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Finance capitalism or financial capitalism is the subordination of
processes of production to the accumulation of money profits in a financial
system. 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. Since the late 20th century, in a process sometimes called
financialization, it has become the predominant force in the global economy,
whether in neoliberal or other form.
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. 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. 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.
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. 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.
Historical developments:
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'", and anticipated Lenin's
and Bukharin's "largely derivative" writings on the subject. Writing
in the context of the highly cartelized economy of late Austria-Hungary,
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". 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. 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." 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. Furthermore, "the policy of finance
capital is bound to lead towards war, and hence to the unleashing of
revolutionary storms." Hilferding's study subsumed by Lenin into his
wartime analysis of the imperialist relations of the great world powers. Lenin
concluded of the banks at that time that they were “the chief nerve
centres of the whole capitalist system of national economy”: for the
Comintern, the phrase "dictatorship of finance capitalism" 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. 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. Whereas by
mid-century the industrial corporation had displaced the banking system as the
prime economic symbol of success, the late twentieth-century growth of
derivatives and of a novel banking model ushered in a new (and historically
fourth) period of finance capitalism. Fredric Jameson has seen the globalised
abstractions of this current phase of financial capitalism as underpinning the
cultural manifestations of postmodernism.
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