Hi Patrick Interesting piece. But why did you lea ve Mattick and Kliman out of the analysis?
Paddy Paddy Hackett On 21 Jul 2013, at 23:53, Patrick Bond <[email protected]> wrote: > Encyclopedia of Political Economy > edited by Phillip Anthony O’Hara > > Finance capital > > In 1910 a young medic, Rudolf Hilferding, published Finance Capital. In this > work he viewed finance capital as a specific historic phase of capitalism in > which there is an intimate connection between banking, commercial and > industrial interests and where the hegemony of high finance prevails. In > 1915, Bukharin used the phrase “the coalescence of industrial and bank > capital,” and in 1917, Lenin termed finance capital “the merging of > industrial with bank capital.” The terms used in these definitions are not > substantially different (Brewer 1980:103–9; Howard and King 1989: ch. 5). Nor > are they much different from modern-day conceptions of finance capital > (Sweezy 1972:143). These definitions each emphasize institutional power bloc > characteristics of finance, at the expense of drawing attention to the > vulnerability implicit in financial relations. > > New forms of financial organization > > This was understandable, perhaps, since during the period from 1870 to 1920 > it appeared that a new institutional form, “finance capital,” had achieved > hegemony over the entire world economy (Sweezy 1972:179). Evidence was found > in the concentration and centralization of the major financial institutions; > the organization of cartels of industrial capitalists, often by financiers; > the exercise of financial control over corporate development more generally; > and the powerful impetus of financiers in imperialism, manipulation of state > policies and the formation of ideologies. Indeed, many political economists > believed that banks and other financial institutions had actually pushed > capitalism into a new and perhaps final stage, the era of monopoly, > imperialist, finance capitalism. > > The leading Marxist theorists of the first decades of the twentieth century > (Hilferding, Kautsky, Bauer, Bukharin, Lenin and others) adopted this broad > argument, although there was conflict about whether this final stage was one > of strength or one of decay (Tickten 1986). However, the banks that were > supposedly at the center of power in this new era of capitalism suffered > tremendous bankruptcies, culminating in system-wide crashes that left the > financial system in tatters during the GREAT DEPRESSION of the 1930s. > Nonetheless, until then the theory of finance capital had much to recommend > it. Hilferding, for example, contended that the problem of rising > overaccumulation in highly concentrated branches and sectors of production > could be displaced, thanks to the coordination functions of finance capital, > into the more competitive, non-cartelized sectors of the economy. Thus for > Hilferding (1910:298), intensified uneven sectoral development during crisis > would not generate further destabilization of the economy, but rather > stabilization through deepening cartelization. The subsequent shakeout of the > smaller producers would permit the finance capital cartel to increase the > level of industrial concentration and survive the broader downturn. > > Institutional stability > > Indeed, Hilferding posited that several factors “militating against a banking > crisis” would combine with finance capital’s increasing range to ensure that > conditions of crisis could be ameliorated. Those factors included, first, the > ability of finance capital to manage and share risk effectively; second, the > belief that a strong gold reserve and other state regulatory policies could > shore up the creditworthiness of the system; third, a decline in the volume > and importance of speculative activity (at the powerful urging of key > institutions of finance capital); and fourth, the ability of joint-stock > companies to continue to produce during a downturn because production need > not realize an immediate return. > > Hilferding (1910:291) concluded that it was “sheer dogmatism to oppose the > banks’ penetration of industry…as a danger to the banks.” Hilferding > (1910:180) even expressed faith that the centralization and concentration > process would result in an “increasingly dense network of relations > between the banks and industry…[which] would finally result in a single bank > or a group of banks establishing control over the entire money capital. Such > a ‘central bank’ would then exercise control over social production as a > whole.” Bukharin (1917:73) also predicted a “gigantic combined enterprise > under the tutelage of the financial kings and the capitalist state, an > enterprise which monopolises the national market.” Politically this was > extremely important, for it justified seeking a route to socialism that > entailed the socialization of capitalist relations via finance. At one point > Hilferding (1910:368) even asserted that, “taking possession of six large > Berlin banks would mean taking possession of the most important spheres of > large scale industry, and would greatly facilitate the initial phases of > socialist policy during the transition period, when capitalist accounting > might still prove useful.” > > Hilferding was German Finance Minister later in his career (for a few weeks > in 1923, and in 1928–9), and was considered a reformist Marxist in the > Bernstein/Kautsky tradition. On this point his greatest subsequent rival, > Henryk Grossmann (1929:198), offered scathing comment: “Hilferding needed > this construction of a ‘central bank’ to ensure some painless, peaceful road > to socialism, to his ‘regulated’ economy.” Even as German Finance Minister > (under difficult circumstances in the late 1920s) Hilferding failed in any > such mission. Yet notwithstanding emerging problems with the finance capital > concept (such as the collapse, not strengthening, of financial empires), even > as late as 1931 Hilferding maintained his thesis (Sweezy 1942:298). > > Critique of “finance capital” > > Where did Hilferding go wrong in miscalculating the power of finance capital? > According to de Brunhoff, Hilferding made a critical mistake that led him to > dissociate money and the credit system (“money as an instrument of hoarding” > is ignored, she complained). “This dissociation has probably been one of the > reasons for the overestimation of the role of ‘finance capital’” (1976:xiv). > > Further objections emerge to the internal logic of Hilferding’s “finance > capital,” as well as to its contemporary relevance. He underplayed the extent > to which, for instance, finance was utilized for the financing of labor power > as against means of production (especially through pension, insurance, > consumer credit and government sources), and the rise in the social wage. > > In addition, Hilferding’s conclusion ran contrary even to much of his own > prior analysis. First, the same problems in the productive sector that lead > to falling profit rates also force banks to look further afield, > geographically and sectorally, in order to maintain lending and a healthy > deposit base, which brings added risk. Second, rather than declining in > importance, financial speculation tends to increase dramatically prior to the > climax of a crisis. Third, Hilferding’s argument that jointstock companies > were relatively immune from downturns was contradicted by his analysis of how > vital credit was to the smooth operation of stock exchanges. As Sweezy > (1942:267) observed, “Hilferding mistakes a transitional phase of capitalist > development for a lasting trend.” The transitional phase was one of recovery > from the 1870s–1890s financial crises; these crises would emerge again during > the early 1930s and 1970s–1990s. > > See also: capitalism; capitalist breakdown debate; financial crises; > financial instability hypothesis; money, credit and finance: major > contemporary themes; monopoly capitalism; speculation > > Selected references > > Brewer, A. (1980) Marxist Theories of Imperialism: A Critical Survey, London: > Routledge & Kegan Paul. > > Bukharin, N.I. (1917) Imperialism and the World Economy, New York: Monthly > Review, > 1972. > > de Brunhoff, S. (1976) Marx on Money, New York: Urizen Books. > > Grossman, H. (1929) The Law of Accumulation and Breakdown of the Capitalist > System, London: Pluto, 1992. > > Hilferding, R. (1910) Finance Capital, London: Routledge & Kegan Paul, 1981. > > Howard, M.C. and King, J. (1989), A History of Marxian Economics, vol. 1, > Princeton: Princeton University Press. > > Lenin, V.I. (1917) Imperialism, Moscow: Progress Publishers, 1986. > > Sweezy, P. (1942) The Theory of Capitalist Development, New York: Monthly > Review, > 1968. > > –––(1972) “The Resurgence of Finance Capital: Fact or Fancy?,” Socialist > Revolution 1(8). > > Tickten, H. (1986), “The Transitional Epoch, Finance Capital and Britain: The > Political Economy of Declining Capitalism,” Critique 16. > > PATRICK BOND > > _______________________________________________ > pen-l mailing list > [email protected] > https://lists.csuchico.edu/mailman/listinfo/pen-l
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