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François Chesnais, Finance
Capital Today: Corporations and Banks in the Lasting Global Slump, Brill,
Leiden, 2016
This book is well worth reading.
It is written in a clear and accessible style and discusses key points about
the limitations of capitalism and the role of contemporary finance. Perhaps its
most important point is how the financial system has accumulated vast claims on
the current and future output of the world economy – in the form of interest
payments on loans and bonds, dividend payments on equities, etc. These claims
have outgrown the ability of the capitalist system to meet them, but government
policy has so far managed to prevent a collapse of financial markets with zero
interest rate policies, quantitative easing, huge deficits in government
spending over taxation, and so forth. The result is an unresolved crisis, a
‘lasting global slump’, in which economic growth remains very weak and vast
debts remain in place.
There are two related points in
his approach to the world economy and finance that distinguish Chesnais from
many other writers, and for which he deserves to be commended. Firstly, he
states clearly that we are in a crisis of capitalism tout court (pp1-2),
not a crisis of ‘financialised’ capitalism – the latter being one that could
presumably be fixed if only the evil financiers were dealt with by a
(capitalist) reforming government. Secondly, he takes ‘the world economy as the
point of departure’ for his analysis, although that is ‘easier said than done’
(p11). While he shows the central role of the US, he avoids the wholly
US-centred analysis common to radical critics of contemporary capitalism, and
instead highlights how the other powers also play a key part in the imperial
machine.
Finance Capital Today
helps the reader’s understanding of the realities of contemporary global
capitalism by providing a wealth of material evidence. It also helps one to
clarify views about what is going on by discussing the theoretical context. In
this review I will highlight the key points raised in the book and also discuss
where I have a number of differences with Chesnais. These differences are
sometimes merely of emphasis, or what may look like simply an alternative
definition of a commonly used term. However, poor formulation of an argument
can also lead to theoretical problems.
Chesnais begins by outlining the
origins of the 2008 crisis, arguing that this had been postponed since 1998 by
the growth of debt in the US and elsewhere, and by the surge of growth in China.
In 2008, ‘the brutality of financial crisis was accounted for by the amount of
fictitious capital accumulated and the degree of vulnerability of the credit
system following securitisation’. The backdrop to the latest phase of crisis
was also one that has made this crisis a global one to a degree unknown to
previous crises (p25). It involved a far more integrated world economy,
following the break up of the USSR and the incorporation of many more countries
into the world trade and financial system. The crisis is one characterised by
‘over-accumulation of capital in the double form of productive capacity leading
to overproduction and of a “plethora of capital” in the form of aspiring
interest-bearing and fictitious capital’. But major governments tried to
prevent the crisis from running its course in the way that occurred in the
1930s (p35).
Within the global set up,
Chesnais has an interesting view of China, which he characterises as not
suffering national domination by the major powers (p43). He notes its
subordinate position in the world division of labour, having offered its cheap
labour workforce up to the world market, but includes this as part of the
development of the world market rather than being a sign of its oppression in
the Leninist sense. This reflects the mixed dimensions of China’s economic and
political status, and one that I would also characterise as being in transition
to the premier league of major powers (China is actually number three in my
ranking of countries by global power).[1]
Chapter 3 is titled ‘The Notion
of Interest-Bearing Capital in the Setting of the Present Centralisation and
Concentration of Capital’. This is an important topic, but one in which
Chesnais’s commendable approach is let down by his exposition. He starts by arguing
that ‘the channelling of surplus value in contemporary capitalism, through both
the holding of government loans and the possession of stock, by a single small
group of highly concentrated financial and non-financial corporations and
private high-income-bracket asset holders, requires that several features of
interest-bearing capital that were treated partly separately by Marx now be
approached in toto’ (p67). I would certainly agree with this, especially
since the relevant section in Capital, Volume 3, is a complete mess, one
that Engels found extremely difficult to edit and to try and salvage. However,
Chesnais does little to develop the argument at this point, and he tends to
keep it focused on banks. Only later in the book does he explain better how
interest-bearing capital is a more universal phenomenon for modern capitalism.
Even then, I would argue that the forms it takes, especially in proprietary
trading, are not fully or well explained by taking interest to be the source of
revenue, or, as he notes from Hilferding, by taking one speculator’s gain as a
loss to another speculator.[2]
This chapter also contains a
discussion of two issues of Marxist theory on finance. One is the difference of
opinion between myself (and others) and Costas Lapavitsas on the question of
banks ‘exploiting’ workers through the charging of interest on loans, etc
(pp76-77). He correctly notes that this interest is, in any event, only a small
portion of bank profits, not the big event claimed by the ‘exploiting’ school.
However, citing Rosa Luxemburg, he comes down on the side of the view that
these deductions are a reduction of the value of labour-power. I
disagree, and not only because Luxemburg’s judgements in matters of economic
theory, let alone political strategy, leave very much to be desired. My
argument, which Chesnais cites, is that the charging of interest does not by
itself suggest a lowering of the value of labour-power. If this interest
deduction became a significant part of workers’ incomes, then wages would tend
to rise to offset this, making it effectively a deduction from corporate
profits. This is not to exclude that the value of labour-power can be forced
down, but it is in the febrile imagination of the anti-finance populists that
this process results from banks charging workers interest on loans.
A second issue of theory raised
in Chapter 3 is on the question of bank lending. In contrast to many other
Marxists, Chesnais recognises that banks can themselves create new deposit
assets. However, he confusingly calls these ‘fictitious capital’ (p84). This is
a relatively common perspective, as seen also in David Harvey’s The Limits
to Capital, but it is not consistent with Marx’s definition. A bank loan
can be created out of thin air by a bank, and is not dependent upon a ‘real’
deposit of cash, so in that sense it is indeed fictitious. But it should then
simply be called a ‘fictitious’ deposit or asset of the bank. Fictitious capital,
by contrast, can most easily be described as a financial security that is traded
in the market and which has a price that is a function of interest rates and
future expectations of returns to the buyer of that security.[3]
That is not true of bank deposit or loan assets, which remain on the bank’s
books. Only if the loan assets later became securitised – that is, when
the loans are the basis for payments made to owners of a tradeable security –
would they become fictitious capital This was the gist of Marx’s definition of
fictitious capital, although one that was not clearly spelled out in Capital
(and neither was his view of bank loans/deposits). To call bank loans or
deposits ‘fictitious capital’ can only lead to confusion when analysing
developments in contemporary financial markets.
Chapter 4 is my favourite of the
whole book. Titled ‘The Organisational Embodiments of Finance Capital and the
Intra-Corporate Division of Surplus Value’, it does not bend to media demands
for a snappy one-liner, but it does provide the reader with valuable
information and analysis. Chesnais discusses the different forms of the
evolution of capitalism in today’s major powers, focusing on Germany, the US,
the UK and France. He examines the relations between the state, private
corporations, banks and imperial power. While noting the importance of pension
funds from the 1990s as major equity owners of big corporations, he argues that
‘rather than bankers, it is industrialists with financial connections that form
the core of the European corporate community’ (p108). Despite some views that
there is an ‘international’ capitalist class, his view, with which I agree, is
that the main groups of ‘finance capitalists’ are domiciled within single
countries.
One important point he makes,
and one that he could have developed more, is how in contemporary capitalism,
by contrast to the views of Marx and Hilferding, merchant capital (essentially
commercial capital and finance) is not subordinate to industry, although it is
dependent upon industrial profit, (p113). However, he does discuss the role of
large commodity traders and retailers. In my view, this reflects the way in
which the major powers have used the financial/commercial system to consolidate
their economic privileges, something that was true for the UK even from the
mid-late nineteenth century. Today, as most people should be aware, it is the
poorer, subordinated countries that do most of the producing, at least in the
non-monopolised fields of production.
In Chapters 5 and 6, Chesnais
covers global oligopolies and the operations of international companies. He reviews
theories of monopolisation and how the development of the European single
market was favourable both for European and for US corporations. There is some
overlap in this material with that covered by John Smith’s book, Imperialism
in the Twenty-First Century (Monthly Review, 2016), with a predatory
appropriation of value by the ‘buyer-driven global commodity chains’ of the
major corporations (p161). However, Chesnais disagrees with Smith’s earlier
work on a number of points, and argues that China, India and Brazil are not in
the classical position of being oppressed countries, having a different, and
higher, status in the world market. On a separate, important point regarding
data on the global economy, Chesnais notes UNCTAD’s estimate that about 80% of
global trade is linked to the international production networks of
international companies, and that it would be wrong to focus on foreign direct
investment data as giving a complete picture of international investment. This
is due both to the blurring of lines between FDI and portfolio investment and
to the importance of offshore centres as the apparent location of the
headquarters of many companies.
Chapter 7 discusses the
globalisation of financial markets and new forms of fictitious capital. This is
a useful review of the growth of financial markets, although it relies very
much on secondary sources, so the data is already several years out of date,
and his coverage of financial derivatives misleadingly characterises them as
being ‘claims on claims’, when derivatives are better described as difference
contracts based on the price of the underlying security to which they refer.
The fundamental point he makes is nevertheless that the apparent diversion of
investment to financial markets has been prompted by the decline in profitable
investment opportunities (p174). The chapter concludes with a review of
financial and (foreign) debt developments in Ecuador, Brazil, Argentina and
South Africa, including the role of ‘vulture funds’ dealing in Argentina’s defaulted
debt.
Chapters 8 and 9 discuss
contemporary developments in financial markets, focusing on banking and credit.
This is well-covered ground, but is useful for those who are less familiar with
recent history, and especially so in explaining the development of
mortgage-backed securities, ‘universal banks’ in Europe, the monopolisation of
banking, shadow banking, etc. There is also a discussion of how ‘leverage’ – ie
borrowing to fund the growth of assets – rose to extreme levels due to the
decline in profitability among financial companies (pp221-). I would note,
however, the publisher’s poor proofreading: ‘over-the-counter’ (OTC) securities
dealing is described as ‘off the counter’ in Chapter 7 and here has the
designation ‘ODT’.[4]
Chapter 10 highlights ‘global
endemic financial instability’ and points out that there is a ‘plethora of
capital in the form of money capital centralised in mutual funds and hedge
funds, bent on valorisation through the holding and trading of fictitious
capital in the form of assets more and more distant from the processes of
surplus value production. Financial profits are harder and harder to earn’
(p245). I would go further and also note how asset managers, pension funds and
insurance companies – far more important investors in financial markets than
hedge funds or mutual funds – are now finding their mountain of assets unable
to generate the returns they have, implicitly or explicitly, promised, although
Chesnais does mention this later in the chapter.
The ‘plethora of capital in the
form of money capital’ is related to the declining profitability of capitalist
investment. Chesnais notes how official reports, from the Bank for
International Settlements, for example, allude to this problem, but also how
they also mix in a description of low productivity growth and low economic
growth in general. He correctly makes the point that the fall in interest rates
long preceded the ‘quantitative easing’ policies that occurred after 2008.[5]
It is difficult to spell out
these relationships empirically, given the available data, and Chesnais does
not try to do this. It is also important to distinguish the rate of interest
from the rate of profit on capital investment, which are two different things.
However, I would suggest a measurement of how much global financial assets have
accumulated – meaning principally equities, bonds and bank loans – against some
measure of absolute global profitability over time. This would measure how far
the financial claims on social resources have grown, in the form of interest
and dividend payments, compared to the surplus revenues available to pay off
these claims. My initial work on this suggests a decline in the rate of return
from 2007 to 2014, whatever the more distorted profitability figures available
for the US alone might say, data that are often used by people wanting a ready
calculation of the ‘rate of profit’. The rate of return I suggest is not a
‘Marxist rate of profit’, as traditionally understood, but it would better
reflect the malaise of the global capitalist system, especially from the
perspective of the major claimants upon its resources, the ones based in the
rich powers!
Chesnais finishes his book with
two themes. One is a lament on the lack of Marxist study in universities and
the lack of journals in which Marxist studies of capitalism can be published.
This is true enough, and I am glad not to have been an undergraduate university
student in the past few decades! Even apparently radical journals such as the
UK’s Cambridge Journal of Economics are basically rather conservative in
outlook, and are dominated by a facile Keynesian approach that dismisses a
Marxist perspective out of hand if it upsets their advocacy of ‘progressive’
policies for the capitalist state to consider. Repeating radical consensus
nonsense will get a pass; revealing the imperial mechanism of power has to jump
a hundred hurdles to be an acceptable journal article. Such is the almost
universal climate in academia today, despite the evidently destructive outcomes
from the system they claim to be analysing.[6]
Ironically, this is why the most trenchant and incisive critiques of capitalism
today – at least from a descriptive point of view – often come from analysts
working in the financial markets. They have to tell their clients what is
really going on!
Friends have suggested to me
that the situation for critical academics is even worse in the US, something I
find easy to believe. I have some knowledge of, and better hope for, the
development of a more critical intellectual climate coming from outside the
Anglosphere. This should not be too difficult to achieve.
The second concluding remark by
Chesnais is the question of how a new phase of capital accumulation might
emerge. There is the plethora of (fictitious) capital with its claims on social
revenue that cannot be met, but which, on the other hand, has not been devalued
in a crisis collapse, because the major governments have done their best to
prevent it, fearing the consequences. Chesnais discusses technical innovation
to some extent, but sees this as being overshadowed by capital’s degradation of
the environment. One is left with the ‘notion of barbarism, associated with the
two World Wars and the Holocaust’ (p267). That is a downbeat but telling point
about the progress of opposition to imperialism today. In the main imperial
countries, the answer to the question of ‘Socialism or Barbarism’ is biased in
favour of the latter.
Finishing on a more general
comment, my own preference is to avoid the term ‘finance capital’ completely,
whereas the book is titled Finance Capital Today. The term is associated
with Hilferding and used by Lenin, but the definition is too bound up with
Hilferding’s notion that banks control industry. This was not a good
description of the situation in the early 20th century, and is far less true
today. Chesnais would accept this and instead defines ‘finance capital’ as the
‘simultaneous and intertwined concentration and centralisation of money
capital, industrial capital and merchant or commercial capital as an outcome of
domestic and transnational concentration through mergers and acquisitions’
(p5). He explains how the different forms of finance capital evolved in
different countries, making an important distinction between the privileges of
the major powers and the subordinate position of others. I would go along with
this definition, but I would argue for putting fictitious capital at the
centre of attention, not ‘finance capital’. This would show more clearly that
what Marx called the ‘law of value’ is today mainly expressed, or at least
expressed more directly, via the markets for financial securities,
rather than in the markets for commodities, although the latter are of course
important. A company’s ability to access funds and at what cost, via the equity
market or bond market, or a government’s ability to borrow and spend, is each
signalled by the markets for their securities. These markets show what is good,
bad and acceptable in the imperialist world economy today.
Tony Norfield, 24 November 2016
[1] See my book,
The City: London and the Global Power of Finance, Verso, 2016, p111.
[2] The City,
pp144-147.
[3] For an
explanation, see The City, pp83-92.
[4] The book is
expensively priced, so order it for your library! The book
will be cheaper when later published in paperback, however.
[6] It works
like this. Academic journals are graded according to their supposed value, and
getting an article published in a highly ranked journal is the objective of all
academics. Think what you like about the journal’s real worth, these grades are
important for the scores achieved by contributors in the assessment they get
from their universities, and, most importantly, in the assessment of their
universities for government funding purposes. Over recent decades, this has led
to a small group of mainstream, conservative, uncritical journals becoming the
favoured destination for research articles, which in turn means that academics
orient their work to what these journals will accept. It is a machine for
generating very little worth reading, and also a system for maintaining a
conservative status quo. That system is further maintained by a journal
editorial board and a group of ‘peer reviewers’ with the same general outlook.
A similar mechanism also leads academics to have absurdly long bibliographies
and excessive citations in their articles, since citing their friends will
encourage the return favour, and citations are another means by which academic
value is assessed.
