Finance capitalism

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A 400-year evolution of modern financial capitalism
MG 056-De Beurs van Hendrick de Keyser.jpg
Courtyard of the Amsterdam Stock Exchange (or Beurs van Hendrick de Keyser in Dutch), a powerhouse of Dutch capitalism in the 1600s. The birth of the world's first formally listed public company (the Dutch East India Company) and first formal stock exchange (the Amsterdam Stock Exchange), in the 17th-century Dutch Republic, helped usher in a new era of finance capitalism. [1] [2] [3] [4] [5]
NYSE127.jpg
The trading floor of the New York Stock Exchange (NYSE), a foremost symbol of American finance capitalism, in the early 21st century.

Finance capitalism or financial capitalism is the subordination of processes of production to the accumulation of money profits in a financial system. [6]

Contents

Financial capitalism is thus a form of capitalism where the intermediation of saving to investment becomes a dominant function in the economy, with wider implications for the political process and social evolution. [7] The process of developing this kind of economy is called financialization.

Characteristics

Finance capitalism is characterized by a predominance of the pursuit of profit from the purchase and sale of, or investment in, currencies and financial products such as bonds, stocks, futures and other derivatives. It also includes the lending of money at interest; and is seen by Marxist analysts (from whom the term finance capitalism originally derived) as being exploitative by supplying income to non-laborers. [8] Academic defenders of the economic concept of capitalism, such as Eugen von Böhm-Bawerk, see such profits as part of the roundabout process by which it grows and hedges against inevitable risks. [9]

In financial capitalism, financial intermediaries become large concerns, ranging from banks to investment firms. Where deposit banks attract savings and lend out money, while investment banks obtain funds on the interbank market to re-lend for investment purposes, investment firms, by comparison, act on behalf of other concerns, by selling their equities or securities to investors, for investment purposes. [10]

Social implications

The meaning of the term financial capitalism goes beyond the importance of financial intermediation in the modern capitalist economy. It also encompasses the significant influence of the wealth holders on the political process and the aims of economic policy. [11]

Thomas Palley has argued that the 21st century predominance of finance capital has led to a preference for speculation—Casino Capitalism—over investment for entrepreneurial growth in the global economy. [12]

Historical developments

Rudolf Hilferding is credited with first bringing the term finance capitalism into prominence. Rudolf Hilferding and Gattin, cropped.jpg
Rudolf Hilferding is credited with first bringing the term finance capitalism into prominence.

Rudolf Hilferding is credited with first bringing the term finance capitalism into prominence, with his (1910) study of the links between German trusts, banks, and monopolies before World War I. Hilferding's Finance Capital (Das Finanzkapital, Vienna: 1910) was "the seminal Marxist analysis of the transformation of competitive and pluralistic 'liberal capitalism' into monopolistic 'finance capital'", [13] and anticipated Lenin's and Bukharin's "largely derivative" writings on the subject. [14] Writing in the context of the highly cartelized economy of late Austria-Hungary, [15] Hilferding contrasted monopolistic finance capitalism to the earlier, "competitive" and "buccaneering" capitalism of the earlier liberal era. The unification of industrial, mercantile and banking interests had defused the earlier liberal capitalist demands for the reduction of the economic role of a mercantilist state; instead, finance capital sought a "centralized and privilege-dispensing state". [16] Hilferding saw this as part of the inevitable concentration of capital called for by Marxian economics, rather than a deviation from the free market.

Whereas, until the 1860s, the demands of capital and of the bourgeoisie had been, in Hilferding's view, constitutional demands that had "affected all citizens alike", finance capital increasingly sought state intervention on behalf of the wealth-owning classes; capitalists, rather than the nobility, now dominated the state. [17]

In this, Hilferding saw an opportunity for a path to socialism that was distinct from the one foreseen by Marx: "The socializing function of finance capital facilitates enormously the task of overcoming capitalism. Once finance capital has brought the most importance ( sic ) branches of production under its control, it is enough for society, through its conscious executive organ – the state conquered by the working class – to seize finance capital in order to gain immediate control of these branches of production." [18] This would make it unnecessary to expropriate "peasant farms and small businesses" because they would be indirectly socialized, through the socialization of institutions upon which finance capital had already made them dependent. Thus, because a narrow class dominated the economy, socialist revolution could gain wider support by directly expropriating only from that narrow class. In particular, according to Hilferding, societies that had not reached the level of economic maturity anticipated by Marx as making them "ripe" for socialism could be opened to socialist possibilities. [19] Furthermore, "the policy of finance capital is bound to lead towards war, and hence to the unleashing of revolutionary storms." [20]

Hilferding's study was subsumed by Lenin into his wartime analysis of the imperialist relations of the great world powers. [21] Lenin concluded of the banks at that time that they were “the chief nerve centres of the whole capitalist system of national economy”: [22] for the Comintern, the phrase "dictatorship of finance capitalism" [23] became a regular one.

In such a traditional Marxist perspective, finance capitalism is seen as a dialectical outgrowth of industrial capitalism, and part of the process by which the whole capitalist phase of history comes to an end. In a fashion similar to the views of Thorstein Veblen, finance capitalism is contrasted with industrial capitalism, where profit is made from the manufacture of goods.

Fernand Braudel would later point to two earlier periods when finance capitalism had emerged in human history—with the Genoese in the 16th century and the Dutch in the 17th and 18th centuries—although at those points it was from commercial capitalism that it developed. [24] Giovanni Arrighi extended Braudel's analysis to suggest that a predominance of finance capitalism is a recurring, long-term phenomenon, whenever a previous phase of commercial/industrial capitalist expansion reaches a plateau. [25]

Whereas by mid-century the industrial corporation had displaced the banking system as the prime economic symbol of success, [26] the late twentieth-century growth of derivatives and of a novel banking model [27] ushered in a new (and historically fourth) period of finance capitalism. [28]

Fredric Jameson has seen the globalised abstractions of this current phase of financial capitalism as underpinning the cultural manifestations of postmodernism. [29]

See also

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References

  1. ↑ Neal, Larry: The Rise of Financial Capitalism: International Capital Markets in the Age of Reason (Studies in Monetary and Financial History). (Cambridge University Press, 1993, ISBN   9780521457385)
  2. ↑ Goetzmann, William N.; Rouwenhorst, K. Geert: The Origins of Value: The Financial Innovations that Created Modern Capital Markets. (Oxford University Press, 2005, ISBN   978-0195175714))
  3. ↑ Rothbard, Murray: Making Economic Sense, 2nd edition. (Ludwig von Mises Institute, 2006, ISBN   9781610165907), p. 426. In own words of the Austrian School economist Ludwig von Mises, "A stock market is crucial to the existence of capitalism and private property. For it means that there is a functioning market in the exchange of private titles to the means of production. There can be no genuine private ownership of capital without a stock market: there can be no true socialism if such a market is allowed to exist."
  4. ↑ Dore, Ronald: Stock Market Capitalism, Welfare Capitalism: Japan and Germany versus the Anglo-Saxons. (Oxford University Press, 2000, pp. 280, ISBN   978-0199240616)
  5. ↑ Preda, Alex: Framing Finance: The Boundaries of Markets and Modern Capitalism. (University of Chicago Press, 2009, pp. 328, ISBN   978-0-226-67932-7)
  6. ↑ "Capitalism" by John Scott and Gordon Marshall in A Dictionary of Sociology Oxford University Press 2005. Oxford Reference Online. Oxford University Press
  7. ↑ Simon Johnson, "The Quiet Coup", May 2009, The Atlantic.
  8. ↑ "The Contradiction of Capitalism in the Search for Democracy", Latin American Perspectives, Vol. 24, No. 3, Ecuador, Part 1: Politics and Rural Issues (May, 1997), pp. 116–122
  9. ↑ F. Boldizzoni, Means and Ends: The Idea of Capital in the West 1500–1970, Palgrave Macmillan 2008, pp. 128–32
  10. ↑ J. Bradford De Long & Carlos D. Ramirez, "Understanding America’s Hesitant Steps Toward Financial Capitalism", 1996, UC Berkeley Archived 2012-03-13 at the Wayback Machine
  11. ↑ "Minsky's Analysis of Financial Capitalism" (PDF). July 1999. Archived (PDF) from the original on November 12, 2019.

    [and for some more "meta data"], "see also" https://www.levyinstitute.org/publications/minskys-analysis-of-financial-capitalism ... which was found via a "search results page" at https://www.levyinstitute.org/search/website.php?q=MINSKY%27S+ANALYSIS+OF+FINANCIAL+CAPITALISM in 2024.
  12. ↑ Thomas Palley, From Financial Crisis to Stagnation (2012) p. 218
  13. ↑ Robert Bideleux and Ian Jeffries, A History of Eastern Europe: Crisis and Change, Routledge, 1998. ISBN   0-415-16111-8 hardback, ISBN   0-415-16112-6 paper. p. 356.
  14. ↑ Bideleux and Jeffries, p. 361.
  15. ↑ Bideleux and Jeffries, p. 357–359.
  16. ↑ Bideleux and Jeffries, p. 359.
  17. ↑ Bideleux and Jeffries, p. 359–360.
  18. ↑ "Rudolph Hilferding. Finance Capital: A Study of the Latest Phase of Capitalist Development. Chapter 25, The proletariat and imperialism. http://www.marxists.org/archive/hilferding/1910/finkap/ch25.htm"
  19. ↑ Bideleux and Jeffries, p. 360.
  20. ↑ Quoted in Bideleux and Jeffries, p. 360.
  21. ↑ Frederic Jameson, 'Culture and Finance Capital', in The Jameson Reader (2005) p. 257
  22. ↑ Quoted in E. H. Carr, The Bolshevik Revolution 2 (1971) p. 137
  23. ↑ Quoted in F. A Voight, Unto Caesar (1938) p. 22
  24. ↑ C. J. Calhoun/G. Derluguian, Business as Usual (2011) p. 57
  25. ↑ Jameson, p. 259-60
  26. ↑ A. Sampson, Anatomy of Britain Today (1969) p. 475
  27. ↑ P.Auger, Chasing Alpha (2009) p. 122 and p. 108
  28. ↑ Jameson, p. 256-7
  29. ↑ Jameson, p. 268-273

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