How Does Finance Capital Work?
Below is a cross-post from Jurriaan ( so sue me), with his usual brilliance. I post it because it addresses my ongoing curiosity at how to quantify the total or whole amount of value or money in the world. It answers a question copied further below. Is GDP is an annualized figure: the amount of "product" produced in one year ? So, how much value is consumed in one year ? What is the index for that. How much value lasts for more than a year ? Charles ^^^^^^ * From: "Jurriaan Bendien" Quick response - here's a few IMF estimates again which you could consider: World GDP (i.e. world salary and gross profit income directly generated by annual production) $36.1 trillion (in 2003). 2003 value of the world's stock market capitalisation (i.e. the market value of equity capital of publicly listed companies) $31.2 trillion (of which EU $7.7 trillion, USA $14.3 trillion, Japan $4.9 trillion) 2003 value of the world's debt securities (bonds, derivatives etc.) $52 trillion (of which EU $16.7 trillion, USA $22 trillion, Japan $8.4 trillion) 2003 value of the world's commercial bank assets $40.6 trillion (of which EU $18.1 trillion, USA $5.7 trillion, Japan $6.2 trillion) (Source: http://www.imf.org/external/pubs/ft/gfsr/2004/02/pdf/statappx.pdf) You can get some other estimates on the financial markets from: http://www.ifsl.org.uk/uploads/London_financial_capital_of_Europe_2004.pdf As you can see, the value of the assets owned by the world's commercial banks is estimated to be larger than the total mass of the world's total share-capital. These bank assets are of course not "net worth", because obviously banks also have liabilities. When Rudolf Hilferding was talking about "finance capital" he meant basically the fusion of industrial capital and bank capital. But in the modern world, this is much more developed, e.g. investment companies which buy and sell companies and fund managers trading in all sorts of things - companies, currencies, properties, futures, hedges etc. Worldwide, 7.7 million millionaires and billionaires together own about $28.8 trillion of assets, about of third of that is stocks (Merrill Lynch estimate of those with financial assets of more than $1 million, excluding the value of their homes). http://moneycentral.msn.com/content/Retirementandwills/InvestYourSavings/P86 555.asp http://www.us.capgemini.com/DownloadLibrary/requestfile.asp?ID=413 Can't get into the Cap-Gemini site tonite, but the average portfolio of a high-net-worth individual in 2002 looked like this: 30 percent fixed income, 25 percent cash, 20 percent equities, 15 percent real estate and 10 percent alternative investments (e.g., hedge funds). http://money.cnn.com/2003/06/11/pf/millionaire/millionaires/?cnn=yes So as you can see, the haute bourgeoisie hasn't exactly got a lot of dynamic "entrepreneurial spirit" themselves judging by their placements, but of course if you own that much capital, you cannot personally control it - a whole chain of people and institutions develops to manage that capital, and use it in various ways. Hence the notion of corporate governance - the mass of capital gets so big, that nobody can control it anymore, and the distance between owners and controllers grows very long. Companies own other companies which own other companies, and so on. In that case, more and more, capitalists are concerned with surplus-value as such, i.e. a net income regardless of source or form (interest, rent, profit etc.). It isn't so much that they don't want to invest in a "responsible" way, but that it may become very difficult to trace the real revenue-generating element. As regards the Fortune Global 500 largest corporations in 2003, they were said to have issued share-capital worth about $6.8 trillion and together owned assets worth $60.8 trillion. (Source: Fortune Vol. 150, No. 2, Europe edition 13, July-August 2004, p. F-10). Banks, finance and insurance companies are strongly represented in the list, and a number of them have assets close to or larger than $1 trillion (e.g. Citigroup, ING, Deutsche Bank, Mizuho, Mitsubishi). So how does it work? Well the simplest thing I say about it, that capitalism as chrematistic activity is essentially about capitalising on trade, i.e. the principle of "buying cheap and selling dear". Production is one aspect of that, but of course you can also trade in existing property, in currencies, and in claims to (future) income or claims to (future) assets. The more capital you have, the more capital you can make, and also, the more capital you can borrow. Thus, with a capital asset of a significant size, you can typically actually claim far more capital than you actually have. The capital you have, acts as a sort of "collateral" for additional capital claims. With those additional claims, you can extract additional net income, that's the point. The main function of the working class and the peasantry is to conserve the value of assets and create new assets. There has to be a constant stream of new assets, because otherwise capital value is lost or destroyed. Workers themselves invest mainly in houses, the value of which can of course also appreciate (but you may not be able to capitalise on that because you have to live somewhere). Claims on capital wealth ultimately presuppose new net additions to real asset wealth, so, there's certain limits on the ratio of financial claims to tangible assets. Governments can issue bonds etc. but ultimately they still require current revenue and assets to finance all that, and that revenue is ultimately generated by the production of new asset wealth. But, basically, what the haute bourgeoisie (or its financial staff) does mainly, is trade and invest in the assets, including existing assets and future assets. In the last 200 years, the working class and the peasantry has created a lot of asset wealth, so really there is plenty to trade in. At the point however where capital invested in trade of all kinds yields more secure profit than capital invested in production of tangible assets for which demand-growth is reduced, or basically stagnant, then the real economic growth rate declines. But obviously, that is itself not an obstacle for capitalist activity, at least not in the shorter term, because there are plenty existing assets that can be traded in. Jurriaan ^^^^^ Comrades, I am looking to figure out the basic notions and dynamics behind finance capital as it relates to certain specific concerns. By which I mean, looking at the theory of commodity fetishism and alienation and LOTV, these are fundamentally simple to grasp when you talk about a piece of yarn or a factory worker producing toys - in fact I thought about commodity fetishism, ie. price as the great masking of social history and relations, as such before I even read Marx. But I have no idea, then, how it is possible that billions and billions of dollars are made by speculating on money. How does money make money? How can you assign the percentage of the interest made and how does anyone know what to speculate on and what not to speculate on? How is it tangible? Is it factored into GDP? Is it true that something like 90% of all money is from finance capital, not production of material goods?
