By ELEUTÉRIO FS PRADO*
What we see now is financialized capitalism, dominated by the D-D' logic, a logic that has subsumed within itself the logic of industrial capital.
It is well known that Karl Marx, already in the mid-19th century, contemplated the process of socialization of capital, that is, the overcoming of the “private capital” form by the “social capital” form. In the first case, the typical capitalist enterprise appears as the property of certain individuals – personifications – who behave as industrial and/or commercial capitalists.
But this form, due to the scale of production and the required size of the production and marketing units, had already begun to be replaced by another more suitable for the expansion of the mode of production itself. In the second case, due to an intrinsic necessity of economic activity, the capitalist enterprise then becomes the collective property of personifications – individuals, families, etc. – who are forced to behave like financial capitalists.
Here it is important to note that capital initially becomes social through the emergence of joint-stock companies. As is known, the capital of companies is made up of their own capital, which increases through the retention of profits, and third-party capital, which increases through the obtaining of short- and long-term loans. However, this form of expansion of capital invested in production is not entirely appropriate when the mass of capital held by the company needs to increase significantly, both in pace and scale.
It is the need to obtain credit in large volumes that gives rise to the development of the joint-stock company; through a financial transaction, the company's own capital, which until then was private, is divided into aliquot parts, which are then represented by signs that become the property of supposed subjects or personifications.
The corporation thus constituted has its own capital divided and represented by shares, which can be freely traded on an appropriate market. It is open or closed depending on whether it raises funds from savers in general or from a selected group of capitalist investors; these investors include other companies, funds, asset managers and governments, as well as individuals.
This is how Karl Marx characterizes the formation of joint-stock companies: “Capital, which as such has as its basis a social mode of production and presupposes a social concentration of means of production and labor power, thus directly acquires the form of social capital (capital of directly associated individuals) as opposed to private capital, and its enterprises present themselves as social enterprises as opposed to private enterprises. It is the sublation [repeal] of capital as private property within the limits of the capitalist mode of production itself” (Marx, 2017, p. 494).
Now, to fully understand why this development occurs, it is necessary to consider it as a logical moment that is inserted in the presentation of The capital. Just as the commodity consists of the unity of the contradiction between use value and value, the capitalist enterprise consists of the unity between the process of production of use value and the generation of value and surplus value.
Although the primary goal of a company is to increase value, for this to occur, the demand for the use values it produces must be met satisfactorily; this implies that the technical and qualitative requirements for the production of use values must be met, at least to a certain extent. The existence and permanence of a capitalist company therefore require the compatibility of these two ends, even if the goal of profit must prevail. The goal of capitalist production is unceasing profit, not the production of goods that meet the needs of social individuals.
In other words, the unity between production and valorization must be established so that the contradiction inherent in the commodity can subsist, that is, so that the company itself can subsist by producing and selling merchandise, without entering the path of contraction, decay and even bankruptcy. For this to occur, the personifications that are in charge of the company must act as administrator and as capitalist, a dual function that requires them to have a dual ingenuity; only in this way, through this compatibility, can the intrinsic contradiction that runs through, in different forms, the mode of production as a whole, prosper.
However, this way of sealing the contradiction is subverted by the advance of capitalism itself; since the creation of huge companies that operate in multiple markets requires a new form of company. Thus, in the transition from private to social enterprise, the immediate unity between administration and capital accumulation is broken and articulated in another way. As capital becomes social, as Marx points out, “the really active capitalist becomes a simple manager, administrator of other people’s capital, and the owners of capital become mere owners, simple money capitalists” (Idem, p. 494).
Now, before Marx's analysis is refined, it is important to note that this change, as he observes, transforms the mode of appropriation of the surplus generated in commodity production. Managers appear as wage earners and capitalists become recipients of dividends and bonuses, that is, of profits that are nothing more than transformed forms of interest.
Marx presented this change in the following passage: “The total [unretained] profit is now received only in the form of interest, that is, as a simple remuneration for the property of capital, which, in turn, becomes entirely separated from the function it performs in the real process of reproduction, just as this function, in the person of the manager, is separated from the property of capital. [Therefore] the remuneration of managers is, or should be, a mere salary to remunerate a certain type of skilled labor, the price of which is regulated in the labor market, like that of any other labor” (Idem, p. 494).
As is evident, this decoupling of company management from the capitalist function requires new ways of reconciling the contradictory ends inherent in the production and marketing of goods in the capitalist mode of production. It is important to note that Marx is wrong to think that managers can be considered only as administrators of the processes that take place within companies.
The management of companies will be divided into several levels of governance with different responsibilities; thus, operational managers, who are guided by production requirements, will be subordinate to financial managers and boards of directors, who are guided mainly by the logic of capital accumulation. Furthermore, while the remuneration of the former can continue to be regulated by the market in principle, the earnings of the latter will tend to be linked in some way to profits and shareholder payments.
In any case, the question arises here of how the owners of capital, who distanced themselves from the production processes as corporations were formed, exert influence or even control over the companies in which they hold shares, i.e. quotas or stocks. As might be expected, this occurred in different concrete forms, which were rooted in the geographical and historical circumstances of capitalism as a world system.
Due to the complexity of the ways in which financial power is exercised over economic activities, it has been addressed theoretically and historically in an extensive and detailed manner; many authors have dedicated themselves to this topic, but we can recall here some valuable and seminal works that investigated the connections between monetary and financial capital and industrial capital: the financial capital by Rudolf Hilferding (1910/1985), Financial capital today by François Chesnais (2016) and The fall and rise of American finance capital (2024)
Here, however, an attempt will be made only of a condensed exposition such as that found in Braun and Christopher (2024). And it can be considered as an attempt to make a posthumous appendix to what is found in chapter 27 of Book III of The capital.
As indicated in this paper, financial power is already established within companies through the reservation of certain managerial functions for itself. However, even though it is inside, it also comes from outside to companies, since these companies are always constrained by commercial competition, but also by the demands of the agents that finance them in some way.
In this sense, external financial power affects corporations in three intertwined ways: through the structural link between industrial capital and financing capital, through the need to access additional financial resources or even through direct and instrumental intervention in the company's own management.
In the first case, it is important to note that shares are not loans, but rather represent rights to receive dividends, bonuses and a primary appreciation in the stock markets. Now, whether these rights, or rather, whether the expectations of gains that these rights create are being met or not – and to what extent – is directly reflected in the price of the shares valued and traded in the stock markets.
The periodic payment of dividends is correlated with the ever-fluctuating price they can reach in the win-lose game that takes place in these markets; if this payment decreases or increases, the price that the share can reach also decreases or increases, respectively. Now, poorly priced shares put pressure on the boards of directors of the companies that launched them on the market to increase both profitability and shareholder returns; since the shareholders' meeting, which also occurs periodically, can remove them from their positions.
In general, poorly priced shares also make it difficult to obtain new resources, whether short-term from commercial banks or long-term from the stock and bond markets (for example, through the issuance of debentures). Such captures are necessary both for the ongoing operations of every company, including those established as open or closed corporations, and for their eventual expansion.
Obtaining resources from the market is necessary when the company invests in increasing production capacity based on resources that exceed those from retained profits. The rapprochement between industrial capital and financial capital, in addition to the links created by financing, also occurs because industrial companies need services provided by companies in the financial sector.
In the third case mentioned, financial power ceases to be tacit and becomes an intervening factor: thus, it not only conditions the management of the company it subjugates, but directly interferes in its administration, aiming, obviously, to obtain not only the maximum possible profit, but also the maximum admissible share in this profit. This is what must happen when a kind of fusion occurs between financing capital and industrial capital, an arrangement that Rudolf Hilferding called financial capital.
In the historical situation he examined (Germany at the beginning of the 1985th century), the power of finance was concentrated in large banks whose own capital was partly invested in monopolistic companies producing goods through direct ownership or through the possession of a significant part of the shares. “I call financial capital,” he says, “bank capital (…) which (…) is in reality transformed into industrial capital” (Hilferding, 219, p. XNUMX).
But the intertwining of financial capital with industrial capital can occur in a more subtle way and through arrangements other than those described by Rudolf Hilferding. Davis (2008), for example, records the emergence in the United States, after 1980, of large asset management companies that concentrate, through mutual funds, the share ownership of millions of people. These companies, as he notes in his writing, managed to prosper extraordinarily over the following decades, becoming owners of shareholdings in hundreds of companies at the same time.
Would it be expected that asset managers would also become managers of the companies they dominate by holding ownership of their shares? Davis suggests that this is not the case: “these funds,” he says, “are reluctant to exercise power” directly over the management of firms, as they “prefer to exercise exit power rather than voice power” (Davis, 2008, p. 11). Even if the latter is not excluded, it is true that a distinct form of financial capital has evolved in the United States. Here we observe the occurrence of a historically specific form of joining monetary capital with industrial capital and commercial capital.
In fact, as Maher and Aquanno (2024) explain, this interference has become unnecessary and, perhaps even, harmful, since what we observe now is no longer classical industrial capitalism, which was governed stricto sensu by the logic M – M – M', but financialized capitalism, in which the logic M – M' dominates, a logic that subsumed within itself the logic of industrial capital. As financialization prospered in the post-war period, the concern of personifications, who always live and fight in an apparent and circumscribed concreteness of society (Kosik, 1969, p. 59-68), changed focus: if before it was centered on the dynamization of industrial production, now it began to center on the conservation of accumulated fictitious capital and its financial valorization.
Here is what these two authors say about the way capitalism works in the West, particularly in the United States: on the one hand, we observe “the growing significance of financial logic in the operations of the industrial corporation itself” and, on the other, the “emergence of an authoritarian state” that is responsible for managing systemic risk (providing support, for example, to large banks and large funds that cannot fail), whether through austerity policies in the fiscal sphere or through policies in favor of finance in the monetary sphere, a policy that is said to be independent because it is independent of the broader interests of society (Maher and Aquanno, 2024, p. 97).
Corporations themselves have become increasingly like financial institutions as corporate executives at the top have allocated increasing amounts of investment not only to internal operations but also to subcontracting firms that provide cheap labor, especially on the periphery of the global system. In this way, the ongoing process of financialization of nonfinancial firms has facilitated the globalization of production. (Maher and Aquanno, 2024, p. 97).
Even if this note originates from a writing by Karl Marx, it ends up presenting in broad strokes a capitalism that differs to a certain extent from that observed in the middle of the 19th century. The socialization of capital did not create any concrete basis for the socialization of production, that is, for going beyond capitalism; on the contrary, it provided an enormous diffusion of share capital and interest-bearing capital, as well as fictitious capital. Value capture occurs both in the sphere of production and in the circulation of goods in the form of dividends, interest as part of profit and apparent interest resulting from unproductive loans, respectively.
In this way, the world of finance capital has expanded in relation to the world of industrial capital; at the same time, the fetishistic forms inherent to it – shares, bonds, etc. that seem to have value as such, in addition to having the capacity to generate value – have gained a formidable dimension. More than that, natural resources, labor forces, housing, etc., because they are or can be associated with flows of income, come to be taken as finance capital. Thus, in addition to being expressed in money, they also seem capable of generating more money in themselves.
If such forms of objectivity already existed in his time, having been recorded by him as insane (Marx, 2017, chap. 29), they had not yet gained the world as they did in the 2024th century. The issues of “human capital”, “entrepreneurship” and “neoliberalism”, therefore, cannot be understood only in “speeches” (Nunes, XNUMX).
Now we have a globalized capitalism in which finance capital predominates, in which various forms of financial capital thrive, in which the State, as a collective capitalist, acts to reduce the risk of crises and, in particular, of a major crisis that could weaken it to the point where it can be overcome. Until this happens, it remains in decline; moreover, as it has become financialized, rentierism follows suit. Therefore, it is no longer possible to have the first without the second, as many who still dream of a Keynesian future think. As we know, Keynes himself dreamed full-awake of a “rentier euthanasia” that would certainly come (according to him) as the development of capitalism itself.
* Eleutério FS Prado He is a full and senior professor in the Department of Economics at USP. Author, among other books, of Capitalism in the 21st century: sunset through catastrophic events (CEFA Editorial). [https://amzn.to/46s6HjE]
References
Braun, Benjamin and Christophers, Brett – Asset manager capitalism: an introduction to its political economy and economic geography. Economy and Space, 2024, vol. 56 (2), p. 546-557.
Chesnais, François – Finance capital today. Corporations and banks in the lasting global slump. Leiden/Boston: Brill, 2016.
Davis, Gerald F. – A new financial capitalism? Mutual funds and ownership re-concentration in the United States. European Management Review, 2008, vol. 5, p. 11-21.
Hilferding, Rudolf – the financial capital. So Paulo: Nova Cultural, 1985.
Kosik, Karel – Dialectic of concrete. Rio de Janeiro: Peace and Land, 1969.
Maher, Stephen and Aquanno, Scott – The fall and rise of American finance – From JP Morgan to BlackRock. London/New York: Verso, 2024.
Marx, Carl – The capital. Criticism of Political Economy, Volume III. New York: Routledge, 2017.
Nunes, Rodrigo – The declinations of “entrepreneurship” and the new rights. IHU, 20 of August of 2024.
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