Finance capitalism

Last updated
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

Related Research Articles

Capitalism is an economic system based on the private ownership of the means of production and their operation for profit. Central characteristics of capitalism include capital accumulation, competitive markets, price systems, private property, property rights recognition, economic freedom, profit motive, entrepreneurship, commodification, voluntary exchange, wage labor and the production of commodities. In a market economy, decision-making and investments are determined by owners of wealth, property, or ability to maneuver capital or production ability in capital and financial markets—whereas prices and the distribution of goods and services are mainly determined by competition in goods and services markets.

State capitalism is an economic system in which the state undertakes business and commercial economic activity and where the means of production are nationalized as state-owned enterprises. The definition can also include the state dominance of corporatized government agencies or of public companies in which the state has controlling shares.

Late capitalism is a concept first used in print by German economist Werner Sombart at the start of the 20th century. In the late 2010s, the term began to be used in the United States and Canada to refer to corporate capitalism.

In Marxian economics, economic reproduction refers to recurrent processes. Michel Aglietta views economic reproduction as the process whereby the initial conditions necessary for economic activity to occur are constantly re-created. Marx viewed reproduction as the process by which society re-created itself, both materially and socially.

Economic planning is a resource allocation mechanism based on a computational procedure for solving a constrained maximization problem with an iterative process for obtaining its solution. Planning is a mechanism for the allocation of resources between and within organizations contrasted with the market mechanism. As an allocation mechanism for socialism, economic planning replaces factor markets with a procedure for direct allocations of resources within an interconnected group of socially owned organizations which together comprise the productive apparatus of the economy.

<span class="mw-page-title-main">Hyman Minsky</span> American economist

Dr.Hyman Philip Minsky was an American economist, a professor of economics at Washington University in St. Louis, and a distinguished scholar at the Levy Economics Institute of Bard College. His research attempted to provide an understanding and explanation of the characteristics of financial crises, which he attributed to swings in a potentially fragile financial system. Dr.Minsky is sometimes described as a post-Keynesian economist because, in the Keynesian tradition, he supported some government intervention in financial markets, opposed some of the financial deregulation of the 1980s, stressed the importance of the Federal Reserve as a lender of last resort and argued against the over-accumulation of private debt in the financial markets. Minsky's economic theories were largely ignored for decades, until the subprime mortgage crisis of 2008 caused a renewed interest in them.

Rentier capitalism is a concept in Marxist and heterodox economics to refer to rent-seeking and exploitation by companies in capitalist systems. The term was developed by Austrian social-geograph Hans Bobek, describing an economic system that was widespread in antiquity and still widespread in the middle east, where productive investments are largely lacking, the highest possible share of income is skimmed off from ground-rents, leases and rents and thus in many developing countries, rentier capitalism is an obstacle to economic development. A rentier is someone who earns income from capital without working. This is generally done through ownership of assets that generate yield, such as rental properties, shares in dividend paying companies, or bonds that pay interest.

An economic ideology is a set of views forming the basis of an ideology on how the economy should run. It differentiates itself from economic theory in being normative rather than just explanatory in its approach, whereas the aim of economic theories is to create accurate explanatory models to describe how an economy currently functions. However, the two are closely interrelated, as underlying economic ideology influences the methodology and theory employed in analysis. The diverse ideology and methodology of the 74 Nobel laureates in economics speaks to such interrelation.

<i>Monopoly Capital</i> 1966 book by Paul Sweezy and Paul A. Baran

Monopoly Capital: An Essay on the American Economic and Social Order is a 1966 book by the Marxian economists Paul Sweezy and Paul A. Baran. It was published by Monthly Review Press. It made a major contribution to Marxian theory by shifting attention from the assumption of a competitive economy to the monopolistic economy associated with the giant corporations that dominate the modern accumulation process. Their work played a leading role in the intellectual development of the New Left in the 1960s and 1970s. As a review in the American Economic Review stated, it represented "the first serious attempt to extend Marx’s model of competitive capitalism to the new conditions of monopoly capitalism." It attracted renewed attention following the Great Recession.

Uneven and combined development, unequal and combined development, or uneven development is a concept in Marxian political economy intended to describe dynamics of human history involving the interaction of capitalist laws of motion and starting world market conditions whose national units are highly heterogeneous. The concept is used by Marxist scholars concerned with economic development. David Harvey is an advocate of the usefulness of this theory to reconstruct historical materialism on Modern terms. It is an accepted key concept in academic economic geography.

Production for use is a phrase referring to the principle of economic organization and production taken as a defining criterion for a socialist economy. It is held in contrast to production for profit. This criterion is used to distinguish communism from capitalism, and is one of the fundamental defining characteristics of communism.

Throughout modern history, a variety of perspectives on capitalism have evolved based on different schools of thought.

Democratic socialism is a left-wing set of political philosophies that supports political democracy and some form of a socially owned economy, with a particular emphasis on economic democracy, workplace democracy, and workers' self-management within a market socialist, decentralised planned, or democratic centrally planned socialist economy. Democratic socialists argue that capitalism is inherently incompatible with the values of freedom, equality, and solidarity and that these ideals can only be achieved through the realisation of a socialist society. Although most democratic socialists seek a gradual transition to socialism, democratic socialism can support revolutionary or reformist politics to establish socialism. Democratic socialism was popularised by socialists who opposed the backsliding towards a one-party state in the Soviet Union and other nations during the 20th century.

<span class="mw-page-title-main">Rudolf Hilferding</span> Austro-German economist, pediatrician, journalist, Marxist theoretician and politician

Rudolf Hilferding was an Austrian-born Marxist economist, socialist theorist, politician and the chief theoretician for the Social Democratic Party of Germany (SPD) during the Weimar Republic, being almost universally recognized as the SPD's foremost theoretician of the twentieth century. He was also a physician.

<i>Imperialism, the Highest Stage of Capitalism</i> 1917 book by Vladimir Lenin

Imperialism, the Highest Stage of Capitalism, originally published as Imperialism, the Newest Stage of Capitalism, is a book written by Vladimir Lenin in 1916 and published in 1917. It describes the formation of oligopoly, by the interlacing of bank and industrial capital, in order to create a financial oligarchy, and explains the function of financial capital in generating profits from the exploitation colonialism inherent to imperialism, as the final stage of capitalism. The essay synthesises Lenin's developments of Karl Marx's theories of political economy in Das Kapital (1867).

The socialist mode of production, or simply (Marxist) socialism or communism as Karl Marx and Friedrich Engels used the terms communism and socialism interchangeably, is a specific historical phase of economic development and its corresponding set of social relations that emerge from capitalism in the schema of historical materialism within Marxist theory. The Marxist definition of socialism is that of production for use-value, therefore the law of value no longer directs economic activity. Marxist production for use is coordinated through conscious economic planning. According to Marx, distribution of products is based on the principle of "to each according to his needs"; Soviet models often distributed products based on the principle of "to each according to his contribution". The social relations of socialism are characterized by the proletariat effectively controlling the means of production, either through cooperative enterprises or by public ownership or private artisanal tools and self-management. Surplus value goes to the working class and hence society as a whole.

Social ownership is a type of property where an asset is recognized to be in the possession of society as a whole rather than individual members or groups within it. Social ownership of the means of production is the defining characteristic of a socialist economy, and can take the form of community ownership, state ownership, common ownership, employee ownership, cooperative ownership, and citizen ownership of equity. Within the context of socialist economics it refers particularly to the appropriation of the surplus product, produced by the means of production, or the wealth that comes from it, to society at large or the workers themselves. Traditionally, social ownership implied that capital and factor markets would cease to exist under the assumption that market exchanges within the production process would be made redundant if capital goods were owned and integrated by a single entity or network of entities representing society. However, the articulation of models of market socialism where factor markets are utilized for allocating capital goods between socially owned enterprises broadened the definition to include autonomous entities within a market economy.

Crisis theory, concerning the causes and consequences of the tendency for the rate of profit to fall in a capitalist system, is associated with Marxian critique of political economy, and was further popularised through Marxist economics.

In the theoretical works of Karl Marx and Friedrich Engels and subsequent Marxist writers, socialization is the process of transforming the act of producing and distributing goods and services from a solitary to a social relationship and collective endeavor. With the development of capitalism, production becomes centralized in firms and increasingly mechanized in contrast to the pre-capitalist modes of production where the act of production was a largely solitary act performed by individuals. Socialization occurs due to centralization of capital in industries where there are increasing returns to scale and a deepening of the division of labor and the specialization in skills necessary for increasingly complex forms of production and value creation. Progressive socialization of the forces of production under capitalism eventually comes into conflict with the persistence of relations of production based on private property; this contradiction between socialized production and private appropriation of the social product forms the impetus for the socialization of property relations (socialism).

The theory of imperialism refers to a range of theoretical approaches to understanding the expansion of capitalism into new areas, the unequal development of different countries, and economic systems that may lead to the dominance of some countries over others. These theories are considered distinct from other uses of the word imperialism which refer to the general tendency for empires throughout history to seek power and territorial expansion. The theory of imperialism is often associated with Marxist economics, but many theories were developed by non-Marxists. Most theories of imperialism, with the notable exception of ultra-imperialism, hold that imperialist exploitation leads to warfare, colonization, and international inequality.

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.Augar, Chasing Alpha (2009) p. 122 and p. 108
  28. ↑ Jameson, p. 256-7
  29. ↑ Jameson, p. 268-273

Further reading

This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.