Finance capitalism

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Finance capitalism is a term from Marxian political economics for 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.

In the tradition of Thorstein Veblen, it is contrasted with industrial capitalism, where profit is made from the manufacture of goods.

Finance capitalism is seen by Marxists as a dialectical outgrowth of industrial capitalism, and part of the process by which the whole capitalist phase of history comes to an end.

Practitioners of finance capitalism, and academic defenders such as Eugen von Böhm-Bawerk, have long regarded it as a complement to industrial capitalism, part of the roundabout process by which it grows and hedges against inevitable risks.

[edit] Selling short

One financial practice that is often invoked by those who see a conflict between finance and industry is that of short selling of securities. Managers of industrial companies often allege that short sellers, i.e. stock traders who sell their company's stock before they buy it, betting on a fall in price, spread untruths about a company's real prospects in order to scare off potential investors, drive down the price, and make money.

Short sellers claim that they serve several functions, to wit:

(a) they increase the over-all liquidity of the markets in which they operate, which in turn generally increases efficiency and the likelihood that the market will continue to function normally through periods of shock

(b) they keep specific corporate managements honest, by digging out truths that managers and long-side investors would otherwise be happy to conceal, and

(c) they keep the generality of corporate management honest, in much the same way that lions weed out the stragglers among a herd of gazelle and so increase the average swiftness of the survivors.