of continual change.

So, if the unit of account in which value is measured is itself endogenous to the market, readers may see why we would gesture to the monetary form of the unit of value itself having to be variable (floating) in order to measure socially necessary labour time denominated in hours. This is not about abandoning value theory, but applying it in the context of contemporary finance.

It suggests to us that attempts to measure the rate of profit in terms of a fiat money (and then to project its decline based on propositions empirically delineating productive from unproductive labour) looks like a project that pivots entirely on bold and theoretically-dubious assumptions. That does not seem like an analytical site ripe with political implications.

We think that a closer look at the process of accumulation within finance opens up other possibilities that are indeed about contributing to abolishing the system of value (Beverley thinks our goal is simply the abolition of value theory!) In particular, we draw attention to the securitisation of household subsistence payments. Household contractual payments on housing (mortgage, rent), education, utilities, and insurance (access to health care) are, especially in the US, being bundled up, rated for default risk, and sold as financial assets (securities) where the underlying asset of the security is exclusively those contracted payments.

Beverley sees these payments as associated only with consumption (p. 97). We argue that, beyond consumption, these household payments are reconfigured as financial assets. If we stop at subsistence as just consumption, we miss the class dimension of financialised subsistence.

While working-class household income is becoming more volatile and the capacity to purchase subsistence more precarious, the fact that that subsistence is increasingly locked into financial contracts is significant. It is, for reasons we won’t pursue here, costly and difficult to default on these contracts. So, households increasingly find themselves absorbing financial risk: their income gets more precarious, but they regularly pay the bills if they possibly can because they have no choice. Accordingly, there is a risk surplus (or spread) opening up, expressed as risk-absorption by households. For capital, where a risk/return trade-off is axiomatic, this widening spread would require higher rates of return to elicit new investment. For households who cannot choose to not subsist, the risk is simply absorbed.

We think this risk spread is analytically significant because it involves a class underwriting of the rate of return on capital. Maybe readers won’t want to think of it as a source of surplus value, but it is a source of surplus that is captured by capital. How we incorporate it into a value framework remains an open question, but it is not to be ignored analytically or politically.

Politically, a potential source of resistance to capital lies in ‘organising’ default rates on contract payments that will threaten the value of securities far more quickly that a strike in a workplace will threaten the profits of an employer. The securities market is far more liquid and leveraged than the underlying market: it is analytically and strategically different from a strike against an electricity company or a landlord. It is a confrontation with capital in general because it imposes politically a barrier to capital’s capacity to generate liquidity (via securitisation). Surely this framing opens up a politics specific to the processes of financialisation. It is not, as Beverly depicts it (p. 91), a politics of class defeat (strategically failing to pay a bill is a defeat only within a neoliberal framing). It opens possibilities with more potential than Beverley’s preferred framing of household interest payments as ‘financial expropriation’: a grandiose term that merely provides a new label to describe either a one-off theft by capital (repossession during the GFC), or a process of revenue extraction dating back thousands of years. By contrast, we are talking about finding capital’s vulnerability at its leveraged, liquid frontier.

So perhaps some readers of this response will still say that we don’t understand ‘traditional’ Marxism and are, in some deep sense, ‘wrong’. There is nothing we can do about that, except to say that invoking ‘tradition’ as the source of ‘correctness’ seems scholastic, fundamentalist and sterile - and an odd place for Marxists to seek inspiration.

Others might find the ideas we have been developing interesting, but outside of Marxian value theory. But value theory is a tool for understanding class relations; it is a tool of a materialist method. Historical materialism, we believe, is about framing developments in class and value and considering their political possibilities. What is ‘core’ and untouchable in the way we use categories will always be a subject of debate, but it is important that is a debate within Marxism; not framed as one between traditionalists who know, and the renegades who don’t. That debate will involve a long march. It perhaps shouldn’t start on a Sunday, but it should be preceded by a good breakfast, to help clarify thought.


Korsch, Karl 1935 ‘Why I am a Marxist’, Modern Quarterly 1935, transcribed by Andy Blunden for Marxists.org, 2003.

Marx, Karl 1885 Capital, Volume II. Harmondsworth: Penguin, 1978.

Marx, Karl 1963 Theories of Surplus Value, Part I. Moscow: Progress Publishers.


[1] "I always love to begin a journey on Sundays, because I shall have the prayers of the church to preserve all that travel by land or by water." Jonathan Swift