Finance capitalism

Finance capitalism or financial capitalism is the subordination of processes of production to the accumulation of money profits in a financial system.[1]

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:[2] since the late 20th century it has become the predominant force in the global economy,[3] whether in neoliberal or other form.[4]

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.[5] 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.[6]

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.[7]

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.[8]

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.[9]

Historical developments

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 – a study subsumed by Lenin into his wartime analysis of the imperialist relations of the great world powers.[10] Lenin concluded of the banks at that time that they were “the chief nerve centres of the whole capitalist system of national economy”:[11] for the Comintern, the phrase "dictatorship of finance capitalism"[12] 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.

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.[13] 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.[14]

Whereas by mid-century the industrial corporation had displaced the banking system as the prime economic symbol of success,[15] the late twentieth-century growth of derivatives and of a novel banking model[16] ushered in a new (and historically fourth) period of finance capitalism.[17]

Fredric Jameson has seen the globalised abstractions of this current phase of financial capitalism as underpinning the cultural manifestations of postmodernism.[18]

Opponents

Fascists were vocal in their opposition to finance capitalism.[19]

C. H. Sisson saw the underlying theme of The Cantos of Ezra Pound as the depredations of finance capital: “the monstrous aberration of a world in which reality is distorted, down to a detail never so comprehensively implicated before, by the pull of a fictitious money”.[20]

Gottfried Feder opposed financial capitalism and the concentration of capital by bankers in Germany.

See also

References

  1. ↑ "Capitalism" by John Scott and Gordon Marshall in A Dictionary of Sociology Oxford University Press 2005. Oxford Reference Online. Oxford University Press
  2. ↑ Simon Johnson, "The Quiet Coup", May 2009, The Atlantic.
  3. ↑ R. Munck, Globalization and Labour (2011) p. 77-8
  4. ↑ Charles R. Morris, The Trillion Dollar Meltdown (2008) p. 156
  5. ↑ "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
  6. ↑ F. Boldizzoni, Means and Ends: The Idea of Capital in the West 1500-1970, Palgrave Macmillan 2008, pp. 128-32
  7. ↑ J. Bradford De Long & Carlos D. Ramirez, "Understanding America’s Hesitant Steps Toward Financial Capitalism", 1996, UC Berkeley
  8. ↑ Dimitri B. Papadimitriou & L. Randall Wray, "Minsky's Analysis of Financial Capitalism, 1999
  9. ↑ Thomas Palley, From Financial Crisis to Stagnation (2012) p. 218
  10. ↑ Frederic Jameson, 'Culture and Finance Capital', in The Jameson Reader (2005) p. 257
  11. ↑ Quoted in E. H. Carr, The Bolshevik Revolution 2 (1971) p. 137
  12. ↑ Quoted in F. A Voight, Unto Caesar (1938) p. 22
  13. ↑ C. J. Calhoun/G. Derluguian, Business as Usual (2011) p. 57
  14. ↑ Jameson, p. 259-60
  15. ↑ A. Sampson, Anatomy of Britain Today (1969) p. 475
  16. ↑ P.Auger, Chasing Alpha (2009) p. 122 and p. 108
  17. ↑ Jameson, p. 256-7
  18. ↑ Jameson, p. 268-273
  19. ↑ Frank Bealey & others. Elements of Political Science. Edinburgh University Press, 1999, p. 202
  20. ↑ C. H. Sisson, English Poetry 1900-1950 (1981) p. 124. He himself added that “it could not be said that Pound's targets were wholly illusory. The detail of his analysis is more doubtful and less creditable”, p. 101

Further reading

Rudolf Hilferding, Finance Capital (1981[1910])

Giovanni Arrighi, The Long Twentieth Century: Money, Power, and the Origins of our Times (1994)

J. K. Galbraith, The New Industrial State (1974)

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