The following text consists of
notes from a lecture that I gave in London on 27 June at an IIPPE conference on
‘Imperialism Today’. This set of notes is in the form of bullet points, ones
that I elaborated on in the talk and discussion. To that extent, they will not
necessarily be completely clear to new readers. But I do not plan to extend
these into a full article. Instead the notes are a summary of the underlying
value logic that is part of what is explained more fully, discursively and
straightforwardly, with examples, in my new book
The City: London and the Global Power of Finance. I hope these notes will
help as a concise summary of my developed argument, and also give some guidance
points for others interested in drawing links between Marx’s theory of value
and contemporary financial developments.
Tony Norfield, 3 July 2016
-----------------
1. What is Imperialism?
Marx showed how capitalism
develops a world economy.
‘Imperialism’ describes a stage
when particular countries cannot be understood outside of their world
relationships.
Focus of analysis: examine how
social relations are shaped by the capitalist world economy.
Example: the US$ is ‘world
money’, given the international power of the US economy, not just the local US
currency.
Lenin also formulated how
economic and political perspectives must change with the emergence of
imperialism.
Marx’s analysis of
imperialism?
- Marx analysed world
developments, but only in a limited way in Capital Volumes 1, 2 and 3
- Vol 3 analysed ‘many
capitals’, and their different forms, but not relationships between countries
in the world market
- Later volumes planned to cover
the state, foreign trade and the world market more systematically
Hence, in Capital there
is:
- No real discussion of colonies
(just brief mentions)
- Nor much on monopoly, national
differences in wages, etc
Obviously, the world also
developed further from the 1860s!
‘Imperialism’ as in Lenin’s
1916 pamphlet:
- decisive role of monopolies in
the world economy
- bank/industrial capital
merges, producing ‘financial oligarchy’
- capital export (and revenues
from it) much more important
- territorial division of the
world is complete among key powers
Implications:
- changes in division of world
power increases propensity to war
- division of world into
oppressed/oppressor countries, with the oppressors benefiting economically (his
focus was on the ‘labour aristocracy’)
A century-old analysis still
relevant?
Monopolies dominate world economy
- yes
Bank/industrial capital &
‘financial oligarchy’ – not this form
Capital export – different kinds
of international links today
Territorial division of the
world – yes, but also changes
Implications:
Propensity to war – yes,
although now many wars by proxy
Oppressed/oppressor country
division – yes, some changes
Benefits of the oppressor – yes,
but not just a ‘labour aristocracy’
Politics of imperialism:
Conflicts/rivalries between
major powers by end-19th century
Wars began to involve the whole
population, not just military
Social unrest with the growth of
the working class
Ruling class gains loyalty of
workers via welfare reforms, extra voting rights, etc (UK, France, Germany,
especially)
By 1914, the main European socialist parties
backed their own states in war
Implications:
Development of loyalist working
classes in many rich countries that will fight to defend their nation state and
their related privileges! So, it is not just a very small portion of the working class in these countries that becomes pro-imperialist. This is a major political issue today!
Summary definition of
imperialism:
A division of the world that
results from the exercise of monopoly power by corporations and their states.
---
Big corporations may have
economic advantages, eg better technology, but they have a powerful position in
the world economy due to their links with particular states.
States back property rights
(from expropriation by rivals, also via patent laws) & extend economic power in
international trade and investment deals.
Economic power and ability to
exploit is reinforced by these privileges, ones that also include access to
finance.
The balance of power is not
fixed. Relationships are likely to change with the different accumulation of capital and power-competition successes of different countries.
2. Imperialism &
Financial Power
Financial markets show what the
world economy allows!
Marx’s ‘law of value’ for
commodities has evolved:
- Equity prices, bond yields, FX
rates are critical for companies and governments
- For example, the US uses the $ as ‘world money’
to isolate non-favoured countries (eg Iran, Russia)
- Major companies dominate
world markets, via stockmarket takeovers, ownership links, etc
- Access to capital occurs via
major financial centres, especially New York and London
… in addition to
trade/investment deals run by major states
This is a regular, daily mechanism, and does not rely upon crises to work, although such crises often give the major powers an extra ability to gain influence.
3. A ‘Real’ versus a
‘Financial’ Economy?
All big capitalist companies are
tied into ‘finance’
- FX deals to buy imports / sell
exports
- Borrowing for purchases, or to
invest
- Use financial derivatives to
insure against price moves
- Mergers & takeovers to
monopolise markets
Financial operations are
integral to modern capitalism, and it is a liberal, reformist delusion to make a big distinction between 'real' and 'financial' companies.
4. Theory of Finance -
Overview
‘Finance’ is big because it is
driven by governments, corporations, banks and other financial institutions.
- Value relationships take on a
financial form, so ‘finance’ pervades the system as a whole and is a means of
gaining wealth and power!
- Note the prominence of the US
and the UK, and how the workings of the global financial system are of particular
benefit to them.
- This is not ‘complex financial dealing’ by dangerous speculators,
who disrupt the otherwise solid workings of the capitalist economy.
5. Finance & Marx’s Value
Theory
Marx’s theory of value is about
the capitalist organisation of social labour.
It is an analysis of the forms
that arise from capitalist production and the exploitation of labour, the
tendency to crisis and the limits of this mode of production.
Capitalist finance in Marx’s
theory:
- a means by which existing
surplus-value is circulated
- ‘finance’ = money dealing +
interest bearing capital
- interest bearing capital (and
banking) create new forms of value, and appear also to create new value
Interest, banks, fictitious
capital, etc, are dealt with first in Volume 3 of Capital. This is a
‘logical-historical’ development of the earlier analysis.
The first page of Vol 3 of Capital: Marx
notes that Vol 1 analysed the immediate process of capitalist production ‘with
no regard for any of the secondary effects of outside influences’. Vol 2
studied the circulation process of capital, which must be added to the
immediate process of production to complete the ‘life span of capital’.
Vol 3 went beyond this synthesis
to ‘locate and describe the concrete forms which grow out of the movements of
capital as a whole’.
Vol 3 develops those forms of
capital which:
‘approach step by step the form in which they assume on the
surface of society in the action of the different capitals upon one another, in
competition, and in the ordinary consciousness of the agents of production
themselves’.
Vol 1 & Vol 2 do not examine
how competition might affect different capitals, nor the forms of capital that
arise from that process.
Vol 3 examines ‘many capitals’
and competition, but not in concrete detail. For example, Marx excludes the
analysis of the world market, different values of labour-power, etc, except in
occasional remarks.
Industrial capital, and its
circuit of M – C … P … C’ – M’, has
almost complete attention in Vols 1 & 2:
‘Its existence implies the class antagonism between
capitalists and wage-labourers …. The other kinds of capital, which appeared
before industrial capital amid conditions of social production that have
receded into the past or are now succumbing, are not only subordinated to it
and the mechanism of their functions altered in conformity with it, but move
solely with it as their basis ….’
But Vol 3, Parts IV & V are
critical for an understanding of finance. These show how the ‘M’ and ‘C’
components of this circuit become transformed under the influence of industrial
capital. In turn, they have an impact on the forms of value accumulation by the
system as a whole.
a) The basic M – C … P … C’ – M’
circuit includes market exchange and changes of value form (M - C, C - M)
b) This circuit implies surplus
funds, or demands for funds, arising for productive capital at different times.
Merchant capital (commerce, etc) develops in this context
c) The form of value in the
circuit changes not only between M, C and P (Vol 2). The forms taken by M also
evolve.
d) A key stage in the analysis
is where M is an advance of capital outside the basic circuit, as in M – M’.
This is the basis of Marx’s concept of ‘interest bearing capital’.
Step 1: Distinguish M – C
– M’ from M – C … P … C’ – M’
This is not simply a logical (or
functional) separation, but one that develops in reality.
Buying/selling by merchant
capital is separate from the part of the circuit of capital that produces
surplus value.
The specialist buying/selling
function can be done more efficiently by merchants. It shortens circulation
time, lowers costs and allows more surplus-value production per year.
Merchant capital produces no
value or surplus value itself, but enables more surplus value (per year) to be
produced by others.
Step 2: Focus on
specialist monetary aspects of merchant capital (eg FX deals or loans for
operating capital which assist the circuit of industrial capital, promoting M–C
and C–M).
This is ‘money dealing capital’
(MDC), distinct from the previous ‘commercial capital’ part of merchant
capital.
Marx’s theory has productive,
commercial and money dealing capital as separate, but related, parts of the
original circuit of industrial capital dealt with in Vol 2.
Each part of MDC is involved in
averaging the rate of profit, assuming each section of capital could move into
other areas. Capital advanced for production may be advanced for merchant (MDC)
functions, or vice versa.
Money dealing operations are
only an advance of money to industrial and commercial capitalists - an exchange
for a different form of money (as in FX) or for a security (eg advance money
against bills of exchange that are redeemed later). They are not an advance of
capital.
Step 3: Another form of
capital develops out of this money dealing – Interest Bearing Capital (IBC)
Up to Step 3, Marx examined
forms arising out of the circuit of industrial (or productive) capital.
With Step 3, there is a new form
of capital, IBC, outside that circuit. It has its own special circuit: M – M’.
With IBC, money is advanced as
money capital (by money capitalists) to the 'functioning capitalist' who later
returns the money back to the owner with interest.
Marx includes both the merchant
and industrial capitalists as potential recipients of IBC from the money
capitalist.
In both cases, it is assumed
that the loaned funds are invested as capital and (could) gain a surplus value.
Even if the funds are not
invested profitably, then the money capital still has to be repaid with
interest.
Marx's concept of IBC does not
include all loans of money capital for whatever purpose. This is consistent
with Vol 3 analysing 'the process of capitalist production as a whole'.
So, bank loans to workers, for
mortgages, for personal consumption, etc, are treated differently, or not at
all, in Capital. These are just advances of loanable money capital, not of IBC.
The latter loans are still paid
back with interest, but the concept of IBC is determined outside this relationship.
However, in all cases, the
interest is still a deduction from surplus value deriving from the productive
sphere.
Key points on this topic
a) ‘Finance’ is not confined to
the operations of banks; monetary advances and transactions pervade the whole
capitalist system! ‘Industrial’ companies also conduct many financial
operations.
b) For IBC in particular, the
advance of money capital in the M – M’ circuit can also be performed in a
number of different ways, and by different institutions.
c) This also means that other
forms of ‘M’ can develop outside the M – C … P … C’ – M’ circuit.
d) This takes us on to
fictitious capital and bank credit, key forms of capital, and of value in
modern financial systems.
Bonds, Equities, ‘Fictitious
Capital’
‘Fictitious capital’ (basically,
the term means financial securities)
The prices of these securities
do not represent any value created and are determined differently from
commodities.
Bonds have a higher status than
equities regarding terms of repayment; but a lower status, usually none, in
ownership of corporate assets.
There is a legal differentiation
of ‘pure’ money capitalists (bond owners) from owners of companies (via
equities).
The securities are tradable,
potentially translated into money. They can be used as collateral for loans.
Equity securities are often used as a means of payment in takeovers.
Bond prices: the
discounted present value of future coupon payments and the principal repayment.
Key plus/minus factors: risk of
non-payment (credit risk); interest
rate level at which future payments discounted.
Prices move independently of
value created. A bond ‘worth’ $1m need not relate to any sum of capital
invested.
Equity prices: an equity
represents a share of ownership and future company profits, and the price reflects
that.
Key plus/minus factors: expected
future profits; interest rate level at which future payments are discounted.
The prices of both kinds of
security are also influenced by speculative buying/selling!
6. Economic power,
financial securities and bank credit
Bonds
Creditors can set terms for
company or government behaviour, especially in a crisis, when a question of
writing off debt (privatisation, policy, etc) or access to new funds.
Equities
Ownership, of course. But voting
rights on company decisions are not the same as the equity holding! Control of
society’s resources via centralising capital and creation of monopolies.
Bank credit is a distinct
mechanism of finance!
This topic has been very badly dealt with in Marxist theory.
A bank does not simply use
existing sums of money from depositors to lend to borrowers, whether they are
companies or individuals.
It does not act simply as a ‘go
between’.
Banks can create new funds
within the banking system: they grant loans to borrowers, who then use the
funds (not usually as cash, mainly bank transfers) to buy things.
Banks make up any shortage of
funds from other banks, or via the central bank. This credit creation can boost
expenditures and demand from consumers and investors.
‘Stretching’ the law of value
creation
The credit creation process is
unique to banks. It depends on a (national) banking system and a central bank
if it is to work well.
It also allows a bank’s ‘assets’
(loans) to grow far beyond its capital (funds due to shareholders). This can
boost demand in the economy and also the potential for a crisis.
The ratio of assets/capital =
leverage ratio.
When bank loans/credits run
beyond the ability to pay back, a bank’s loan ‘asset’ becomes a loss! With high
leverage ratios, a relatively small scale of losses can destroy a bank's capital and lead to bankruptcy.
(Note: Bank loans are not
securities, but they may be ‘securitised’, as with Mortgage-Backed Securities.)
7. Conclusions: Imperialism
and Finance
The role of ‘finance’ reflects
the operation of the law of value on a world scale and the influence of
dominating powers.
The form taken by social labour
under capitalism (especially imperialism today) is not simply a ‘value’ form
based on commodity production and socially-necessary labour time.
It is dominated by financial
forms of value that accentuate the concentration of ownership and control of
social wealth.
Financial securities (equities
& bonds) and bank credits are the dominating forms of value today.
Equity and bond markets act as
regulators of corporate decision-making and government economic policy.
Social resources are controlled
via mergers & takeovers, assisted by the system of credit and trading in
financial securities.
Major banks provide funds to the
global economy, especially via the role of the US dollar.
This how capitalist economic
discipline is imposed and value is appropriated by those countries and
companies with privileged positions in the global capitalist market system!
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