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Finance Capital and Financialization: A Comparative Reading of Marx and Hilferding

Capital financier et financiarisation : une lecture comparative de Marx et Hilferding
Matari Pierre Manigat
p. 687-710


Cet article compare les définitions respectives du capital financier chez Marx et Hilferding. Alors que Marx esquisse une définition du capital financier à partir de la séparation et la monopolisation des transactions du cycle du capital-argent, pour Hilferding le capital financier désigne la fusion du capital bancaire et du capital industriel ainsi que la domination du second par le premier. Malgré leurs différences, les deux définitions reposent sur une analyse des rapports entre le système de crédit et le développement de la production capitaliste. En dégageant et confrontant leurs similitudes et différences, l’article soutient que l’ambition de Marx était de proposer une théorie générale du capital financier, alors qu’Hilferding construit une théorie de la financiarisation du capitalisme.

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  • 1 Since the turning point of the 1973-1974 world crisis.

1The Contribution of the Critique of Political Economy (1859), the addenda to Theories of Surplus Value (1905), Section I of Volume I of Capital (1867), and especially section V of Volume III (1894) contain the essentials of Marx’s analyses of money and the “credit system.” In relation to or separately from the fundamental problems of his value theory (Brunhoff, 1967; Benetti and Cartelier, 1980; Mandel, 1981; Foley, 1983; Deleplace, 1985; Likitkijsomboon, 1990; Moseley, 2005; Arnon, 2011; Baronian, 2011; Nelson, 2014), various elements of Marx’s monetary thought and financial thought have been the subject of specific studies, including his critique of both the Currency Principle and Banking Schools (Hazell, 1898; Rubin, 1929; Brunhoff, 1967; 1979; Mandel, 1967; Arnon, 1984), his theory of the non-existence of a natural interest rate (Llau, 1962; Pierre Manigat, 2016), his definition of the concept of “fictitious capital” (Brunhoff, 1987), and the relationship between these elements and the capitalist cycle (Maksakovsky, 1929). However, there is little if any reconstruction of all of Marx’s monetary and financial thought (Brunhoff, 1967). The difficulties for Marxism in analyzing the root causes of finance capital domination cannot be explained solely as the result of Marx’s incomplete investigation or the redoubtable difficulties faced by all the different editors of Section V since Engels (1894, 8). Until three decades ago, Marxist scholars tended to consider financial questions exclusively as a matter of struggle between factions of the dominant class (Marx, 1894, 379; Engels, 1893, 355-356). Insofar as this is a struggle for the distribution of surplus value already created, financial problems did not attract much of their attention. Their inclination to grant little importance to the study of financial problems has been reinforced by the fact that until recently,1 the evolution of surplus value distribution between the main fractions of the dominant classes did not induce fundamental changes in the conditions of the working classes. Both types of reasons—theoretical and historical—explain why Marxist scholars have paid little attention to Marx’s writings on money and finance. Since the end of the Bretton Woods system and the 1973-1974 world crisis, the attempts in this direction tended to identify money with debt (i.e., credit); in other words, they were attempts to bring Marx’s monetary thought closer to that of Keynes and the post-Keynesians (Bellofiore, 2005; Itoh, 2005; Lapavitsas, 2005). Only a few have tried to reconstruct Marx’s monetary thought from Section I of Capital (Brunhoff, 1967; 1979).

2In the history of Marxian monetary and financial thought, Rudolf Hilferding (1910) is generally credited for proposing a general definition of the category of finance capital. Leaving aside considerations of his seminal contribution to the debate on imperialism (Bukharin, 1915; Lenin, 1916; Brewer, 1980, 88-89; Howard and King, 1989, 94-95; Day and Gaido, 2012, 51) and economic policy transformations between the eras of mercantilism and monopoly capital (Hilferding, 1911; 1915; 1940; Carr, 1952; Badia, 1966; Barkin, 1975; James, 1981; Smaldone, 1994; Wagner, 1996; Broué, 1997; Gaido, 2016), Hilferding’s contribution to financial thought has been the subject of considerable discussion. Hilferding proposed a general definition of finance capital as a fusion of banking and industry, under the dominance of the banks. While this definition was taken up by most Marxist theoreticians, his thesis of the domination of banking over industry has been the object of harsh polemics.

  • 2 Mixed Economy Era refers to a specific phase of the social history of capitalism, that is, from the (...)

3Hilferding has been reproached for confusing a specific historical situation with a structural feature of capitalism. Originally formulated by Bernstein (Howard and King, 1989, 101), this criticism was developed by Sweezy (1946, 268) and shared by a majority of readers of Finance Capital after the war and during the Mixed Economy Era2 (Perlo, 1957; Baran and Sweezy, 1966; Mandel, 1972; Gottschalch, 1976; PCF, 1976; Pastré, 1978; Zoninsein, 1990; Harris, 1991). Sweezy himself would retract his judgment on Hilferding, insofar as financial globalization forced him to revise some of the premises of his theory (Sweezy, 1994). Broadly speaking, financial globalization and contemporary crises gave rise to a newly important discussion of monetary and financial issues within Marxism. A growing number of works have taken up aspects of the financial theories of Marx and Hilferding in order to update Marxist interpretations of the current phase of capitalism (Mandel, 1994; Brenner, 2002; Brunhoff et al., 2006; Duménil and Lévy, 2006; Guillén, 2015; Chesnais, 2016).

4This paper compares Marx’s and Hilferding’s definitions of finance capital. Exploring the similarities and differences in their respective analyses, it supports the thesis that while Marx proposed a general definition of finance capital as the separation and monopolization of capital-money transactions, Hilferding constructed a theory of “financialization” of capitalism. More precisely, Hilferding studied the various methods in which the institutions of the financial system penetrated and dominated the economy as a whole.

5The paper is structured as follows: starting from the conceptual difference between usury and credit, it considers the formation of a credit system under capitalist conditions of production (Section 1). These developments lead us to deduce a general and formal definition of Marx’s concept of finance capital as the separation and monopolization of capital-money transactions. It is from this definition that we must understand the formation of financiers as a class faction and that the various aspects of the credit system are articulated (Section 2). Finally, in a fourth section, we show how Hilferding, whose analysis relied to a large extent on Marx, proposed a general theory of the “financialization” of capitalist production (Section 3).

1. From Usury to Credit System

6Finance capital is not formally distinguished from other historical forms of money trade. It has existed in societies with different organization and exchange of their members’ activities, and appears to be a transhistorical phenomenon. The circulation of money merely indicates the existence of commodity exchange, that is, the exchange of products manufactured by private producers operating independently. For Marx, this commercial division of labour materializes along multiple historical paths and in societies with varying relationships of production. Central to Marx is that the market division of labour brings with it the possibility of the formation of social groups specialized in commodity trading and monetary operations.

7The emergence of a class of merchants brings about the mediations between separate producers who manufacture for a market. These operations correspondingly become the merchants’ reason for existence and the means of their enrichment. Introduced between producers, merchants make up a group that buys to sell and vice versa. The motive for their transactions is not the possession of the products but the money obtained through buying and selling. The formation of a merchant class translates into the development of trade as a autonomous function, disconnected from producers. The same economic conditions also make possible the emergence and autonomy of the money trade as the activity of a special group. The development of the merchant and of the money trader or usurer are correlates of the recognition of money as the general form of wealth. “The existence of usurer’s capital,” notes Marx, “requires that at least a portion of products should be transformed into commodities, and that money should have developed in its various functions along with trade in commodities” (Marx, 1894, 588).

  • 3 Marx does not use the word of Finanzkapital. As we will support in this paper, usury corresponds (...)

8Usury, the primitive form of “interest-bearing capital,” as Marx referred generically to finance activities,3 developed in diverse societies. Usury works like a leech on the producers in different modes of production, since they carry out a circulation of money and commodities. For Marx, usurer capital and its “twin brother” commercial capital define an “antediluvian” form of capital.

Usurer’s capital as the characteristic form of interest-bearing capital corresponds to the predominance of small-scale production of the self-employed peasant and small master craftsman. When the labourer is confronted by the conditions of labour and by the product of labour in the shape of capital, as under the developed capitalist mode of production, he has no occasion to borrow any money as a producer. When he does any money borrowing, he does so, for instance, at the pawnshop to secure personal necessities. But wherever the labourer is the owner, whether actual or nominal, of his conditions of labour and his product, he stands as a producer in relation to the money lender’s capital, which confronts him as usurer’s capital. (Marx, 1894, 589)

9However, under certain historical conditions, usury acts as an agent dissolving the power of landowners as well as a “powerful agent separating the producer from the conditions of production.” It is this phenomenon that makes the usurer an actor in undermining the economic foundations of pre-capitalist societies.

The characteristic forms, however, in which usurer’s capital exists in periods antedating capitalist production are of two kinds. I purposely say characteristic forms. The same forms repeat themselves on the basis of capitalist production, but as mere subordinate forms. They are then no longer the forms which determine the character of interest-bearing capital. These two forms are: first, usury by lending money to extravagant members of the upper classes, particularly landowners; secondly, usury by lending money to small producers who possess their own conditions of labour—this includes the artisan, but mainly the peasant, since particularly under precapitalist conditions, in so far as they permit of small independent individual producers, the peasant class necessarily constitutes the overwhelming majority of them. Both the ruin of rich landowners through usury and the impoverishment of the small producers lead to the formation and concentration of large amounts of money capital. But to what extent this process does away with the old mode of production, as happened in modern Europe, and whether it puts the capitalist mode of production in its stead, depends entirely upon the stage of historical development and the attendant circumstances (Marx, 1894, 589)

  • 4 Commentators of Part V of Book III of Capital rightly claim the precautions to be taken when interp (...)

10The study of these stages and concomitant historical circumstances corresponds to the analysis of the so-called processes of transition to capitalism. Although Marx points to the importance of this revolutionary aspect of usury in the formation of capitalism, he also points to its end, once the conditions of wage labour are established (Marx, 1905, 621-622; Dobb, 1946). Wage labour modifies the role and place of financial activities in the economy. Through usury, the activities of interest-bearing capital are converted into a “system of credit,” that is, “usury in capitalist conditions of production.” More specifically, the formation of the credit system takes place as a reaction against usury. This process frames the subordination and adaptation of money trading activities to the conditions and needs of capitalist production. “What distinguishes interest-bearing capital—in so far as it is an essential element of the capitalist mode of production—from usurer’s capital is by no means the nature or character of this capital itself,” Marx writes. “It is merely the altered conditions under which it operates, and consequently also the totally transformed character of the borrower who confronts the money lender” (Marx, 1894, 595).4

11Here, for Marx, is the historical meaning of the economists’ polemics against usury at the dawn of capitalist production, as he insists particularly in the annexes of the Theories of Surplus Value (Marx, 1905). But this conversion of usury into the system of credit, or, put another way, the subordination of financial activities to the dynamics of industrial capital, under certain historical circumstances demands the intervention of state power. Marx illustrates this process—theoretical and practical, intellectual and political—with the example of seventeenth-century England, especially in authors like Thomas Culpeper (1641), Josias Child (1670) or William Paterson, one of the founders of the Bank of England in 1694.

The polemic waged by the bourgeois economists of the seventeenth century (Child, Culpeper and others) against interest as an independent form of surplus value merely reflects the struggle of the rising industrial bourgeoisie against the old-fashioned usurers, who monopolised the pecuniary resources at that time. Interest-bearing capital in this case is still an antediluvian form of capital which has yet to be subordinated to industrial capital and to acquire the dependent position which it must assume—theoretically and practically—on the basis of capitalist production. The bourgeoisie did not hesitate to accept State aid in this as in other cases, where it was a question of making the traditional production relations which it found, adequate to its own. (Marx, 1905, 463)

12But more fundamentally, the role of the state in the formation of finance capital fully emerged with the development of the means of financing the expenses of the modern state, that is, through public debt. Indeed, the necessity of financing the modern state played a decisive role in the formation of the modern system of credit. The creation of the Bank of England at the end of the seventeenth century illustrates this phenomenon.

At their birth the great banks, decorated with national titles, were only associations of private speculators, who placed themselves by the side of governments, and, thanks to the privileges they received, were in a position to advance money to the State. Hence the accumulation of the national debt has no more infallible measure than the successive rise in the stock of these banks, whose full development dates from the founding of the Bank of England in 1694. The Bank of England began with lending its money to the Government at 8%; at the same time, it was empowered by Parliament to coin money out of the same capital, by lending it again to the public in the form of banknotes. It was allowed to use these notes for discounting bills, making advances on commodities, and for buying the precious metals. It was not long ere this credit money, made by the bank itself, became the coin in which the Bank of England made its loans to the State, and paid, on account of the State, the interest on the public debt. It was not enough that the bank gave with one hand and took back more with the other; it remained, even whilst receiving, the eternal creditor of the nation down to the last shilling advanced. Gradually it became inevitably the receptacle of the metallic hoard of the country, and the centre of gravity of all commercial credit. (Marx, 1867, 743)

13As a means of financing the modern state, bonds in turn became the main objects of speculation on the stock market. State bonds continue to play this role as much as manufactures and factories remain the dominant forms of enterprise, that is business that basically use own funds or bank credit. Marx distinguishes the stages of development of commercial credit from its intervention in production, as a lever for investment, and as a weapon of competition. However, it was only with the domination of the joint stock company, a process that occurred only in the second half of the nineteenth century, that the functions of the stock exchange were transformed. Indeed, the dominance of joint stock companies and its correlate, the separation of “capital-ownership” from “capital-function,” as Marx describes the division between ownership and control—long before Berle and Means (1932)—constitutes the real foundation for the full development of the “top floor” of the credit system: the modern stock exchange.

2. Finance Capital as Monopolization and Autonomization of the Operations of Money-Capital

  • 5  (M) for money-capital; (C) for the elements of commodity-capital (labour force and means of produc (...)
  • 6 In the generic sense and not in the sense of the classification of Colin Clark (1940).
  • 7 This process presupposes an amalgam between the value of use of money and the value of use of capit (...)

14Marx considers the whole capital cycle as a chain of three functional forms: money-capital (M), productive-capital (P), and commodity-capital (C).5 These forms produce three different kinds of cycles: M-C → P → C’-M’ represents the money-capital cycle, P → C’-M’-C → P’ describes the productive-capital cycle, and C-M → P → C’ refers to the commodity-capital cycle. The conversion of usury into a system of credit allowed the circumscription of financial activities to production and commerce, a limitation that was brought about with what Marx called the division of labor among the three circuits that make up the accumulation of capital (Marx, 1885). While the first two describe the activities of commercial and industrial6 capitalists, the third defines the field of financial activity. Therein lies the following general definition of finance capital that we can deduce from Marx: finance capital is the monopolization and autonomization of the operations of the money-capital circuit by a special category of businesses: banking and non-banking financial institutions.7 Finance capital thus encompasses the totality of institutions underwriting the operations of money-capital: banks, insurance companies, stock exchanges, and so forth. Ultimately, the conceptual distinction between industrial capitalist and finance capitalist is based on the difference between money-capital and commodity-capital understood as functional forms of capital (Brunhoff, 1986, 131).

15This definition has sociological implications. The financier faction of the bourgeois class takes on the social division of labor that separates and autonomises the organization and management of money circulation (Marx, 1905, 535). From this point onward, financiers carry out this function for the capitalist class (industrial and commercial) and also for society as a whole.

The purely technical movements performed by money in the circulation process of industrial, and, as we may now add, of commercial capital (since it takes over a part of the circulation movement of industrial capital as its own, peculiar movement), if individualised as a function of some particular capital performing just these, and only these, operations as its specific operations, convert this capital into money-dealing capital. A portion of industrial capital, and, more precisely, also of commercial capital, not only obtains all the time in the form of money, as money capital in general, but as money capital, engaged precisely in these technical functions. A definite part of the total capital dissociates itself from the rest and stands apart in the form of money capital, whose capitalist function consists exclusively in performing these operations for the entire class of industrial and commercial capitalists. As in the case of commercial capital, a portion of industrial capital engaged in the circulation process in the form of money capital separates from the rest and performs these operations of the reproduction process for all the other capital. The movements of this money capital are, therefore, once more merely movements of an individualised part of industrial capital engaged in the reproduction process. (Marx, 1894, 313)

16In this process it becomes difficult to detect a particular form of the mode of circulation of finance capital. Indeed, its cycle (M-M’) identifies only one functional form, unlike the commercial capital cycle (M-C-M’). The finance capital cycle does not refer to material elements, but to “the technical processes of metamorphosis” (Marx, 1894, 320). This explains not only the autonomy of finance capital in relation to production, but also the specificity of this autonomy as compared with that of commercial capital. By bringing together the monetary operations of industrial and commercial capital, finance capital coincides with the rationalization of the process of accumulation, and thus to the accelerated movement of individual capital.

  • 8 According to Marx the determination of interest rates in the market is fortuitous: “The average rat (...)

17Synchronously, the profit of the finance capitalist corresponds to a share of surplus value: interest. Fluctuations in the interest rate reflect the changing relationships between the principal fractions of the bourgeoisie and therefore their struggles to maximize the appropriation of surplus value (Marx, 1894, 542 and passim). The determination of the interest rate in the money-capital market is the field of this battle between class fractions.8 In the same way that usury and credit are concepts that formally designate the same activity under different conditions and regimes of production, so the interpretation is given to the category of interest as income from finance.

In the form of interest, the entire surplus above the barest means of subsistence (the amount that later becomes wages of the producers) can be consumed by usury (this later assumes the form of profit and ground rent), and hence it is highly absurd to compare the level of this interest, which assimilates all the surplus value excepting the share claimed by the state, with the level of the modern interest rate, where interest constitutes at least normally only a part of the surplus value. Such a comparison overlooks that the wage worker produces and gives to the capitalist who employs him, profit, interest and ground rent, i.e., the entire surplus value. (Marx, 1894, 590)

18This former difference is reflected in the change observed in the economical explanations of the determination of the interest rate. It is here that Marx locates the superiority of David Hume’s interest rate determination theory over that of John Locke. As with the classics later, for Hume the interest rate is determined by the rate of profit (Marx, 1905, 540).

19Far from disappearing, however, the financial parasitism that is so noteworthy in non-capitalist societies clothes itself in new form in the modern system of credit.

  • 9 The very nature of the categories of financial income obscure their links with the exploitation of (...)

Usury as such does not only continue to exist, but is even freed, among nations with a developed capitalist production, from the fetters imposed upon it by all previous legislation. Interest-bearing-capital retains the form of usurer’s capital in relation to persons or classes, or in circumstances where borrowing does not, nor can, take place in the sense corresponding to the capitalist mode of production; where borrowing takes place as a result of individual need, as at the pawnshop; where money is borrowed by wealthy spendthrifts for the purpose of squandering; or where the producer is a non-capitalist producer, such as a small farmer or craftsman, who is thus still, as the immediate producer, the owner of his own conditions of production; finally where the capitalist producer himself operates on such a small scale that he resembles those self-employed producers. (Marx, 1894, 595)9

20However, the unproductive nature of financial activities and the persistence of various forms of capitalist usury must not overshadow an additional aspect of the development of the credit system that derives directly from the Marxian definition of finance capital: credit as a contributor to the socialization of capital, an idea that had already served as a basis for Saint-Simon’s praise for bank credit, as well as the governing role in the economy that he ascribed to bankers (Saint-Simon, 1821; Yonnet, 2004). The system of credit—through banks, but also through all the institutions that intervene in the stock exchange—concentrates and distributes available resources in the form of money-capital to the capitalist class.

The capital on the money market really possesses the form which enables it as a common element, irrespective of its particular employment, to be distributed amongst the different spheres, amongst the capitalist class, according to the production needs of each separate sphere. With the development of large scale industry, moreover, money capital, in so far as it appears on the market, is represented less and less by the individual capitalist, the owner of this or that parcel of capital available on the market, but is concentrated, organized and is [subject] in quite a different way from real production to the control of the bankers who represent the capital. So that in so far as the form of the demand is concerned, the weight of a class confronts [this capital]; and as far as supply is concerned, it appears as loan capital en masse, the loan capital of society, concentrated in a few reservoirs. (Marx, 1905, 461)

21Putting available resources at the disposition of the entirety of the capitalist class is a process that goes hand in hand with an acceleration of the centralization of capital. The credit system is “not only a new and mighty weapon in the battle of competition. By unseen threads it, moreover, draws the disposable money, scattered in larger or smaller masses over the surface of society, into the hands of individual or associated capitalists. It is the specific machine for the centralisation of capitals” (Marx, 1867, 621-622). The importance of this machine becomes more urgent with the growing pressure of competition, but also with the demands for financing of technological development and the corresponding increase in the organic composition of capital.

  • 10 This point concerns the relations between finance capital and the state, a problem that goes beyond (...)

22Previous considerations of the nature and formation of finance capital and the development of the credit system in Marx—as an adaptation of the money trade to properly capitalist production conditions, as an agent of socialization of productive resources within the limits of private property, as a weapon in business competition, and as a tool for the centralization of capital—promote the need for an organization of the financial system as a whole around one bank with a monopoly on the issuance of currency that is the basis for credit from other banks and private agents. This is the pivotal institution that becomes what Marx called “the greatest of capitalist powers:” the central bank (Marx, 1894).10

3. Hilferding and the Financialization of Capitalism

23Hilferding did not use the concept of finance capital in the sense indicated in the previous section, but defined it formally as capital at the disposal of banks and used by industrial firms. Hilferding expose his concept of finance capital as an adaptation and further development of the Marxist theory to the “latest phase of capitalist development.”

Finance capital signifies the unification of capital. The previously separate spheres of industrial, commercial, and bank capital are now brought under the common direction of high finance, in which the masters of industry and of the banks are united in a close personal association (Hilferding, 1910, 301)

24While Marx defines finance capital from the sole operations of the capital-money cycle, Hilferding defines it as a category of a determinant phase of capitalist development. Unlike Marx, Hilferding’s definition of finance capital refers to a type of link between the banks and large companies, more specifically joint-stock companies (whose generalization presupposes a certain degree of development of the productive forces). From this point of view, it is important to clarify the place occupied by the respective historical contexts of Marx and Hilferding in the comparison of their definitions.

25The half century between the writing of the manuscripts of Capital and Hilferding’s Finance Capital sees a major structural change: a greater concentration and centralization of industrial and banking capital and, more deeply, the transition from free competition capitalism to monopoly capitalism, especially in Germany and the United States. In his commentary of Hilferding, Sweezy warned against the propensity to confuse the specific economic phenomena of a transition period with a structural tendency of capitalism (Sweezy, 1946, 268). Following Sweezy, many commentators have proposed historicist readings of Hilferding consisting in reducing Finance Capital developments to the peculiarities of his historical context. Tribe proposed an analogous reading of Marx’s developments on the credit system (Tribe, 2019, 135-137). Although his genealogy of the notion of “capitalism” recalls the links between the logical and historical genesis of the economic concepts, we do not share his appreciation of the developments in section V of Book III of Capital (having treated the mechanisms of the credit system as so many “phenomenal forms” because he would have written during the transition from “industrialism” to “modern capitalism”). The development of money credit and the role of the Bank of England “in policing banks that had every incentive to issue large amounts of short-term debt against assets that had a tendency to evaporate in a crisis” (Tribe, 2019, 137) aims to show both the mediations between the laws of reproduction of capital and the financial phenomena, as well as the socialization of capitalist class resources that operate the credit system as such. This is the reason why the developed forms of financial phenomena not only rest on the antagonism between wage labour and capital, but reflect the progress of the social character of production and trade. In all cases, the autonomy of finance circulation (of short-term debt issued against assets or not, as well as all kind of securities of the credit system) appears through the notion of fictitious capital (Brunhoff, 1986, 132-134). Far from being content to reduce the finance circulation and its autonomy to epiphenomena, Marx emphasizes how and why these forms obscure the fundamental economic relationship and constitutive of the capitalist mode of productionthe relationship between direct producers (employees) and owners of means of production (capitalists). Henceforth, the antagonism between wage labour and capital seems to be replaced by the antagonism between non-activity and activity. It is precisely those aspects which establish a continuity between Marx and Hilferding, as well as their respective scope for the analysis of finance phenomena of contemporary capitalism. In this sense, although Hilferding’s motivation is an update of Marx critique to the “economic characteristics of the latest phase of capitalist development” (Hilferding, 1910, 21), the contextual differences seem not sufficient to explain the theoretical differences between the definitions of finance capital of these two authors.

  • 11 The formal similarity of Marx’s and Hilferding’s analyzes of the credit system mechanisms should no (...)
  • 12 Following Marx, Hilferding distinguishes the main forms of credit from the moments of the process o (...)

26It would be a mistake, however, to oppose the definitions of Marx and Hilferding without providing further details. Though Hilferding did not use Marx’s concept of interest bearing-capital or finance capital in wage labour conditions in accordance with the sense supported in this paper, he developed his own, based on Marx’s ideas about the role of the system of credit in the process of accumulation (as Marx sketches in the materials for section V of Book III of Capital).11 He explains the different historical stages of the formation of the system of credit from the necessity, first, for the exchange of commodities, and second, for their production. He demonstrates the growing intervention of banks, distinguishing forms of credit linked to stages in the process of reproduction. The difference between commercial or circulation credit, on the one hand, and capital productive credit, on the other, is based on the difference between the processes of circulation and production in Marx’s sense.12 For both Marx and Hilferding, these two processes together form the process of reproduction. The socializing function of credit appears only with the development of the latter (capital credit).

Circulation credit as such does not transfer money capital from one productive capitalist to another; nor does it transfer money from other (unproductive) classes to the capitalist class, for transformation into capital by the latter. If circulation credit is merely a substitute for cash, that credit which converts idle money of whatever kind (whether cash or credit money) into active money capital is called capital (or investment) credit, because it is always a transfer of money to those who use it, through the purchase of the various elements of productive capital, as money capital. (Hilferding, 1910, 83 and passim).

27Hilferding explains the development of capital credit based on the objective limits imposed by the stage of production on the process of value creation in the production of commodities. These limits correspond to the tying up of money caused by three “dead times:” a) the time involved in transforming money into elements of productive capital (labour power and means of production); b) the reflux time of circulating capital; and c) and the reflux time of fixed capital.

28These dead times require capitalists to maintain sums of unproductive money, which hinders the movement of capital in its ongoing attempt to create surplus value by exploiting living labour. Hilferding describes these dead times—the times in which there is no correspondence between the production process and the production of surplus value—as the “mortal sin” of capital. This sin is redeemed by putting unproductive money—which, following John Bellers and Marx he calls “dead stock”—in the bank (Bellers, 1699, 13; Marx, 1867, 155-156; Hilferding, 1910, 90-98).

  • 13 Hilferding insists strongly on this point, even more as his theory of money reinforces his belief i (...)

29While the monetary resources of the bourgeoisie are converted into bank deposits, the banks, in turn, carry out transfers of capital, providing productive credit to other firms. Hilferding understands a transfer of capital to be a transfer of inactive money-capital to a sector or firm where it is transformed into productive capital. For Marx and Hilferding, the transfer of capital through bank credit corresponds to a capitalist means of distributing social labor. For Hilferding, as for Saint-Simon and Marx before him, the development of credit reflects a collective distribution of productive resources, even when they are confined within the limits of capitalist private property.13 This process becomes even more compelling when Hilferding considers the tendency of the organic composition of capital to rise, especially in the sector producing the means of production (Hilferding, 1910, 90-98).

The bank has performed two functions: (1) it has facilitated the process of making payments, and by concentrating them and eliminating regional disparities, it has enlarged the scale of this process; (2) it has taken charge of the conversion of idle capital into active money capital by assembling, concentrating and distributing it, and in this way has reduced to a minimum the amount of idle capital which is required at any given time in order to rotate the social capital. The bank assumes a third function when it collects the money income of all other classes and makes it available to the capitalist class as money capital. Capitalists thus receive not only their own money capital, which is managed by the banks, but also the idle money of all other classes, for use in production … . At the same time the bank’s influence over the enterprise increases. So long as credit was granted only for a short time, and only as circulating capital, it was relatively easy to terminate the relationship. The enterprise could repay the loan at the end of the turnover period, and then look for another source of credit. This ceases to be the case when a part of the fixed capital is also obtained through a loan. The obligation can now only be liquidated over a long period of time, and in consequence the enterprise becomes tied to the bank. In this relationship the bank is the more powerful party. … It is the bank’s control of money capital which gives it a dominant position in its dealings with enterprises whose capital is tied up in production or in commodities. The bank enjoys an additional advantage by virtue of the fact that its capital is relatively independent of the outcome of any single transaction, whereas the fate of the entire enterprise may depend entirely upon a single transaction. (Hilferding, 1910, 95)

30But that is not all. In addition to the growing involvement of the banks in industry, the financial costs of technological development and the rise in the organic composition of capital bring about a transformation in the form of business (enterprise) that dominates the economy. In the same way that the first industrial revolution replaced manufacturing with the large factory, the scale of production and the costs deriving in the increase in the organic composition of capital induce capitalists to convert their enterprises into joint stock companies (i.e. corporations). Like banks, corporations increase the capacity for capital mobility and thus break the barriers imposed by individual private property on large-scale investment (Hilferding, 1910, 109 and passim).

31In sum, the advent of the corporation as the predominant type of enterprise divided the bourgeoisie between active capitalists and stockholder-rentiers, or, as Veblen called them, absentee owners (Veblen, 1924; Scott, 1997, 29). Likewise, the shareholding form of capitalist property opened the way to new modalities of the centralization of property (Hilferding, 1910, 136 and passim), that is, the power of the shareholders represented by banks. This process, and the liquidity of the securities it presupposes, reinforces the dominance of banks over industry.

It is the transferability and negotiability of these capital certificates, constituting the very essence of the joint-stock company, which makes it possible for the bank to ‘promote,’ and finally gain control of, the corporation. Similarly, a corporation can obtain bank loans far more readily than the individually owned enterprise. The latter, generally speaking, must be able to cover such loans out of its earnings, and their extent is consequently restricted. But precisely for this reason, because the debts are small, they leave the private entrepreneur relatively independent. The corporation, on the other hand, is able to repay these bank loans not only out of its current earnings, but also by increasing its capital through the issue of shares and bonds, by issuing which the bank also gains an additional promoter’s profit. The bank can therefore provide more credit, with much greater security, to a corporation than to an individually owned enterprise, and above all a different type of credit; not only credit as a means of payment, commercial credit, but also credit for the expansion of the enterprise’s productive capital, that is, capital credit. For if it seems necessary, the bank can always curtail this credit and insist that the enterprise should obtain fresh capital by a new issue of shares or bonds. (Hilferding, 1910, 120-121)

32These last two phenomena—the intervention and domination of banks over industry and the rise of the corporation as the dominant business form—strictly correspond to a theory of the financialization of the economy. In other words, the content of Hilferding’s formal definition of finance capital corresponds to a theory of financialization. This process of financialization develops from the growing intervention of capital credit in companies. Thus, apart from the domination of banks on industry and the formation of large conglomerates, financialization implies a tendency toward joint stock companies as the typical type of enterprise (or form of business). “Large bank loans to an individually owned enterprise often presage its conversion into a joint-stock company,” Hilferding points out (Hilferding, 1910, 398). At the same time, he specifies how the dominance of banks changes the composition and criteria of corporate governance.

The interests of the banks in the corporations give rise to a desire to establish a permanent supervision of the companies’ affairs, which is best done by securing representation on the board of directors. This ensures, first, that the corporation will conduct all its other financial transactions, associated with the issue of shares, through the bank. Second, in order to spread its risks and to widen its business connections, the bank tries to work with as many companies as possible, and at the same time, to be represented on their boards of directors. Ownership of shares enables the bank to impose its representatives even upon corporations which initially resisted. In this way there arises a tendency for the banks to accumulate such directorships. (Hilferding, 1910, 120-121)

33As a structuring element of this corporate governance, Hilferding notes a growth in the ownership share of managers that is directly related to the price of securities on the stock market: “The managers who are at the top of the industrial bureaucracy have a stake in the enterprise, not only because of the bonuses they earn, but, still more important, because of their generally substantial shareholdings” (Hilferding, 1910, 122). Finally, he notes how the joint stock company allows a profit accumulation, in the form of dividends, beyond what would be allowed for an investment at the average interest rate. Hilferding highlights the methods and techniques peculiar to this financial circulation, which subjects the dynamics of the stock market entirely to those of the banks. In this respect, Hilferding distinguishes the methods that derive from the internal dynamics of a production dominated by the joint stock enterprise, from the contingent ones that follow from them and that are so many epiphenomena liable to fall under the legislator’s control. The first category refers to the promoter’s profit, namely the capitalization of the difference between the average rate of profit and the prevailing interest rate. The second refers to the differentiation of titles in different legal categories as well as “stock watering,” which Hilferding understands as the practice of increasing the number of available shares for the same value of social capital:

The issue of shares in such a quantity as to depress the price below the nominal value, below par, is referred to as ‘stock watering.’ It is clear that this is purely a matter of accounting. The yield is given, and this determines the price of the shares as a whole. Naturally, the larger the number of shares, the lower the price of each individual share. The practice of ‘watering’ stock has nothing to do with promoter’s profit, which arises whenever a corporation is formed, through the transformation of productive, profit yielding capital into fictitious, interest-yielding capital. In fact the watering of stock is not at all essential, and unlike promoter’s profit it can as a rule be prevented by law. The provision in the German law relating to shares which requires that any premium on shares must be credited to the reserves has simply had the effect that shares are turned over at par, or at a small premium, to a bank consortium which then sells them to the public at a profit (promoter’s profit). Under certain conditions, however, stock watering is a convenient financial device for increasing the share of the founders of a corporation beyond the normal promoter’s profit (Hilferding, 1910, 116-117)

  • 14 The existing studies on the analysis of the functioning of the stock market at Hilferding deal with (...)

34While commentators have emphasized Hilferding’s contribution to the theory of finance in general, and the utility of his concept of promoter’s profit to understanding the depths of speculation and the phenomenon of securitization in a theory of crises,14 no one has clarified Hilferding’s definition of finance capital with respect to that of Marx. A comparison of the two not only shows the deep affinities and differences of analysis between Section V of volume III of Capital and Hilferding’s Finance Capital. I have shown above that the content of the Hilferding category corresponds in fact to a theory of the financialization of capitalism. This financialization implies, first, a penetration and takeover of banks and stock exchange institutions on the essential mechanisms of the organization of investments, production and trade. Secondly, it implies a mode of distribution of the surplus value structured around the interest and promoter’s profit. The whole is based on the dynamics of the credit system in a highly developed capitalist economy, that is, dominated by large corporations.

35Nowadays, the neologism financialization is used to describe distinctive features of contemporary capitalism. More precisely, it attempts to conceptualize financial domination over all spheres of the economy and the state. In sociology and other social sciences, the notion is used to designate the introduction of commercial arbitration and the principles of assessment and competition in all dimensions of social and private life (Zwan, 2014). The difficulties of its definition provoke important debates among Marxists scholars and heterodox economists in general (Orléan, 1998; Chesnais, 2004; Stockhammer, 2004; Epstein, 2005; Krippner, 2005; Aglietta and Berrebi, 2007; Bryan, Martin and Rafferty, 2009; Fine and Saad-Filho, 2010; Fine, 2013; Lapavitsas, 2013; Duménil and Lévy, 2014; Chesnais, 2016). Despite the richness of this debate, the different definitions of financialization are almost always confined to various measures of the weight of the financial sector in the economy, of the part of national income appropriated by financiers, or reflecting a change in the balance of power between social classes and bourgeoisie factions. Among these perspectives, Post-Keynesians emphasizes the consubstantial instability of financial markets left on their own (Minsky, 1986; Davidson, 2009; Lavoie, 2012), as well as the rentier nature of contemporary economic regimes. The latter is observable through the domination of speculation on investment, that is predatory profits at the expense of the “real economy.” For Post-Keynesians, the main causes of financialization are a modification of the corporate administration model, the lack of regulation of the activities of financial actors, as well as the orientation of contemporary macroeconomic policies (Lavoie, 2012). Although they clarify certain aspects of contemporary accumulation regimes, Post-Keynesian leave a blind spot, at least from a Marxist point of view: the very nature and origin of financial profits. By contrast, although complementary in some respects, Hilferding’s perspective allows to sketch a theory of the penetration of finance into all economic activities in accordance with the requirements of the theory of value.

36Finally, from a sociological point of view, Hilferding’s theory calls into question the image of a bourgeoisie structured into factions with relatively opposite interests. More precisely, its analysis underlies and accelerates a process of relative erasure of the main factions (industrial, commercial and financial) in favour of the formation of a bourgeoisie structured in large shareholders and members of the top management of corporations but articulated around big banks. This ambivalent tendency which structures the fundamental relations and tensions within the bourgeoisie flows from the very heart of Hilferding’s analysis. Harris rightly points out that “the theoretical coherence of the concept of finance capital, as opposed to the empirical validity of the thesis of bank domination, has remained unquestioned, but in fact it is not unproblematic” (Harris, 1976). This problem ceases, at least in this form, from the moment when one considers that Hilferding first of all elaborates a theory of the financialization of capitalist production.

37Hilferding’s theory allows to define the form and content of the process of financialization based on the internal dynamism of capitalist production. This dynamism is inherent in highly developed capitalist production as well as its corresponding social structures, which are dominated by large joint stock companies.

4. Conclusion

38This paper makes four main contributions. First, it abstracts a general definition of finance capital from Marx’s elaboration of the monetary and credit system in Section V of Capital (Vol. III). For Marx, finance capital is the autonomisation and monopolisation of the operation of the money-capital cycle by a special category of agents. Second, it highlights the main mechanisms behind the transformation of pre-capitalist usury into a credit system, even where the capitalist economy retains the old forms of usury. Third, it shows that Hilferding’s formal definition of finance capital as a fusion of bank and industrial capital corresponds to a theory of the financialization of capitalism. Some of the mechanisms of this process are based directly on Marx’s analyses of the growing involvement of the system of credit in the process of accumulation, a process that is brought about through bank credit and the generalization of joint stock companies as the typical form of business or enterprise. Hilferding’s theory of financialization implies changes in the composition and criteria of corporate governance, a tendency for the income of managers to be increasingly related to the price of securities on the stock market, and the proliferation of methods and techniques peculiar to this financial circulation. It is on this basis that Hilferding deduces new forms of centralization of ownership and the strengthening of banks as institutions in charge of the operations of money-capital for trade and industry as a whole. Finally, the respective analyses of finance proposed by Marx and Hilferding have implications for the study of the sociological composition of the bourgeoisie. While it objectively establishes the existence of a faction relatively opposed to the industrial and commercial capitalists in the first, finance becomes the point of an antagonistic unification of the interests of the whole of the bourgeoisie in the second.

I thank the two referees of this paper. This research was carried out thanks to the UNAM-PAPIIT program (IA 300319).

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1 Since the turning point of the 1973-1974 world crisis.

2 Mixed Economy Era refers to a specific phase of the social history of capitalism, that is, from the New Deal and the Second World War to the 1970s (Van der Wee, 1986).

3 Marx does not use the word of Finanzkapital. As we will support in this paper, usury corresponds to “interest-bearing-capital” in pre-capitalist modes of production. In contrast, under wage labour conditions, the interest-bearing capital corresponds to the finance capital. The finance capitalists form a special fraction of the bourgeoisie who carry out particular operations—the operations of money capital—for the whole class. There are also some translators who interpreted the notion of “interest-bearing capital”—under modern wage labour production conditions—as finance capital (for example, Cohen-Solal and Badia’s French translation of Capital, sections IV and V of Book III, Editions Sociales).

4 Commentators of Part V of Book III of Capital rightly claim the precautions to be taken when interpreting the notion of interest-bearing capital. Engels himself pointed out that these manuscripts are the most unfinished of Book III. However, apart from the difficulties in reconstructing the theory of the credit system, Marx invites us to distinguish interest-bearing capital from its historical forms. Hence the justification of the interpretation supported here, under capitalist conditions, the notion of interest-bearing capital corresponds to finance capital.

5  (M) for money-capital; (C) for the elements of commodity-capital (labour force and means of production); (P) for the process of production or setting in motion of the means of production by the active labour force.

6 In the generic sense and not in the sense of the classification of Colin Clark (1940).

7 This process presupposes an amalgam between the value of use of money and the value of use of capital (Marx, 1894, 320). Indeed, this amalgam underpins the autonomisation process of the money form of capital (Pierre Manigat, 2009; Paulani, 2013).

8 According to Marx the determination of interest rates in the market is fortuitous: “The average rate of interest prevailing in a certain country—as distinct from the continually fluctuating market rates—cannot be determined by any law. In this sphere there is no such thing as a natural rate of interest in the sense in which economists speak of a natural rate of profit and a natural rate of wages” (Marx, 1894, 360).

9 The very nature of the categories of financial income obscure their links with the exploitation of labour. “Interest-bearing capital is the consummate automatic fetish, the self-valorizing value the money-making money, and in this form, it no longer bears any trace of its origin. The social relation is consummated as a relation of things (money, commodities) to themselves.” (Marx, 1905, 451). This point does not directly belong to our problematic, although its exploration opens the way to the analysis of certain contemporary phenomena from the monetary and financial theory of Marx (Rotta and Texeira, 2015).

10 This point concerns the relations between finance capital and the state, a problem that goes beyond the limits of this article. However, it should be noted that although the processes of forming modern central banks had not been completed, Marx’s analysis of the role and functions of these “nationally awarded” establishments intervenes in the context of granting the monopoly on issuance to some of these establishments, such as the case of the Bank of England since 1844. In particular, Marx notes how the role of these institutions is conditioned by the ambiguity in their charter: on the one hand, they perform public functions as arms of the state; on the other hand, they act as private establishments, as representatives of the banking community. Their business is both in their private credit and in national or state credit.

11 The formal similarity of Marx’s and Hilferding’s analyzes of the credit system mechanisms should not hide the fact that there is a profound difference between their respective theories of money (its nature and genesis). At Hilferding, the theory of money is triply influenced by the banking school (Fullarton, 1845; Helfferich, 1903) as well as by chartalism (Knapp, 1905). Hilferding maintains a critical but ambiguous report to the latter. It is Hilferding himself who highlights this ambiguity in his introduction to the first edition of Finance Capital:I must permit myself the comment that the chapters dealing with monetary problems were finished before the appearance of Knapp’s work, which led me to make only minor changes and to add some critical remarks” (Hilferding, 1910, 24). Although he underlines the importance of this book for “the modern monetary experience”, two years later, in an article dedicated to the subject Hilferding no longer mentions Knapp’s (Hilferding, 1912). Generally speaking, the monetary theory of Hilferding still remains a lack in the history of monetary thought. Absent from syntheses (Rist, 1938; Arnon, 2011), it is sometimes studied by some authors, but almost usually from the point of view of its implications for the analysis of the stock market (De Boyer, 2003).

12 Following Marx, Hilferding distinguishes the main forms of credit from the moments of the process of reproduction: circulation and production. This logical distinction (circulation credit and capital credit) also explains the historical order of their respective developments.

13 Hilferding insists strongly on this point, even more as his theory of money reinforces his belief in the possibility of regulating the capitalist system. According to Suzanne de Brunhoff, Hilferding’s error lies in the fact that he “relates the functions of money to their capitalist conditions before having exposed the whole general theory of money. These remarks highlight a fundamental issue in the analysis of the financing of capitalism, and hence the relationship between financial institutions and the productive and commercial sphere” (Brunhoff, 1967, 16).

14 The existing studies on the analysis of the functioning of the stock market at Hilferding deal with the basic categories of this theory (promoter’s profit, fictitious capital, etc.) as well as some particular aspects of it, as the presence of a “standardised derivative exchanges” (Sotiropoulos, 2012).

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Matari Pierre Manigat, « Finance Capital and Financialization: A Comparative Reading of Marx and Hilferding »Œconomia, 10-4 | 2020, 687-710.

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Matari Pierre Manigat, « Finance Capital and Financialization: A Comparative Reading of Marx and Hilferding »Œconomia [En ligne], 10-4 | 2020, mis en ligne le 01 décembre 2020, consulté le 09 mars 2021. URL : ; DOI :

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Matari Pierre Manigat

Universidad Nacional Autónoma de México,

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