From Hobson's Choice
Finance capital refers to a peculiar state of capital in which it is pure money. Financial capital is not a factor of production, like real capital is; rather, it refers to money which is institutionally consigned to use for the purchase of real goods or services explicitly for the production of other goods and services.
Nuances of Meaning
As a matter of pure semantics, the term finance capital is usually used in at least three different ways:
- as financial capital, i.e., money that is entrusted to financial intermediaries for the purpose of wealth creation;
- as a unit of capital account, i.e., as a measure of actual or potential real capital; here, practically interchangeable with "capital" in the sense of productive tools, machinery, buildings, fixtures, semi-finished goods, and so forth;
- as an economic class, who derives its income from the management of financial capital (capital in its liquid state) as opposed to "industrial capital," who derives its income from profits made in the manufacture of tangible goods.
In the 3rd sense, "finance capital" can have profound political connotations.
Forms of Finance Capital
Finance Capital as a Political Actor
Traditionally, finance capital is regarded by the Political left and right as inherently immoral. Nearly all radical critiques of the economy, including that of John A Hobson, have tended to lay severe blame at the feet of finance capital. What the right and left differ on, however, is what finance capital is guilty of. According to Hobson, finance capital was the primary (but by no means exclusive) instigator of the new imperialism.Hobson also blamed finance capital for underconsumption, leading to mass unemployment.
Early Marxists Kautsky and Hilferding argued for an extension of Marx's theory to incorporate finance capital as a sort of meta-capital, or capital of capital. According to Marx, capital is by definition a form of exploitation, since the capitalist is remunerated for his role in production by control over that productive process. But the misfortune of the capitalist is that he is tied to real capital; his dependence on credit makes him vulnerable to another layer of exploitation in the form of the extraction of finance capital. Hilferding justly deserves credit (pun not intended) for the development of the concept of fractional reserve banking as a diabolical scheme. Lenin reinterpreted Hobson's Imperialism to mean that finance-capital represented an extreme degenerative state of capitalism, in which finance capital (as a class) conspired to (a) create monopolies that allowed the exploitation of capital (which returned the favor to the workers) and (b) led parliaments and cabinets into international confrontations.
At the opposite end of the political spectrum, hard right demagogues used precisely this supposed hierarchy of exploitation by financiers to impugn their Jewish neighbors. Hence, the "leftist" pretensions of the Steel Helmets and their imitators, the Nazis, derived almost wholly from the supposed monstrosity of finance capital controlling Germany's destiny. In contemporary political discourse, finance capital (in the form of George Soros) is blamed for opposition to imperialism. Soros, of course, is an unusual case of a man who made an immense fortune and decided to use part of it for combating the rise of the hard right in his adopted USA. Most people of immense wealth use it for opposite ends.
It's easy to fall into the trap of saying "So you see, you just can't tell." However, there is an immense amount of practical evidence that, in fact, finance capital is actually kindred to other industrial enterprises, both in its level and direction of influence, and in its organizational structure. Specifically, much of the mysticism that attaches to finance capital arises from the immense veil of tedium that one must lift to actually view it. Once lifted, it becomes apparent that the industry is remarkably standardized across international lines; it is fairly passive in regards to matters of foreign policy, exercising its influence mainly through finance ministries and multilateral institutions. Its kindred sectors are the extractive industries, which today are probably more influential.
Theories of finance capital which treat it as an immutably different class suffer from the same stumbling block as Lenin's and Hilferding's didi: there's nothing to stop a greedy capitalist from becoming a greedy finance capitalist. Hobson, perhaps because of his direct personal knowledge, understood this and specifically excluded the conspiratorial view of finance capital. The head of a huge industrial concern could easily sell his shares and become head of a huge financial concern; it was neither mysterious nor unusual. We could allow that Lenin, et al. merely said "capitalist" when they meant "entrepreneur," and courteously proceed. But where is the alleged clash between exploiter and exploited? Entrepreneurs are hardly shy about taking their combat to the courts; they're not a meek cadre in the social relations of production. It seems fair to say that Marx's critique of political economy was wholly directed at the intersection of market and labor. Attempting to apply this to the interior of the market system of capital and entrepreneurship was a grandiose fillip that served only the bourgeois dabbler in radicalism. Once surplus value has been exploited into existence, it is a commodity that cannot be further "commodified."
- John A. Hobson "Economic Parasites of Imperialism," from Imperialism (complete text online), James Pott and Co. (1902)
- Karl Kautsky, [Finance-Capital and Crises] (1911)
- V.I. Lenin, "[Finance Capital and the Financial Oligarchy]" from Imperialism, the Highest Stage of Capitalism (complete text online), publisher & translator unknown (1916); Lenin Internet Archive (1999)
- Wikipedia entry: financial capital