By RENILDO SOUZA*
In his time, Marx noted that the totality of capital existed in the form of means of production, “with the exception of a relatively small portion existing in the form of money”
In this second article of the series, we return to discuss the possible clues, the beginnings of elaboration, about the finance of Karl Marx's work in Section V of Book III of The capital.
Monetary and productive capitalists
The separation of money capitalists and industrial capitalists gave materiality to the creation of the category of interest, observed Karl Marx. The money capitalist and the productive capitalist “play different roles in the process of reproduction,”[I] Marx argued. This separation between capitalists was not a subjective understanding of these characters of capital. There was the objective fact of the allocation of interest to the monetary capitalist and of entrepreneurial profit to the active capitalist. It was a quantitative and qualitative division at the same time.
The qualitative separation consisted of the autonomy of interest in relation to corporate profit. This was perceived by the entire capitalist class as a general phenomenon, regardless of whether the profit was derived from the actual operation with own or borrowed capital. From Marx's explanation, the most important thing for the financialized capitalism of the 21st century is the normalization of the qualitative character of the autonomy of the interest portion, as if it were the exclusive result of the mere ownership of capital, outside the production process.
Since Marx's time, “the majority of industrial capitalists, albeit in different proportions, work with their own and borrowed capital”, with one and the other, twins. [ii] This remains the case, but it has been deepened in the financialized capitalism of the 21st century, with the escalation of corporate debts. There has been a profound, qualitative change: the industrial corporation has become in part a financial institution. It operates in the production of goods and in the financial market, even if its main activity is in the productive sphere. Its financial, non-operational results have become a normal necessity for its existence as capital.
In the 19th century, in England, there was a clear demarcation between industrial, commercial and monetary capitalists. This was the time of Marx. From the beginning of the 20th century, banks became organically involved in the life of industry, especially in Germany, giving rise to the category of finance capital. This was the time of Rudolf Hilferding, Nikolai Bukharin and Vladimir Lenin.[iii]
And now? Now, since the last two decades of the 20th century, financialized capitalism has been imposed globally, with the interpenetration of commercial banks, investment banks, pension and mutual funds, hedge funds and private equity, insurance companies and productive and commercial corporations. Among all of them there is convergence towards structural financialization, without losing the main characteristics and functions of each one and without suppressing their reciprocal contradictions.
Some supposed advantages and disadvantages of the productive (financial) side were internalized by the financial (productive) side. In this sense, there is not only liquidity nor only capital immobilization. Interest and business gain need to be united and separated at the same time.
In this context, José Carlos Souza Braga states that it no longer makes sense to distinguish between financial and non-financial companies, considering the quality of the interpenetration of finance and production in the new form of configuration and management of wealth in general. There is no longer a “productive capital versus banking capital divide”, states Braga.[iv] The large, “productive” corporation has an active, aggressive and permanent behavior in the most diverse types of monetary and financial activity.
The corporation seeks financial gains and, at the same time, deepens brand and product marketing strategies. It promotes technological innovations. It competes for positioning in the global value chain, counting on outsourcing and production subcontracting, in addition to financing its suppliers.
Marx said that the industrial capitalist had to “confront the class of money capitalists as a particular category of capitalists”. [v] In the structure of the society of financialized capitalism, the identities of the different social fractions of capitalists persist, in a certain sense, alongside the mixing of interests.
In fact, today, the contradictions between groups of capitalists have become more acute, as demonstrated by bankruptcies, restructurings and episodes of takeovers. Increasingly widespread mergers and acquisitions, in constant movement, provide opportunities for the centralization of financial wealth.
An example in Brazil of the consequences of these new relationships was the use of credit as an advance on export contracts by large companies, such as Sadia, for speculation in derivatives. However, the Sadia group was hit by the frustration of its speculative bets in the foreign exchange derivatives market, with the devaluation of the Brazilian currency, due to the global crisis of 2008. At a certain point during the crisis, Sadia was “swallowed up” by its competitor, the Perdigão group, forming Brasil Foods SA (BRF).
In 2018, the giant BRF was shaken by the escalation of conflicts within its plurality of powerful partners, from various spheres, including pension funds. It is worth noting that BRF is the largest food company in Brazil, with 50 factories in 50 countries and sales in 127 nations.
On the one hand, there are some interpretations of financialization that completely ignore these important intercapitalist social contradictions, underestimating productive development in an effort to emphasize financial dominance in the 21st century. On the other hand, there are approaches, with a productive idealization, that also fail to understand the significance of these contradictions. Furthermore, in practice, the class struggle between the bourgeoisie and the working class is underestimated, weakening the fight against the increasingly severe exploitation of labor at the hands of active capital in production. Wall Street and Main Street or Febraban and Fiesp are united when it comes to promoting the attack and precariousness of labor, which is a crucial aspect of contemporary capitalism.
As Marx said, “Interest and entrepreneurial profit exist only in mutual antithesis. Neither of them, therefore, refers to surplus value, of which they are no longer parts fixed under distinct categories, headings or names.”[vi]. Furthermore, “the worker is absolutely indifferent whether the capitalist proceeds in this way [with his own capital, pocketing all the profit] or whether he is obliged to cede a part to a third party as the legal owner of the capital”. [vii]
Corporate profit and interest in the behavior of countries and companies
Productive capitalists are willing to pay higher interest rates “in direct proportion to the level of the rate of profit”. However, in the long term, there is a tendency for the rate of profit to fall, due to the increase in the organic composition of capital. An inverse relationship tends to emerge between the rate of profit and developed and mature capitalist production. Considering this tendency in comparative terms between countries, there will be different interest rates when comparing formations that are relatively backward and advanced from an economic point of view. The condition for this result, with all other factors hypothetically unchanged, is that the difference in interest rates represents the different degrees of profitability between the countries being compared, Marx assessed.
Financialization, however, has qualitatively changed the relations between production and finance in the world. This type of comparison between countries, based on the diversity and interaction between profits, the whole, and interest, the part, has become much more complex. New forms of asymmetry have emerged between the center and the periphery. The different financial markets have become, to a greater or lesser extent, integrated within the countries.
This integration also occurred globally, despite the specificities of national production and finance and the accentuation of the hierarchy of wealth between countries. The policies of the main central banks and, above all, the strategies of the funds for centralizing and managing gigantic masses of financial wealth determine the dynamics of the markets, with arbitration between the most diverse instruments, such as interest swaps and foreign exchange derivatives.
In any case, given the changes in monetary and financial circumstances in the course of capitalist production, as was proven in the 2008 crisis, Marx's conclusion that companies, whether industrial or commercial capital, demand money as a means of payment, in a scenario where interest rates are expected to soar, remains valid. To confirm this, it is enough to mention the case of the large automobile companies in the United States, saved from bankruptcy by public money.
It was necessary to reduce disruptions in payment chains and abort the expected rise in interest rates. For this reason, the central banks of developed countries, led by Federal reserve system (FED, central bank of the United States), had to intervene with massive liquidity of credit money and forced interest rates, through the negotiation of bonds, to almost zero.
It is worth noting that if the interest rate is very low, then the debtor company acts almost as if it were dependent only on its own capital, which has no place in the governance of financial institutions over the productive corporation today. Even in his time, Marx observed that the capitalist who uses only his own capital already kept separate accounting for interest as part of the profit. Thus, Marx concluded that the division of profit, with the separate calculation of interest, did not always convert this quantitative division into a qualitative division. Obviously, that separation between monetary and industrial capitalists was not always necessarily necessary.
Interest rate fluctuation
Marx refers to the industrial cycle, identifying the phases of stability, increasing animation, prosperity, overproduction, crash, stagnation and resumption of cyclical movement. Thus, the movement of modern industry went through a phase of prosperity with low interest rates and, after difficulties in production, was accompanied by a rise in interest rates. “But an increase in interest rates to the point of extreme usury corresponds to the period of crisis”. Marx, however, also recognizes the possibility that in some circumstances low interest rates could coincide with productive stagnation and moderately high interest rates with a significant recovery in business. [viii]
The level of interest rates was also influenced both by the emergence of a large social group of rentiers, based on the increase in the country's wealth, and by the development of the credit system, with the concentration of savings in banks. In Brazil, the decline in industrial production, the hyper-concentration of banks and the gigantic rentierism on public debt combined to generate absurdly high rates, beyond any international comparison. This state of affairs in terms of interest rates has been a central and lasting attribute of financialization in Brazil.
Furthermore, there is an international connection, because finance has relied on interest rate arbitration between countries since its origins. In this sense, Marx mentions the note of Rio de Janeiro Prices Current, published on May 10, 1847, showing that the English sold public bonds in Brazil en masse, which had been purchased when the interest rate was low in England.[ix] When British interest rates rose, the way back was followed, with remittances increased by income. The stratospheric interest rates in Brazil, persistently high since the 1980s, are of direct interest to international finance, as they have been in the past.
After Marx, since the end of the 19th century, the economic cycle has undergone major changes, associated with monopolies, financial capital, and state intervention. Shutdowns are more frequent and recoveries are weaker. There is also the exceptional case of growth lasting two more decades in the post-Second World War period, in a scenario of economic reconstruction, technological modernization, and mass consumption.
With financialization, episodes of financial bubbles have been recurrent, such as the recent ones in the information technology sector (IT, dot com) in 1997-1999 and real estate in 2003-2007.
Monetary capital in society
Vulgar economics, from Marx to the present, has equated the part and the whole. For example, today, in the defense of fiscal austerity, the nature and management of a family's budget and the State's budget are always equated. Marx points out that an individual can keep his capital out of productive investment, converting it into interest-bearing capital. For the individual, interest appears as if it were income generated by capital in and of itself. But it is clear that it makes no sense to generalize this behavior to all capital in society and to explain the origin of profit. This is nonsense on the part of vulgar economists, Marx points out.
The result would be a devaluation of monetary capital and a collapse in the interest rate. He denounces that there is “an even more absurd idea, that based on the capitalist mode of production, capital could generate interest without functioning as productive capital, that is, without creating surplus value, of which interest is only a part; the idea that the capitalist mode of production could move without capitalist production.”[X] Well, it seems that this “even more absurd idea” has been normalized today.
Financialization, which of course does not exclude industrial development, has exacerbated the superfluous character of the capitalist as an employee of production. The development of joint-stock companies, accompanying the advancement of the credit system, was positively welcomed by Marx as the socialization of production, despite reservations. He highlighted the aspect of the separation of administrative work, as a function, from the ownership of capital. Therefore, “(…) profit has also revealed itself to be in practice what it was already indisputably in theory: simple surplus value (…)”.[xi]
For Marx, this form of companies, with the discarding of the active capitalist, was a harbinger of systemic transition, despite its negative meaning due to the persistence of labor exploitation.
Karl Marx harshly criticized the prophecies of some disciples of Saint Simon, based on illusions in the “miraculous power of the credit and banking system”.[xii] They were fascinated by the prospects for the evolution of society through the production of large industrial companies, driving technological advances, with the support and stimulus of credit and the stock market. The pioneer and most powerful experience of this financial impulse for the acceleration of capitalist productive transformation was the bank Property Credit by Isac Pereire, a graduate of Saint Simon. This bank is a kind of ancestor in the family of development banks, like the BNDES.
Financialization as a dominant logic
For Alfredo Saad Filho, “The process of financialization under neoliberalism was not a distortion of ‘pure capitalism’, or a ‘coup’ by the financial sector against productive capital. He adds that finance is not just a parasitic structure simply ‘sucking’ industrial capital and/or workers’ incomes. On the contrary, financialization is a structural feature of social reproduction under neoliberalism.” [xiii]
Financialized capitalism has profoundly altered the terms of distribution of total capital in society. In his time, Marx stated that all capital existed in the form of means of production, “with the exception of a relatively small portion existing in money.” In capitalism, since the last decades of the 20th century, the phenomenon of financialization has not resulted from the conversion of capital, by a huge number of capitalists, into monetary capital.
This is not an approximation of the nonsense of the generalization of monetary capital. Obviously, productive capital remains at very high levels. The exploitation of productive labor has reached more workers and has intensified, preserving the source of surplus value. What is new is the extension, forms, functions and implications of monetary capital, as the dominant pole or even the general and normal state of the economy as a whole, exacerbating the contradictions and instability in the turbulent dynamics of contemporary capitalism.[xiv]
*Renildo Souza He is a professor of economics and international relations at the Federal University of Bahia (UFBA). He is the author of, among other books, A China de Mao e Xi Jinping (Editora da UFBA).
To read the first article in the series, click https://dpp.cce.myftpupload.com/marx-e-a-financeirizacao/
Notes
[I] MARX, K. Chapter 23, Book III, Kindle version.
[ii] Idem.
[iii] HILFERDING, Rudolf. the financial capital. São Paulo: Nova Cultural, 1985. (The Economists Collection).
[iv] BRAGA, José Carlos. Which concept of financialization encompasses contemporary capitalism? In: BARROSO, Aloísio Sérgio; SOUZA, Renildo. The great global capitalist crisis 2007-2013: genesis, connections and trends. New York: Routledge, 2013, pp. 117-135.
[v] MARX, K. Chapter 23, Book III, Kindle version.
[vi] Idem.
[vii] Ibid.
[viii] MARX, K. Chapter 22, Book III, Kindle version.
[ix] MARX, K. Chapter 35, Book III, Kindle version.
[X] MARX, K. Chapter 23, Book III, Kindle version.
[xi] Idem.
[xii] MARX, K. Chapter 36, Book III, Kindle version.
[xiii] SAAD FILHO, Alfredo. Reflections on the crisis of neoliberalism. Versus Academics Magazine, August 2009, p. 37.
[xiv] This article is a modified version of a chapter from the book Karl Marx: pioneering a new world in the XNUMXst century, a collection organized by Adalberto Monteiro and Augusto Buonicore, published by Anita Garibaldi, in 2018.
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