Finance capitalism orfinancial capitalism is the subordination of processes ofproduction to the accumulation ofmoney profits in afinancial system.[6]
Financial capitalism is thus a form ofcapitalism 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 calledfinancialization.
Finance capitalism is characterized by a predominance of the pursuit of profit from the purchase and sale of, orinvestment in,currencies and financial products such asbonds,stocks,futures and otherderivatives. It also includesthe lending of money at interest; and is seen byMarxist 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 asEugen von Böhm-Bawerk, see such profits as part of theroundabout process by which it grows andhedges 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 theinterbank 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]
The meaning of the term financial capitalism goes beyond the importance offinancial 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]
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 beforeWorld War I. Hilferding'sFinance 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 anticipatedLenin's andBukharin's "largely derivative" writings on the subject.[14] Writing in the context of the highlycartelized economy of lateAustria-Hungary,[15] Hilferding contrastedmonopolisticfinance capitalism to the earlier, "competitive" and "buccaneering" capitalism of the earlierliberal era. The unification of industrial, mercantile and banking interests had defused the earlier liberal capitalist demands for the reduction of the economic role of amercantilist 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 thebourgeoisie 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 thenobility, 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 byLenin 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 theComintern, 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 ofindustrial 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 ofThorstein 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 theglobalised abstractions of this current phase of financial capitalism as underpinning the cultural manifestations ofpostmodernism.[29]
