From Marxist Monetary Theory to Financialisation

Ben Fine

For Marxist monetary theory, and much more besides, an excellent vantage point can be adopted through Oscar Wilde’s famous quip that “A cynic is a man who knows the price of everything, and the value of nothing.” For the economist, this signifies that price – as the monetary value of something – has the remarkable property of reducing everything (on the market at least) to a single dimension, at the expense of revealing nothing else about what is being bought and sold. Of course, it is money that oils the wheels of commerce. It places any single commodity into that one-dimensional price relationship with all others – for one-dimensioning of the economy and economics in light of Marcuse, see Fine (2017c).

Many economists, cynics or otherwise, see this property of money extremely favourably since its one-dimensioning potentially serves to coordinate exchange relations in a highly functional way. In the extremes of neoliberal thought, whether through the monetarism of Milton Friedman or the Austrianism of Friedrich von Hayek, monetary relations benevolently facilitate individuals in their interactions with one another, signalling what things are worth to them and either grinding out an efficient equilibrium (Friedman) or inspiring innovation in response to uncertainties (Hayek). With Keynes to the fore in the economic arena, and with the post-2007/8-crisis, Minsky was rediscovered as a prominent disciple, and there are those who have pinpointed how monetary relations can seize up as well as serve the world of commodities. This was poetically put by Marx himself when he suggested that commodities are in love with money, but the course of true love never did run smooth.

Unsurprisingly, sociologists have been drawn to interrogate what value or social relations are represented through money, but studiously ignored by the cynic in deference to price; whether it be the role of hidden persuaders through advertising, the keeping up with or getting ahead of the Joneses (through emulation and distinction), and – in similarly critical vein – the getting and using of money as source of any number of the evils attached to consumer society.

Marx’s monetary theory, at least in one major element, can be seen to be within this tradition. But for him, at least initially, the major role played by money in a capitalist society is to (mis)represent relations of production, since commodities in particular are the product of labour. Moreover, different commodities are derived from different types of labour, exercised at different times and in different ways, but they are all brought together into quantitative relations with one another through market exchange and the role played by money. In his concept of commodity fetishism, Marx pinpoints that the relations of production of capitalism – who produces what, for whom and how and with what consequences – are expressed in monetary relations as if they do not exist at all, just as when we buy something we are unlikely to be able to see its role in climate change, child labour or any of the other relations that have given it a price. These have to be uncovered.

Now Marx is most famous in his political economy for viewing capitalism as an exploitative class system, wedded to accumulation and generating rewards for the few and increasingly powerful whilst also being subject to systemic conflicts and crises, both economic and social. But out of the elementary understanding of money in representing the value of commodities as products of labour, Marx develops an extremely sophisticated account of money and finance in terms of how it is vital for – and indicative of – the structures and dynamics of the capitalist economy (although a major part of his presentation is to be found in Volume III of Capital, which he never finally prepared for publication himself).

Only a brief account can be given of this theory here. It depends upon a number of dualisms. The first is between money as such and money as capital. Money as such just buys, settles debts or whatever. Money as capital, however, also buys but it does so in order to make a profit, not simply to get something else for consumption, display or otherwise.

The second distinction is between money capital in production and money capital in exchange. For the former, value is produced and can be sold at a profit. But capital in exchange, as used by the trader for example, just moves commodities around. Whilst it may use exploited labour in doing so, it adds no value. Capital in exchange has to share in the profit that has been generated by capital in production.

Third is the distinction between such merchant capital and what Marx calls interest-bearing capital (IBC). If you are just buying and selling as a trader, you are liable to earn the same profitability as what might be termed an industrial capitalist. If less, you would invest in production instead. If more, others would compete with you and bring down your margins. But how do you compete? For Marx, a major lever of competition is access to finance which is controlled by banks (or financial institutions). So you go to them and ask for a loan to compete, and the bank takes its cut in the form of interest. But what if excess profitability is in the banking sector itself? Can you go to a bank and ask for a loan to compete with them? Presumably not, as who makes loans to others to undercut their own returns?

As a result, Marx suggests that IBC is distinct from industrial and merchant capital and can command returns (that might be called interest, as distinct from profit) over and above normal profitability. This is not to suggest that there is no competition within the financial sector, nor that banks do not lend to one another, only that the nature of competition is different and so are the returns. Also all sorts of complex relations exist in money markets between simply borrowing and lending at whatever rate of interest, and borrowing and lending as a way of prompting and drawing upon profitable activity. Banks also prefer to use other people’s capital (or create it themselves as credit), then access it at one rate and lend it at a higher rate, alongside fees and the like.

This all leads to a fourth distinction, between real and fictitious capital. When IBC as money capital is made available for a loan in pursuit of profit, it promises to make a return both for lender and borrower. That return can be securitized: made into an asset with a corresponding price. That financial asset – irrespective of the use and success to which the loan has been put in practice – can itself be traded, as in shares on the stock market. In contemporary times, this also occurs in any number of different financial markets. This is what Marx calls fictitious capital: the paper claim to something, as opposed to the real capital which is supposed to underwrite that claim. It is not fictitious in the sense that a corresponding real asset does not exist at all (as can happen in case of fraud for example), but it is a symbolic representation of the real capital and is bought and sold separately from it (just as money is symbolic of value and all that goes into producing it).

The distinction between real and fictitious capital allows them to function – to a greater or lesser degree – independently of one another, just as shares change price continuously without necessarily reflecting how the company represented is doing (most obviously in speculative booms or crashes). For Marx, this raises a very simple question: when is an accumulation of fictitious capital actually underwritten by a real accumulation of capital? Essentially there is no theoretical answer, as it all depends upon the evolving relations between the two which must be studied in practice. This must be done whilst acknowledging that the financial system is capable of not only concentrating existing and issuing new financial resources to allow for massive real investments (with the state as well as private finance playing major roles), but also fueling speculative booms and crashes (when returns that have become fictitious fail to accrue).

It is relatively easy to project this analytical schema arising from Marx’s monetary theory onto modern conditions, especially through the concept of financialization which has experienced a meteoric rise across the social sciences over the last decade, with contributions from Marxist political economy and other heterodox traditions (but more or less absent from mainstream economics). This literature has, often directly, been inspired by the definition of financialization as “the increasing role of financial motives, markets, actors and institutions in the operation of the domestic and international economies” (Epstein’s, 2005, p. 3).

That this definition should be conducive to a tsunami of critical contributions is hardly surprising. Firstly, the volume of financial assets has increased roughly three times as much as the volume of production over the past three decades (compelling evidence of accumulation of fictitious without real accumulation). And secondly, over the same period, economic performance has been poor and has given rise to a global crisis from which recovery remains weak, even though economic and political conditions have (arguably) been highly favourable to capitalism. Unsurprisingly, the literature has shown strong correlations between more finance and poor performance across investment, productivity, growth, inequality, social expenditure and so on.

Therefore, through the perspective of Marxist monetary theory, the current period of capitalism is one that is dominated by the role of interest-bearing capital in organising the economy. This is indicated by the overwhelming position of just a few hundred global corporations, two-thirds of which deal in finance, and has had a dampening effect on overall economic performance, but also leading to excessive growth in some sectors. Examples include the excessive production of energy (causing climate change) and food (worldwide, there is now more obesity than malnutrition). In this way, capitalist economies are subordinated to the economics, politics and ideologies of finance.

Let me close by returning to the commodity fetishism, with which I more or less began. For example, investment in water in the UK – under what is now primarily financialised privatisation – means that as the water flows in one direction from our taps, as much as 30% of water revenues flow in the opposite direction into globally organised holding companies, which are registered in the Cayman Islands or the like. No tap, no water bill reveals this.

Otherwise, I am going to close with my favourite quote of all time, not from someone who might be dismissed as a crazy leftist or environmentalist, but from Sir Josiah Stamp. He was the richest man in Britain at the time he died – in a second world war air raid on London in which he refused (in an act of defiance) to go with his family into an air raid shelter. He was Commissioner for London during the Second World War, set up ICI (the UK’s biggest chemical company), served on the board of the Bank of England and headed the Inland Revenue (the UK’s tax service). His eldest son died in the same air raid, leaving uncertain the order of death with the law determining that he should be deemed to have died first. This meant double death duties on his estate – there are some rewarding ironies in life. But here is what he had to say:

Banking was conceived in iniquity and was born in sin. The bankers own the earth. Take it away from them, but leave them the power to create money, and with the flick of the pen they will create enough deposits to buy it back again. However, take it away from them, and all the great fortunes like mine will disappear and they ought to disappear, for this would be a happier and better world to live in. But, if you wish to remain the slaves of bankers and pay the cost of your own slavery, let them continue to create money.

I could not say it better, although we must go beyond finance. Policies that secure control over finance are merely the first step in changing the world, which requires placing economic and social reproduction under popular control – in service not of profits and speculation, but of the people.

 

About the Author

Ben Fine is Professor of Economics at the School of Oriental and African Studies, University of London. He has (co)authored or edited over 30 books and published over 250 articles covering a wide range of economic theory, economic and social policy, development economics, political economy and the history of economic thought, with a strong intellectual commitment to interdisciplinarity. Different books were awarded the Gunnar Myrdal and Deutscher Prizes in 2009. His SOAS area of speciality is South Africa. He is Chair of the International Initiative for Promoting Political Economy (iippe.org).

 

Finding Financialisation: A Partial Biography and Bibliography [1]

Financialisation has experienced a meteoric rise across the social sciences, and its breadth of topics and approaches is well-represented in Mader et al (eds) (2020). I first seriously engaged fully with financialisation as a contributor over a decade ago in a particular and telling context. It was in preparing a paper for a Conference on “The Crisis of Neo-Liberalism in India: Challenges and Alternatives”, Tata Institute of Social Sciences (TISS) Mumbai and International Development Economics Associates (IDEAs), 13-15 March 2009 [2]. I was an invited speaker but designated to talk about social policy. As a result, my take on financialisation, whatever its other influences, brought it together with both neoliberalism and social policy or, what is termed, social reproduction more generally. Despite the presence of a healthy critical literature at the time on neoliberalism, social policy and neoliberal social policy, which I subsequently reviewed for UNRISD in part from the perspective of financialisation [3], I was convinced that existing framings had not taken on the increasing role of finance sufficiently.

In seeking to rectify this, I developed my own approach to financialisation from a Marxist perspective, drawing upon Marx’s theory of interest bearing capital (IBC), and, in particular, distinguished it from an alternative, prominent (Marxist) position that financialisation is indicative of an extra layer of exploitation through credit-related expenditure of wage revenue, Lapavitsas (2013) as the leading representative [4]. The result was not simply to provide an abstract theory, narrowly confined to the topic of financialisation. Rather, by relating economic and social reproduction together, and how they are transformed and integral with one another, the key proposition was put forward that neoliberalism as the current period of capitalism [5] (unlike the Keynesian, Fordist or whatever designated period that preceded it) is marked by the increasingly intensive (more and more IBC and its influence where it is already operative) and extensive (ditto for novel areas for IBC and especially economic and social “infrastructure”) role of finance in economic and social reproduction [6].

This approach to financialisation as the growth of IBC and its influence as the defining aspect of neoliberalism has wedded the logic of Marx’s theory of money and finance to the historical and the political, as borne out by subsequent work, not least in specifying the trajectory of the globalised, neoliberalised and financialised South African economy [7]. Diversity across countries in both the incidence and impact of financialisation (or variegation) has been complemented by variegation within countries and across sectors, giving rise to both volatilities and vulnerabilities in everyday lives over and above dismal economic performances and policies of austerity in response to them.

A major contribution along these lines was made through the FESSUD research programme (see fessud.eu), with contributions listed in an appendix to Fine (2017b), with attention to the impact of financialisation across five different countries on housing, water and pensions. This has been complemented by other studies covering these or other sectors or issues, such as the material cultures of financialisation, Bayliss et al (eds) (2018), and the financialisation of food pointing to how it has intensified both under- and over-nutrition, with the latter now exceeding the former globally as a disease of affluence, something that parallels the finance-induced intensification of environmental challenges, Bayliss and Fine (2020a).

 

Notes

  1. For a fuller if still partial intellectual autobiography, see Fine (2019).
  2. This informed Fine (2011b).
  3. See Fine (2014b) out of which arose Fine (2016 and 2017a). See also Fine (2011b).
  4. See Fine (2010a, 2011a, 2012b and 2014a) Fine and Saad Filho (2016a) for the location of financialisation in relation to
  5. Marx’s political economy and Capital in particular. For an earlier venture into Marx’s theory of finance, see Fine (1985/6 and 1988). Note also a different debate within and with Marxism, over whether finance does or does not produce value, Christophers and Fine (2020) – how can it do otherwise if it makes so much profit, or is it simply and entirely parasitic on (surplus) value produced elsewhere, an issue debated more widely over what is productive as opposed to unproductive (finance) in an economy.
    For financialization as a defining characteristic of neoliberalism, see Fine (2010b and 2012c), Fine and Saad Filho (2016b) and Bayliss et al (2021).
  6. For financialization in the context of economic and social reproduction, see Fine (2020 and 2021b) but also Bayliss and Fine (2020b) and Fine (2021a).
  7. See Fine (2019b).

 

References

Bayliss, K. and B. Fine (2020a) A Guide to the Systems of Provision Approach: Who Gets What, How and Why, Basingstoke: Palgrave MacMillan, forthcoming in press.

Bayliss, K. and B. Fine (2020b) “Financialisation and the Future for SOEs”, with K. Bayliss, in L. Bernier, M. Florio and P. Bance (eds) Handbook on State-Owned Enterprises, London: Routledge.

Bayliss, K., B. Fine and R. Robertson (eds) (2018) Material Cultures of Financialisation, London: Routledge, reproduction of New Political Economy, 2017, vol 22, no 4.

Bayliss, K., B. Fine, M. Robertson and A. Saad Filho (2021) Neoliberalism, Financialisation and Welfare: The Political Economy of Social Provision in the UK, Cheltenham: Edward Elgar, in preparation.

Christophers, B. and B. Fine (2020) “The Value of Financialization and the Financialization of Value”, in P. Mader, D. Mertens and N. van der Zwan (eds) International Handbook of Financialization, London: Routledge.

Epstein, G. (2005) “Introduction: Financialization and the World Economy”, in G. Epstein (ed) Financialization and the World Economy, Cheltenham: Edward Elgar, pp. 3–16.

Fine, B. (1985/6) “Banking Capital and the Theory of Interest”, Science and Society, Winter, vol XLIX, pp. 387‑413.

Fine, B. (1988) “From Capital in Production to Capital in Exchange”, Science and Society, vol 52, no 3, pp. 326–37.

Fine, B. (2010a) “Locating Financialisation”, Historical Materialism, vol18, no 2, pp. 97-116.

Fine, B. (2010b) “Neo-Liberalism as Financialisation”, in A. Saad-Filho and G. Yalman (eds) Transitions to Neoliberalism in Middle-Income Countries: Policy Dilemmas, Economic Crises, Forms of Mass Resistance, London: Routledge.

Fine, B. (2011a) “Beyond Financialisation”, in A. Vlachou, N. Theocarakis, and D. Milonakis (eds) Economic Crisis and Greece, for the Greek Scientific Association of Political Economy, Athens: Gutenberg, (in Greek).

Fine, B. (2011b) “Locating the Developmental State and Industrial and Social Policy after the
Crisis”, UNCTAD, The Least Developed Countries Report 2011: The Potential Role of (South-South Cooperation for Inclusive and Sustainable Development, Background Paper No. 3.
Available at: http://www.unctad.org/Sections/ldc_dir/docs/ldcr2011_Fine_en.pdf

Fine, B. (2012a) “Financialisation and Social Policy”, in P. Utting, S. Razavi, and R. Buchholz (eds) Global Crisis and Transformative Social Change, London: Palgrave MacMillan.

Fine, B. (2012b) “La Financiarisation En Perspective”, Actuel Marx, no 51, pp. 73–85, in French, translation of “Beyond Financialisation”, in A.Vlachou, N. Theocarakis and D. Milonakis (eds) Economic Crisis and Greece, for the Greek Scientific Association of Political Economy, Athens: Gutenberg, 2011 (in Greek).

Fine, B. (2012c) “Neo-Liberalism in Retrospect? – It’s Financialisation, Stupid”, in B. Fine, K.-S. Chang, and L. Weiss (eds) Developmental Politics in Transition: The Neoliberal Era and Beyond, Basingstoke: Palgrave MacMillan.

Fine, B. (2014a) “Financialisation from a Marxist Perspective”, International Journal of Political Economy, vol 42, no 4, pp. 47–66.

Fine, B. (2014b) “The Continuing Enigmas of Social Policy”, prepared for the UNRISD project on Towards Universal Social Security in Emerging Economies, UNRISD Working Paper 2014-10
Available at: http://www.unrisd.org/Fine

Fine, B. (2016) “The Systemic Failings in Framing Neo-Liberal Social Policy”, in T. Subaset (ed), The Great Financial Meltdown: Systemic, Conjunctural or Policy Created?, Cheltenham: Edward Elgar.

Fine, B. (2017a) “The Continuing Enigmas of Social Policy”, in I. Ye, (ed) Towards Universal Health Care in Emerging Economies: Opportunities and Challenges, London: Palgrave MacMillan.

Fine, B. (2017b) “A Note Towards an Approach Towards Social Reproduction.” Unpublished manuscript.
Available at: http://iippe.org/wp/wp-content/uploads/2017/01/sroverviewben.pdf

Fine, B. (2017c) “From One-Dimensional Man to One-Dimensions Economy and Economics”, Radical Philosophy Review, vol 20, no 1, pp. 49-74.

Fine, B. (2019a) “Post-Truth: An Alumni Economist’s Perspective”, International Review of Applied Economics, vol 33, no 4, 2019, pp. 542-67, revised and shortened from SOAS Department of Economics Working Paper No. 219, London: SOAS University of London.

Fine, B. (2019b) “Post-apartheid South Africa: It’s Neoliberalism, Stupid!”, in J. Reynolds, B. Fine and R. van Niekerk (eds) Race, Class and the Post-Apartheid Democratic State, Pietermaritzburg: University of KwaZulu-Natal Press.

Fine, B. (2020) “Framing Social Reproduction in the Age of Financialisation”, in A. Santos and N. Teles (eds.) Financialisation in the European Periphery: Work and Social Reproduction in Portugal, London: Routledge, forthcoming.

Fine, B. (2021) “Financialisation and Development”, new entry for fourth revised edition of the Companion to Development Studies, London: Routledge, forthcoming.

Fine, B. (2021) “Situating PPPs”, J. Gideon and E. Unterhalter (eds) Critical Reflections on Public Private Partnerships, London: Routledge, forthcoming.

Fine, B. and A. Saad-Filho (2016a) Marx’s ‘Capital’, London: Pluto, sixth edition.

Fine, B. and A. Saad-Filho (2016b) “Thirteen Things You Need to Know about Neoliberalism”, Critical Sociology, vol 43, no 4-5, pp. 685–706.

Lapavitsas, C. (2013) Profiting without Producing: How Finance Exploits Us All, London: Verso.

Mader, P., D. Mertens and N. van der Zwan (eds) (2020) International Handbook of Financialization, London: Routledge.

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