A critique of the idea of ​​financialization

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By ELEUTÉRIO FS PRADO*

Financialization indicates that capitalism has entered its sunset

The use of the term “financialization” is widespread in the left field and, therefore, in the effort to understand contemporary capitalism. Recently, a good book on the subject, written by Ilan Lapyda, came out of the press. Introduction to financialization (CEFA editorial). For this author, this phenomenon manifested itself after the crises of the 1970s as a movement of capital accumulation. Behold, this tended to leave part of the value-producing sphere and to concentrate more and more in the financial sphere, piling up in the form of debts. Now, according to him, this process took off as, in the two previous decades, there was overaccumulation of capital (which appears, for example, as excess capacity) and a fall in the rate of profit.

Financialization, however, did not come alone, but accompanied: “Financialization, from this perspective” – says Ilan Lapyda – “was closely associated with the advent of neoliberalism and the type of globalization that it promoted. Its prominent role (...) was achieved through a movement of liberalization and deregulation of financial systems” that took place from the 1970s onwards.

But there are, however, authors like Michael Roberts, who distrust the real meaning of this term. For, it seems that he attributes the structural crisis of capitalism to a certain anomaly produced by a reactionary economic policy, promoted by the dominant classes, and not to the inherent contradictions of capitalism itself. Here's what it says in a 2018 article, Financialization or profitability, found on your blog The next recession: “But what does the term “financialization” mean? It adds something to the understanding of the contradictions of modern capitalism (…). I do not think. This is because the term is used so widely that it provides very little extra clarification; or is specified in such a way that it is theoretically and empirically wrong”.

In this line of thought, he cites an article by Stavros Mavroudeas, also from 2018, in which the author criticizes this idea: “the financialization hypothesis considers that money capital becomes totally independent of productive capital, as it can start to exploit labor directly through usury. Now, if financial profits are not a subdivision of surplus value, then (…) the theory of surplus value is, to say the least, marginalized”. And profitability, as a result, erroneously ceases to be considered as the main determinant of capital accumulation.

Well, to expose the criticism more fully, it is necessary to return to the original article by Stavros Mavroudeas, Financialization hypothesis: a creative contribution or a theoretical blind alley? 2018, as well as a supplement, co-written with Turan Subasat, recently published, Financialization hypothesis: a theoretical and empirical critique, 2023, which can be found at Stavros Mavroudeas blog. Here is what he says at the beginning: “The main thesis is that finance has become the center of gravity of the capitalist economy (…). This is a new proposition and contradicts the previously held assumption of almost all economic traditions; namely, that the “real” economy (the producing sector) is the center of the economic circuit and the financial system is a necessary but subordinate activity. (…) If this hypothesis of financialization is sustained, the entire modus operandi of the capitalist economy (the class structure and its composition, the relationship between production and circulation, the source of profits, etc.) is radically altered”.

In this last article, the two Marxists mentioned try to better define what should be understood about financialization according to the relevant literature. And, in this sense, they distinguish two major currents: the first states that it is a “structural break”, an inversion of spheres, which occurred in the evolution of capitalism; a second says that it is a recurring phenomenon in its history and that it marks the change in the dynamic center of the capitalist system as an inherently global system.

The first, according to them, emphasizes that four characteristics would demarcate the transformation of industrial capitalism into a capitalism dominated by finance: (i) the financial sector increased and became preponderant in the GDP; (ii) a financialization of non-financial corporations came about, which began to serve the interests of absent investors – and no longer to expand production and economic growth; (iii) as never before, there has been a great diffusion of new financial instruments, such as derivatives, parallel banks, multiple funds, etc. which fostered speculation and volatility, and (iv) economic growth came to depend on the indebtedness of families of all social classes.

The second is generally based on Giovanni Arrighi's thesis according to which capitalism evolves forming specific epochs that are characterized by the existence of hegemonic centers of capital accumulation. This process, characterized by systemic cycles, began at the time of commercial capitalism and later developed through industrial capitalism; Thus, there was the Genoese cycle, the Dutch cycle, the British cycle and the North American cycle. Each of these cycles was formed by a phase of material and commercial expansion that ended and gave rise to a phase of financial expansion, which also marks its end. The financialization of Western capitalism now dominated by the US would thus mark the beginning of a new cycle probably centered on China, in Asia.

Here is how this second alternative is critiqued: “In short, in our opinion, defining financialization as a recurring event is rather indeterminate. It ends with a very broad and vague definition of financialization that attempts to encapsulate quite different phenomena existing in very different historical circumstances”.

But Mavroudeas and Subasat also criticize the first alternative: after all, this option ends up assuming that capitalism has devolved into a pre-capitalist form of surplus extraction, such as in the odd hypothesis that has been called techno-feudalism. Here is what they conclude: “In analytical terms, all variants of the financialization hypothesis (…) make a mistake when considering the financial system as an autonomous producer of economic wealth; not only independent of “real accumulation”, but also surpassing productive capital in the capacity to create wealth. Especially the variants that propose a new mechanism of direct financial exploitation unjustifiably equate capitalism with pre-capitalist forms of finance that ceased to exist a long time ago”.

“The mechanism” – they continue – “unjustifiably equates capitalism with pre-capitalist forms of finance that ceased to exist a long time ago. Furthermore, it tends to interpret short-term and conjunctural phenomena (such as the increase in finances during the onset of a crisis) as long-term structural changes. Thus, in methodological terms, this hypothesis is truly a middle-range theory crawling behind conjunctural events and incapable of producing a general theory”.

It is important to go back now to the first consulted author. Ilan Lapyda defends the use of the term financialization – mind you – basing himself mainly on the works of François Chesnais, a Marxist normally referred to as faithful to the best tradition of this heterogeneous current of critical thought. In this perspective, “financialization” appears, not as “a deviation or an excrescence of capitalism, but, in a certain way, as its most finished form. It means the predominance of the most fetishistic form of capital: interest-bearing capital and its fictitious form, in which money seems to spontaneously generate more money – just as a pear tree bears pears, in Marx’s metaphor”.

This is not, therefore, an involutive process, but an evolutionary one: in view of the downward trend in the rate of profit, that is, the shrinkage of profitability due to the increase in the organic composition of capital and the increase in non-value-producing activities (facts that well verified empirically in the last seventy years), capitalism had to resort more heavily to the traditional control and supervision of industrial capital by finance capital. The first produces value and surplus value, but the second ensures both the maximization and the equalization of the rate of profit, financing and regulating the most profitable applications of capital in production, to the detriment of the less profitable ones.

This reviewer therefore agrees with Ilan Lapyda. He sees, however, an inconsistency: if François Chesnais correctly points to the role of finance capital as the ultimate manager of industrial capital, why talk about “rentiness”? For, according to Ilan Lapyda, with a certain depletion of the dynamics of industrial capital (producer of value and surplus value), “financial investment capital and rent were raised to the center of social and economic relations”. As the industrial profit, in this process, is transformed into interest and not into fixed factor income, would it not be a question of “legalism” – and not “rentism”? Now, it is this slip – note well – that opens the door to the criticism of Mavroudeas and Subasat: because, it makes it seem that such evolving that it is an involution – and not an evolution and even a “progress”.

By noting that the formidable growth of global financial assets are now collectively owned by transnational capitalists (the so-called domestic bourgeoisie is just a nostalgia for the past), one can arrive at a new understanding of financialization: instead of being seen as an expression of “rentism” or “economic vampirism”, is now seen as a manifestation of the advanced process of socialization of capital in contemporary times. 

Financialization must therefore be understood as a result of a historical tendency of capitalism itself. It is based on “mechanisms” internal to capitalism itself. The so-called hegemony of finance capital marks a time when the industrial capital that produces value and surplus value needs to be strongly constrained to produce profits that are now claimed by the “owners of the paperwork”.

As individual private ownership is replaced by collective ownership of capital, it is understandable why there is strong resistance to allowing the industrial and financial capital accumulated in the past to be devalued. If the economic system is founded mainly on individual private property, then the losses will always be individual as well; however, when this system starts to be based in an important way on social property, that is, on the free association of monetary capitalists, the losses become collective, thus becoming politically unacceptable.

Financialization, as well as the climate crisis, contradictory globalization and the overloading of the State in a system based on capitalist property, indicate that capitalism has entered its sunset. Will humanity survive or will it die along with it? The answer to this question is to be found in political struggles, in the struggle between a new enlightenment and denialism, in the ability of workers in general to confront the capitalist class – not just because they are the greatest beneficiaries as is normally understood, but because they are supporters or subject subjects of capital, that is, of the relationship between capital and salaried work. The fundamental point is that capital itself is an “automatic subject”.

* Eleutério FS Prado is a full and senior professor at the Department of Economics at USP. Author, among other books, of From the logic of the critique of political economy (anti-capital fights).


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