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A century since Hilferding’s `Finanz Kapital' -- again, apparently, a banker’s world?

By Patrick Bond

November 19, 2010 -- Links International Journal of Socialist Renewal -- The power and reach of financial institutions, not to mention the resulting superprofits, are the source of widespread, often extreme frustration. Industrialists, small businesspeople, government leaders, workers, consumers, environmentalists, the Greeks and Irish (and similar Third Worlders), and indeed all debtors have suffered usurious, speculative or bailout-related decimation of their resources over the past thirty years.

A shared critique of banks today, we’d all agree, includes: too much control, too much out-of-control investing, and too much revolving-door crony capitalism connecting financiers to state “regulators”, of which the Wall Street-Washington crew appear the most corruptly profligate.

It’s now a century since a young Austrian medic, Rudolf Hilferding, published the book Finanz Kapital, in which he defined his subject as “the unification of capital. The previously distinct spheres of industrial capital, commercial capital and bank capital are henceforth under the control of high finance”. Though based on the German model of banking, it was nevertheless an influential concept elsewhere. In 1915, Bolshevik Nickolei Bukharin used the phrase “the coalescence of industrial and bank capital” and in 1917, Lenin considered finance capital “the merging of industrial with bank capital” as a new stage of capitalism.

These definitions emphasise institutional power bloc characteristics, at the expense of drawing attention to the vulnerability implicit in underlying capitalist relations, a crucial problem to which we must return for political lessons.

A rich discussion in honour of Finanz Kapital’s centenary at the Historical Materialism conference in London, November 11-14, left the audience “ambivalent”, as Elmar Altvater put it, yet respectful. Another leading German Marxist, Michael Krätke, went through some of Hilferding’s most important contributions.

  • in a famous Vienna seminar, he fought both marginal utility theory and his teacher Bohm-Bawerk's critique of Marxism;
  • he had an impact not only on the great Marxists of the day, but also on Schumpeter (his close friend) and the Austrian School of Mises and Hayek; and
  • as a 26-year old, he began Finanz Kapital in 1905, with innovations that included updates of Marx’s Das Kapital on competition law, credit money, central bank money, banking profit, joint stock capital and share markets, commodity markets, big corporate rule, monopolisation, imperialism and colonialism.

Context is everything, Altvater reminded the conference, for reading Finanz Kapital in different decades meant a shifting emphasis between various features within Hilferding’s political economy:

  • a century ago, the question of imperialism was at the top of the left’s agenda;
  • after World War I, a post-monarchy “new capitalism” was in competition with the Russian Revolution;
  • in 1926, Hilferding spoke at a Social Democratic Party leadership meeting about a reformist “Organised Capitalism”, which meant the state could democratise (witness the Weimar Constitution) and the majority of workers could occupy the state through the vote, and the state could then democratically plan the economy;
  • but Weimar succumbed to various pressures and in 1933 fascism emerged with the support of German capital, with Hilferding fleeing into a haunted exile until his death in Paris in 1941;
  • after World War II, the East German republication of Finanz Kapital reorientated its argument in support of the Communist thesis known as “state monopoly capitalism”;
  • subsequent New Left critics of capitalism appreciated the way Hilferding analysed Organised Capitalism;
  • the 1980s-1990s witnessed financial capital's rise in economic and policy power (albeit with a different institutional form than Hilferding had predicted); and finally,
  • the 21st century provides us at least four interlocking crises, of which the first (financial) refutes Hilferding, though the other three – food, energy and climate – are newer factors.

Altvater’s list is a useful reflection of the durability and importance of Finanz Kapital, and yet gnawing doubts remain. Aside from overgeneralising from the German sample, a much bigger mistake in Hilferding’s understanding of capitalism was interpreting finance capital as pure power, when in fact the bloc was rife with weakness. This same problem bedeviled a group of contemporary political economists, left as surprised in the build-up to the 2008 crash as any bourgeois analyst (

How so? The largest banks’ coordination functions, according to Hilferding, meant that capitalist crisis tendencies could be shifted, displaced and then dissolved into the more competitive sectors of the economy. The subsequent shake-out of the smaller producers would, he insisted, permit the finance capital cartel to intensify industrial concentration and thus to survive the economic downturn. Hilferding listed several factors “militating against a banking crisis”:

  • first, the ability of finance capital to manage and share risk effectively;
  • second, the belief that a strong gold reserve and other state policies would shore up the system’s creditworthiness;
  • third, a decline in the volume and importance of speculative activity, at the powerful urging of key finance capital institutions; and
  • fourth, firms listed on the new stock markets could continue producing during a downturn, as they would not need an immediate return on investment.

As a result, Hilferding insisted that it was “sheer dogmatism to oppose the banks’ penetration of industry... as a danger to the banks”. He even expressed faith that the centralisation and concentration process would result in an “increasingly dense network of relations between the banks and industry... [which] would finally result in a single bank or a group of banks establishing control over the entire money capital. Such a ‘central bank’ would then exercise control over social production as a whole.”

Politically, this is important, for it provided a rationale for a route to socialism via finance capital. As Hilferding at one point asserted, “taking possession of six large Berlin banks would mean taking possession of the most important spheres of large scale industry, and would greatly facilitate the initial phases of socialist policy during the transition period, when capitalist accounting might still prove useful”.

His greatest subsequent rival, Henryk Grossman, offered scathing comment:  “Hilferding needed this construction of a ‘central bank’ to ensure some painless, peaceful road to socialism, to his ‘regulated’ economy.”

Hilferding was German finance minister later in his career (for a few weeks in 1923, and in 1928-29), and was considered a reformist in the Eduard Bernstein/Karl Kautsky tradition. But he failed, and attacks against his party from the left tragically equated social-democratic politics (so-called “social fascism”) with actual fascism. While world financial capital bubbled up into a 1929-32 global meltdown, Hitler stitched together a coalition of the German middle/working classes and disenchanted national capitalists aimed at creating economic autarchy against foreign financial power, which he (mis)labelled Jewish.

In this instance, the most vivid resistance to finance capital was right-wing populism. Are there, today, parallels with the US Tea Party, given how badly the US/European left and working-class institutions (aside from Public Citizen and a few others) have performed, fighting high finance?

Where did Hilferding go wrong in miscalculating the power of finance capital? According to French political economist Suzanne de Brunhoff, his critical mistake was dissociating money and the credit system. “Money as an instrument of hoarding” is ignored, she complained. “This dissociation has probably been one of the reasons for the overestimation of the role of finance capital.”

Another problem is that Hilferding didn’t anticipate more recent developments that counter the internal logic of Finanz Kapital. Banking capital was, during Hilferding’s time, used nearly exclusively for financing the purchase of means of production (M-MP) and only rarely for purchasing and reproducing labour power (M-L). In the post-Depression era, however, an enormous amount of finance was originally drawn from and allocated to M-L, in part through pension and insurance funds, consumer credit and government debt.

This limited Finanz Kapital’s relevance because Hilferding relied upon the financing of a “rising organic composition of capital” (greater capital intensity in production) to explain the build-up of debt in the economy, and then to gauge the relative strength of the finance capital power bloc.

It would appear too that without analysis of government and consumer debt, the finance capital concept misses other insights about financial influence upon accumulation. One is the temporary rise of labour’s living standards as a result of access to credit – though as we see today, this can become a myth of awesomely destructive proportions.

Another aspect was the ability of the credit system to maintain effective demand (buying power) in the economy, partly through government and consumer debt, thus avoiding crises of “underconsumption” – but, most importantly, putting off until later the unavoidable need to repay the debt. And there we find the source of so much current instability, when during most of the 2001-08 period rising financial ratios were (mistakenly) understood by many to be a source of genuine prosperity.

In addition, Hilferding’s conclusion about excessive finance capital power runs contrary even to much of his own prior analysis:

  • first, uneven sectoral development between capital goods machinery and consumer goods (“disproportionalities” between Departments One and Two, in the Marxist lexicon), upon which Hilferding bases his crisis theory, tends to heighten as finance grows in importance;
  • second, the same problems in the productive sector that led to falling corporate profit rates also forced banks to look further afield, geographically and sectorally, in order to maintain lending and a healthy deposit base, with consequent growing risk;
  • third, new forms of financial regulation which Hilferding suggested could stabilise an inherently unsound banking system, were in the end not capable of staving off a major financial crisis;
  • fourth, rather than declining in importance, speculation tended to increase dramatically prior to the climax of a crisis; and
  • fifth, given these factors, the finance capital combination of industry, commerce and banking increased temptations for insider lending and other abnormally risky behaviour.

In sum, nearly all of Hilferding’s previous analysis leads to the logical conclusion that, contrary to finance capital hegemony during a crisis, banks do indeed lose self-control. Paul Sweezy may have been correct in this respect when he commented, “Hilferding mistakes a transitional phase of capitalist development for a lasting trend.” The “transitional phase” was one of recovery from the 1870s-1890s financial crises. But these crises would emerge again in the early 1930s and again by the 1970-90s, and in a very big way in 2008.

It was just prior to the 1930s crisis of finance capital that one of the most impressive critiques emerged, from the Frankfurt School economist Grossman, who objected to a remark by Hilferding in 1927: “I have always rejected any theory of economic breakdown. In my opinion, Marx himself proved the falsehood of all such theories.”

Pushing the stick too far the other way, here’s how Grossman concluded his own book, The Law of Accumulation and Breakdown of the Capitalist System (published with brilliant timing in March 1929): “The historical tendency of capital is not the creation of a central bank which dominates the whole economy through a general cartel, but industrial concentration and growing accumulation of capital leading to the final breakdown due to overaccumulation.”

We’ve now come full circle: another overaccumulation crisis, built up since the 1970s and continually displaced not least through massive financialisation, and without any necessary combination of banking and other fractions of capital. But if 1929-32 and subsequent regulation devastated finance capital power, the 2008-10 bailouts reempowered our generation’s hubristic financiers.

Two years ago, financiers showed us they could not only help elect a perfectly amenable US president notwithstanding a degree of anti-Wall Street rhetoric – “talk left, walk right” as we say in Southern Africa – but also ensure bailouts from Washington, London, Berlin and Brussels by holding the world economy to ransom.

But this is a matter of the balance of forces. By paying too much tribute to finance capital power (as did Hilferding) and not taking advantage of the bankers’ vulnerabilities, we run the risk of letting another force, right-wing populism, breathe in the clean clear oxygen of our society’s collective, well-earned hatred of financial capital.

[Patrick Bond is based at the University of KwaZulu-Natal School of Development Studies and, on sabbatical this year, at the University of California-Berkeley Department of Geography.]



By coincidence, I just finished reading Hilferding last night. I agree with your review, some very good insights into the creation of cartels, role of banks, penetration of finance and disproportionality but does seem to make permanent that which is transitional and also ignores the replication of contradictions.
The chapter on how finance capital renders speculation superfluous sticks out but there are a couple of others such as how the growth of banking capital ensures the continuing maintenance of production and so recessions are only partial and continually decline in ferocity. This may be in the case in recessions that are geographically limited but when the world is hit then it doesn't hold.
There is also an element of downplaying of overproduction crises in favour of disproportionality, which I presume was a general part of the 2nd international theory.
However, his insights are important and need to be developed, I note that he puts emphasis on prices, which is often ignored. His mistakes and weaknesses need to be put into context and understood in order to correct them.

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