Approaching finance from a political economy perspective
Notwithstanding Epsteins (2005, p. 3) popular all-encompassing definition comprising ‘the increasing role of financial motives, financial markets, financial actors and financial institutions in the operation of the domestic and international economies’, the concept of financialisation is prone to diverse, although interrelated, understandings. These range from a new finance-led accumulation regime and the rise of shareholder value management to the ubiquity of finance in our daily lives (van der Zwan, 2014), and beyond (Aalbers, 2019). The adoption of such general and diverse understandings of financialisation can be taken as risking conceptual irrelevance (Christophers, 2015; Christophers & Fine, 2020). But they have also contributed to advancing research in a surprisingly unexplored subject across disciplines, from varied vantage points and increasingly addressing different geographies. This book is meant as well as a contribution to this large and expanding body of literature.
However, we would like to bring more directly into the analysis conceptual tools on finance from Marxist political economy as an important first step for the analysis of (semi-)peripheral contexts. These include the various categories of capital such as money-capital, interest-bearing capital, fictitious capital and loanable-money capital, which have different and divergent theoretical interpretations in the context of financialisation studies.1
Marx (1981 [1867]) long ago examined how money can be converted into capital on the basis of capitalist production, i.e. how money can be converted into money-capital used in the circuit of capital to buy labour force and the means of production. On his view, money-capital can be derived from the hoards that originated in the circuit of capital and that can be lent and invested as capital by someone else. This exposes a ‘double outlay of money as capital’, where interest (as a partition of surplus value) is due to the owner of this capital by the capitalist borrower and is generally below the average rate of profit in normal conditions of reproduction. This then means that money-capital can itself become a commodity, that it can be interest-bearing capital (IBC), the basis of the credit system.
Marx’s initial exposition of the role of IBC in the circuit of capital, and thus in production wherein surplus value is extracted, is at the core of Fine’s understanding of financialisation. According to Fine (2013, p. 49), IBC is ‘distinct from money borrowed (even with interest) for other purposes’. That is.
IBC can only be located where ‘production and realization of surplus value in Marxist terms’ take place or when IBC acquires this character ‘based on the intentions of those who are borrowing’. Fictitious capital (FC) is the ‘independent circulation of IBC in paper form’, in other words, it is a tradable security priced according to expected future returns (that may or may not materialise in the future, thus its ‘fictitious’ character). FC allows an explanation of the ‘intensive’ and ‘extensive’ growth of finance through the upstream securitisation of productive investments, which provide financial institutions the liquidity needed to finance both investment (i.e. money-capital) and nonproductive loans. Hence, financialisation is understood as the accumulation of FC or‘the increasing scope and prevalence of IBC in the accumulation of capital’ (Fine, 2013, p. 55).This, in turn, entails an added analytical role for the cash flows originating in production, which sustain securitisation and the trade of securities in financial markets.
Makoto Itoh and Costas Lapavitsas offer a broader conceptualisation of IBC. On their view, IBC encompasses two notions. First, IBC includes the above-mentioned role in the circuit of capital, being associated with a particular class relation, that between ‘functioning [industrial] capitalists’ (the borrowers) and ‘monied’ capitalists (the lenders), who accumulate and lend out their hoards (Itoh & Lapavitsas, 1999, p. 61). Second, IBC ‘might also be created out of temporary idle parts of the money revenue of workers and other social groups’, which may be used by capitalists. By the same token, ‘the further advance of interest-bearing capital by the credit system need not be directed exclusively towards real accumulation, but also towards other activities not productive of surplus value’ (Itoh & Lapavitsas, 1999, p. 61). That is, not only can workers’ hoards fund IBC, but IBC can also fund loans to workers. This contrasts with Fine’s view in which IBC exclusively derives from and is exclusively channelled to production.
Drawing on Marx’s concept of loanable-money capital (LMC), Lapavitsas (2013, p. 117) asserts that this is ‘the appropriate concept for analysis of the borrower-lender relationship [...] rather than interest-bearing capital’. LMC has the advantage of corresponding‘to a lower level of theoretical abstraction’, which ‘rests on the advanced functioning of the financial system’, where ‘interest takes the form of a reward for merely parting with the money lent regardless of the purposes of the loan’. Lapavitsas’ approach to IBC is thus broader than Fine’s even if the more expansive use of the term is generally conveyed by the notion of LMC. LMC encompasses the mobilisation of idle money by the financial sector, for whatever purpose, and the possibility open to the financial system to act on the anticipation of the accumulation of this idle money.
Even though Lapavitsas and Fine propose different understandings of IBC, both approaches have the advantage of rooting their claims in how finance interacts with capital accumulation, avoiding the somewhat naive accounts that perceive finance as a separate realm consisting of pure parasitical ‘casino speculation’. But Lapavitsas’ perspective is broader, as mentioned, considering the conceptual possibility of including non-productive loans as IBC, such those granted to households that are not directly channelled to production and thus are not part of the circuit of capital.This perhaps accommodates Marx’s original understanding of IBC as a form of‘antediluvian’ capital that did not emerge with capitalism. Indeed, for Marx, IBC predates capitalism, then identified as usury, directed both at production and consumption in pre-capitalist times.2
But while IBC does not have to be directly employed as productive capital by the borrower to be considered capital, within capitalism it is subjected to the competitive pressures of capital reproduction. Thus, Itoh and Lapavitsas’ conception of IBC as LMC locates the latter in a competitive environment where banks strive to attract hoards across the economy in order to support their credit creation. Moreover, even in situations where the impacts are less straightforward on the reproduction of capital, as in consumer or mortgage credit, LMC contributes to the credit system through its ‘effect in the equalisation of the rate of profit’ by accelerating the reproduction of capital and, thus, the production of surplus value (Itoh & Lapavitsas, 1999).
Rather than insurmountable conceptual divergences in the various categories of capital, what the above discussion entails is a different conceptual focus, either on fictitious or on loanable-money capital, resulting in nuanced different takes on financialisation. This has inevitable relevant implications for research on financialisation, and particularly for the examination of the distinctive differences between core and (semi-)peripheral contexts. In our view, the LMC concept is more apt to examine (semi-)peripheries as it allows us to analyse processes that fall outside the arena of securitisation and securities markets (i.e. FC), which are less predominant therein. In so doing, LMC more easily integrates recent phenomena, such as the increasing involvement of workers with finance, both as debtors and creditors. This while retaining the Marxist emphasis on the relation between finance and production by scrutinizing how hoards are produced and mobilized by the financial system across borders. Finally, it allows the inclusion of hierarchical power relations at the global level and how these play out in the productive and financial realms. Indeed, the focus on the channelling of idle money to credit through the banking system not only applies to different classes or sectors, but it also fits relations across countries. This is particularly relevant to the European context given the creditor and debtor relations whereby the external surplus produced in core countries, such as Germany, is turned into credit to the European periphery, either in the form of FC (e.g. public debt securities) or LMC (e.g. interbank loans).This difference provides an important indication that production and real accumulation mould financial relations and financialisation processes differently in different geographies.These links will be particularly scrutinised in the first part of the book.
