Cambridge Journal of Economics 2012, 36, 419434 doi:10.

1093/cje/ber034 Advance Access publication 23 January 2012

A suggestion for a new denition of the concept of nance capital using Marxs notion of capital as commodity
Downloaded from http://cje.oxfordjournals.org/ at Universidad Central on November 6, 2013

Bu lent Hoca*
Despite the current phase of nancialisation, Hilferdings important concept of nance capital is still ambiguous because of the problems of Hilferdings denition of the concept and the criticisms it has been subjected to. Generally these criticisms approach the concept in a too concrete and historically specic manner. Criticisms which claim that the dominance of nance is a transitory phenomenon were proved to be invalid, but this persistent aspect of monopoly capitalism needs to be explained on a theoretical level. On the other hand, the institutional aspect of the concept is still controversial. This article claims that the concept could be dened on a more abstract level by using Marxs notion of capital as commodity, and that the relationship that Hilferdings concept establishes between monopolisation and the dominance of nance could be more clearly expressed. Thus a new denition is suggested, and it is shown that this could help overcome the problems of and objections to the concept. Key words: Finance capital, Financialisation, Monopolisation, Capital as commodity, Development of capitalism JEL classications: B51, O16, P16

1. Introduction
The concept of nance capital was rst dened by Hilferding in 1910. Thereafter the term has gained a general acceptance, especially in the Marxist tradition, but not always in its original denition and subject to a number of important criticisms. As dened by Hilferding, the concept relates the process of monopolisation with the increased and eventually dominant role of nance, especially that of banks, in capitalism. While the monopolisation dimension of the concept has not been much criticised, several criticisms have been directed at the nancial dimension of the conceptespecially the dominance of banksas Coakley argues: The elimination of perfect competition through concentration is not as controversial as the alleged power of bank capital. However the privileged position of bank capital has aroused controversy even within radical economics (Coakley, 1994, p. 149).
Manuscript received 1 January 2010; nal version received 16 June 2011. Address for correspondence: Bu lent Hoca, Department of International Trade, Faculty of Economics & Administrative Sciences, Okan University, Tuzla Campus, 34959, Akrat-Tuzla, Istanbul, Turkey; email: bulent.hoca@gmail.com nal, Ayc * Okan University, Istanbul, Turkey. I wish to thank two anonymous referees, Nevzat Evrim O xa Akarc xay Gu rbu z and Ferma Lekesizaln for their useful comments on previous drafts of this paper. All the usual caveats apply.
The Author 2012. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.

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While some criticisms claimed that the dominance of nance is a transitory phenomenon, others claimed that the institutional aspect of the concept is inaccurate. Hence, in the course of time, while the importance of Hilferdings analysis of monopolisation survived the criticisms, his main concept of nance capital, the title of his work, became rather weak and ambiguous. Nonetheless, as the growing nancialisation literature implies, there is a strong need to clarify and reuse the concept. Financialisation implies that the dominance of nance is an inherent tendency of monopoly capitalism rather than a transitory phenomenon. This persistent aspect of monopoly capitalism needs to be explained on a theoretical level. Although Hilferding based his argumentation generally on the German case, which led to problems in his denition, the conceptual framework he developed is important in order to grasp the role of nance in capitalism. This article recognises the need to abstract the concept from the institutional specications in Hilferdings denition, and claims that the concept should be dened on a more abstract level by using Marxs notion of capital as commodity introduced in Capital III. By this, the essence of the concept that relates monopolisation with the dominance of nance could be more clearly expressed. Thus, a new denition will be suggested and the implications of this denition will be explored.

2. Hilferdings denition of nance capital and its critiques

In Chapter 14 of Finance Capital, after giving an explanation of mutually reinforcing processes of monopolisation in banking and industry, Hilferding denes nance capital as follows:
An ever-increasing part of the capital of industry does not belong to the industrialists who use it. They are able to dispose over capital only through the banks, which represent the owners. On the other side, the banks have to invest an ever-increasing part of their capital in industry, and in this way they become to a greater and greater extent industrial capitalists. I call bank capital, that is, capital in money form which is actually transformed in this way into industrial capital, nance capital. (Hilferding, 1981, p. 225)

This denition has evoked several criticisms for its emphasis on nance and, especially, banks. Criticisms directed to the nancial dimension of the concept can be divided into two categories. One is the argument that the dominance of nance is misleading, the other is that the institutional aspect of the nancial dimension is inaccurate. An early criticism came from one of the founders of Monthly Review, Paul Sweezy. In his The Theory of Capitalist Development, which was rst published in 1942, he says: Hilferding erred in the direction of overestimating the importance of nancial dominance in the latest stage of capitalist development (Sweezy, 1968, p. 260). Monthly Review is known for its emphasis on monopoly capital. But the very term monopoly capital was proposed to replace the term nance capital:
Lenins theory is thus certainly not open to the criticisms which have been directed at Hilferdings. Nevertheless it is doubtful whether the term nance capital can be divested of the connotation banker dominance which Hilferding gave it. This being the case, it seems preferable to drop it altogether and substitute the term monopoly capital, which clearly

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indicates what is essential to Lenins concept of nance capital and yet is not so likely as the latter to mislead the unwary reader. (Sweezy, 1968, p. 269)1

Beginning with the Great Depression, the decreased role and to a certain extent the regulated activity of nancial institutions gave the impression that nance lost its importance.2 In the same vein, Ernest Mandel, a leading Marxist economist, saw the dominance of nance capital as a passing phenomenon in advanced capitalist countries (Mandel, 1966). Thus, the rst set of criticisms was directed not specically at bank dominance but at the dominance of nance in general. A more subtle kind of criticism does not specically object to the dominance of nance but focuses on Hilferdings alleged negligence about the distinction between bank-based nance (e.g. Germany) and capital market-based nance (e.g. the USA and the UK) in capitalism, which is an important issue in the corporate governance literature with a widespread observation of a convergence toward Anglo-American types of nancial markets and corporate governance structures in many cases (Orhangazi, 2008, p. 71). Costas Lapavitsas, a leading Marxist economist specialising in capitalist nance and banking, for instance, criticises Hilferding for generalising unduly from credit transactions between German corporations and banks at the end of the nineteenth century, which he interpreted as the future of advanced capitalism (Lapavitsas, 2006, p. 13). Lapavitsas seems to reduce the concept of nance capital to this generalisation. He states that things have turned out differently in the course of the twentieth century. For one thing, the USA currently offers a paradigmatic type of market-based nance, together with Britain (ibid., p. 25). Therefore, he considers the concept as inadequate: Finance capital does not adequately capture the complexity and range of relations between industrial and banking capital in the course of the twentieth century (ibid., p. 19). Similarly, Doug Henwood, the author of Wall Street: How It Works and for Whom, while acknowledging the ever greater inuence of nance after the early 1980s (Henwood, 1998, p. 264), levels an even sharper criticism at Hilferdings position on bank control:
Im very critical of Hilferding . . . for arguing that the German-style model of capitalism, with a handful of big banks owning big industrial concerns, was the future of the system, and that the Anglo-American stock-market system was on the way out. He couldnt have been more wrong; as the gloomy Wall Street economist Henry Kaufman put it a few years ago, were seeing the Americanization of global nance. (Henwood, 2001)

3. Evaluation of criticisms
After a relatively brief period following World War II, nance regained importance in the 1960s, as epitomised with the rise of the Eurodollar market. After the crisis of the 1970s,
Actually, what is essential to Lenins concept of nance capital is not only monopolisation: The beginning of the twentieth century marks the turning point, not only in regard to the growth of monopolies (cartels, syndicates, trusts), of which we have already spoken, but also in regard to the development of nance capital (Lenin, 1939, p. 60). Moreover, on the following page Lenin describes the worlds nance capital as the worlds total amount of nancial securities. Itoh and Lapavitsas also indicate this important negligence of the concept of monopoly capital: The concept of monopoly capital, on the other hand, neglects an important aspect of capital in the twentieth century, namely that capital regularly assumes a nancial form and is transacted as a commodity in the capital markets (Itoh and Lapavitsas, 1999, p. 107). However, the concept of giant joint-stock capital that they suggest instead does not either sufciently express this aspect of capital in the twentieth century, which will be dealt with below. 2 Kotz gives this period as 193045 and names it as decline of bank power (Kotz, 1978).
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nance became dominant in the capitalist world and this is termed nancialisation by many contemporary scholars.3 Even if not in the form of bare bank dominance, the nancial dimension of the concept of nance capital proved to be stubborn and imposing, rather than a passing phenomenon, which implied the need to reconsider Hilferdings concept and to reconsider it at a more abstract level. Since the importance of nance became undeniable, Monthly Review reoriented its position. Eventually, Sweezy himself stressed the dominant position nancial capital gained after the 1970s (Sweezy, 1994). Besides Sweezy, John Bellamy Foster, the editor of Monthly Review, has recognised the usefulness of the term, and he gives it a more general meaning than Hilferding:
In using the term nance capital here I am not doing so in the specic sense in which it was introduced in Rudolf Hilferdings great work Finance Capital (1910) where it was dened at one point as capital controlled by the banks and utilized by the industrialists. Rather the term is meant in this case to refer to the employment of money capital in nancial markets and speculation more generally. (Foster, 2006, p. 12)

Foster goes in the direction of generalising the concept to the level of all nancial markets. Pinto, who wrote a chapter dealing with the concept and trying to give some replies to criticisms, also goes in the same direction:
In this sense the chapter resurrects the more general meaning of nance capital so as to include not only capital at the disposition of banks but also capital at the command of non-banking entities and/or individuals. Both forms of private wealthbank deposits and tradable securitiesare seen as enjoying the same essential properties of liquidity (readily convertible into its money equivalent) and increasing value (appreciation, interest, dividends) and should therefore qualify as nance capital. (Pinto, 1998, p. 216)

This leads him to assert that breaking away from the notion that the dominance of nance evolves through the dominance of nancial institutions (op. cit.). Pinto is right in stressing that the dominance of nance is not an institutional dominance in essence. Indeed, it should be understood as a class dominance, dominance of a relatively small class (or class segment) of nance (or rentier) capitalists, as denoted by Lenin: The supremacy of nance capital over all other forms of capital means the predominance of the rentier and of the nancial oligarchy (Lenin, 1939, p. 59). Dominance should be attributed to this class and conceived as a class relation, which will be explained below. Nonetheless, for the dominance of this class, nancial institutions play an indispensable central role and they act jointly with this class.4 There are many studies, dispersed among several decades, that show the central importance of these institutions in the control of large corporations. While Perlo (1957) and Kotz (1978) claim that banks (or nancial groups) control large non-nancial corporations, Dooley (1969) and Mintz and Schwartz (1985) show that banks have the highest interlocking directories in large non-nancial corporations. Hence, as conrmed by Scott, a striking feature to emerge from all of the
3 The dominance of nance, both as nancial institutions and as nance capitalists or rentiers, is quite well documented now. See, for example, Dumenil and Levy (2004), Krippner (2005), Epstein (2005), Orhangazi (2008), and Wray (2009). 4 Actually, institutions are inanimate entities, having no will of their own apart from that of the human beings who control them . . . Thus, real relationships among groups of people lie behind apparent relationships among institutions (Kotz, 1978, p. X). So when we speak of nancial institutions we actually speak of their controlling shareholder nance capitalists or top managers. Moreover, these top managers should be accounted as part of the class of nance capitalists but in a subordinate position (more on this below).

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research reviewed is the existence of bank centrality in the American intercorporate network (Scott, 1997, p. 114). Moreover, with nancialisation the role of nancial institutions is strengthened. Orhangazi shows that the share of corporate stocks held by institutional investors5 was less than 10% in 1950, it was close to 30% in 1970 and after passing 40% in 1990 it reached 50% in 2002 (Orhangazi, 2008, p. 35). Based on this data he asserts that this created a large and powerful constituency of nancial investors able to affect corporate governance (ibid., p. 40 n). Crotty also afrms that institutions had clearly become dominant stockholders of large US corporations (Crotty, 2005, pp. 912). Scott indicates that because many of these pension funds were under bank management, the banks had increased their signicance, and hence their power, in the overall mobilization of capital (Scott, 1997, p. 67). From this he asserts that pension-fund and insurance-company investment, then, does not represent a democratization of capital, but a renewal of bank power and an increase in the power of nancial institutions generally (ibid., p. 68). Even if there are some empirical problems in documenting the exact role of nancial institutions in corporate governance, which are discussed in Scott (1997, pp. 613), it is now acknowledged that nancial institutions sit at the centre of the corporate network (Krippner, 2005, p. 201). According to Scott, banks are not only managers of institutional funds and providers of credit, but are continually involved in corporate advice and corporate nance; it is on this basis that bank centrality in intercorporate networks can be explained (Scott, 1997, p. 136). He concludes that they are the dominant agents within the hegemonic system (ibid., p. 139). At an abstract level the very denition of the concept needs to be related to the notion of the nancial circulation of capital. The need to go beyond the bank dominance to a more general or abstract level should not lead to abandoning the central role played by the nancial institutions in circulating nance capital, especially in an era of nancialisation. Otherwise, the meaning of nance capital becomes blurred. On the other hand, this general centrality of nancial institutions reduces the importance of the difference between bank-based and capital market-based nance. Hilferding himself was not unconscious of the generality (or abstractness) of his concept. He considers that the dependence of industry on banks is a consequence of property relationships:
(In England) deposits are continually withdrawn for investment in industry by the purchase of shares, and in this case the public does directly what is done by the bank where industrial and deposit banks are closely linked. For the public the result is the same, because in neither case does it receive any of the promoters prots from the merger, but so far as industry is concerned it involves less dependence on bank capital in England as compared with Germany. The dependence of industry on the banks is therefore a consequence of property relationships. (Hilferding, 1981, p. 225)

Although Hilferding was aware of the difference between a bank-based nance (Germany) and a market-based nance (England), his denition of nance capital was in terms of a bank-based nance. Institutional and historically specic aspects of this denition of nance capital have led to criticisms that made the concept a shallow one. Still, Hilferdings denition includes a sentence that does not mention banks and has a general applicability: An ever-increasing part of the capital of industry does not belong to
5 These institutional investors are pension funds, insurance companies, forms of mutual funds, trading desks and trust departments of nancial institutions, all of which should be accounted as nancial institutions together.

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industrialists who use it (op. cit.). Indeed it is one of the main facts about capitalist development that corporations are developed by oating shares and/or using credits; in other words, by using and actually centralising others capital, which is observed not only by Marxists but also by managerialists. As it will be explained below, the centralisation process requires such nancial operations and hence a developing (and also centralising) nancial system. All in all, a more abstract and comprehensive denition of nance capital that will be applicable to diverse nancial settings in capitalism is needed. But, in order to suggest such a new denition, an important but an almost forgotten notion of Marx must be rehabilitated.

4. The notion of capital as commodity

Although the second category of critics focused on the institutional aspects of Hilferdings denition, the denition is not exactly on the concrete level of institutions. It is on the abstract level of the notions of bank capital and industrial capital used in the denition. For Marx the very notion of capital is an abstract notion and does not refer to any institution, not even to a physical thing: But capital is not a thing, it is a denite social relation of production pertaining to a particular historical social formation, which simply takes the form of a thing and gives this thing a specic social character (Marx, 1981, p. 953). The view that capital is a thing or an institution like a rm belongs to mainstream economics. To understand nance capital, the rst question that needs to be asked is what happened to capital beyond the concrete institutional change at the turn of the nineteenth century. In fact this was the question that Hilferding, Lenin and other Marxists dealt with in the early decades of the previous century. Lenins answer is that The beginning of the twentieth century marks the turning point from the old capitalism to the new, from the domination of capital in general to the domination of nance capital (Lenin, 1939, p. 46). Briey put, capital was transformed in such a way that it was both monopolised and became nancialised in the sense that nance became dominant. There was already (and still is) an inherent tendency of capitalism to both monopolise and nancialise, and this tendency, aggravated by crises, led to a qualitative transformation of capital at the beginning of the twentieth century. In order to conceive this inherent tendency and resultant historical transformation of capital with its interrelated dimensions of monopolisation and nancialisation, and hence to reach a more general and abstract denition of nance capital, it is indispensable to use a new notion: capital as commodity or the commodication of capital. Using this notion we can answer the above question simply as the commodication of capital reached to such a critical level that nance capital became the dominant form of capital. This was an historical and an irreversible transformation. This leads us to disagree with Lapavitsas, who asserts that relations between production and nance tend to be historically specic, and subject to institutional and political factors that shape the nancial system (Lapavitsas, 2006, p. 25).6
6 It is not meant that institutional and political factors are ineffective. On the contrary, for Marx, economic laws should be conceived as tendencies, which are open to distortions, effects and even suppressions of social actors and institutions like states, but at the same time are stubborn and imposing themselves. For example, he assumes a general rate of surplus value as a tendency, like all economic laws, even if inhibited to a greater or lesser extent by practical frictions that produce more or less signicant local differences, and adds that in theory, we assume that the laws of the capitalist mode of production develop in their pure form. In reality, this is only an approximation (Marx, 1981, p. 275).

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In order to explain Marxs notion of capital as commodity we should trace the notion to his analysis of interest-bearing capital. In this analysis, Marx states that when money is lent, money as capital becomes a commodity (Marx, 1981, p. 463); he explains this further as the owner of money who wants to valorise this as interest-bearing capital parts with it to someone else, puts it into circulation, makes it into a commodity as capital; as capital not only for himself but also for others (ibid., p. 464). After a few pages he summarises the phenomenon as here capital has become a commodity as capital (ibid., p. 468). He stresses the notion again and again in various instances, for example, It must never be forgotten that capital as capital is a commodity here, and that the commodity we are dealing with is capital (ibid., p. 475). Therefore, we denitely have a new notion in Capital III: the notion of capital as commodity or, in other words, the commodication of capital. Whenever an owner of capital gives a part (or all) of his capital to anyone or to any institution for a return, instead of applying it to production himself, then capital becomes commodied. Here the return would be in any form, interest or dividend or any other nancial gain. So the notion of the commodication of capital can safely be taken as any kind of nancial investment made by the owner of capital. An obvious but important point is that when capital is given for a return, ownership is not surrendered, since no exchange takes place and no equivalent is received (ibid., p. 468). Because of this, the giving-out of capital and its repayment takes necessarily the form of a legal transaction. In other words, between lender and borrower a legal contract7 is created, which represents the ownership of capital and right to prot. This helps explain which forms capital as commodity assume. In Marxs words, prima facie, loan capital always exists in the form of money, later as a claim to money, since the money in which it originally existed is now in the hands of the borrower in the actual money form. For the lender, it has been transformed into a claim to money, into an ownership title (ibid., pp. 6412). In other words, it only exists at one point as money; at all other points it exists simply in the form of a claim to capital (ibid., p. 641), i.e. ctitious capital. Since commodied capital is a peculiar form of capital, an integral part of its explanation is to show where and how this form of capital circulates. To begin with, the act of giving out of capital for a return is no way an act of the actual cyclical process of capital (ibid., p. 468). Here, by the actual cyclical process of capital Marx means the reproduction process of capital in industry. Inside this process capital never becomes a commodity as capital. Capital in this peculiar form has also a peculiar form of circulation; it is circulated outside the circulation of real capital8 and inside the nancial system. So its circulation is nancial and distinct from real circulation. Beginning with simple usurers, money markets (and eventually capital markets) develop to circulate this peculiar commodity. Since the volume of capital needed becomes immense, nancial intermediaries become important actors, especially with the development of large-scale industry:
[W]ith the development of large-scale industry money capital emerges more and more, in so far as it appears on the market, as not represented by the individual capitalist, the proprietor of this or that fraction of the mass of capital on the market, but rather as a concentrated and organized mass, placed under the control of the bankers as representatives of the social capital in a quite different manner to real production. (Marx 1941, p. 491, emphasis added)

These contracts are securities, which are called ctitious capital by Marx. Marx uses the term real capital for productive and commodity capital (Marx, 1981, p. 647). Hence, by real capital he also means industrial capital (Marx, 1978, p. 183).
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On this level of abstraction, there is no difference between money markets and capital markets in regard to circulating capital as commodity or commodifying it. The important thing for the development of capitalism is to draw maximal capital into these markets and circulate capital as commodity. Through this the nancial system9 centralises capital and becomes a new and terrible weapon in the battle of competition, and it is nally transformed into an enormous social mechanism for the centralization of capitals (Marx, 1976, p. 778). Centralisation is the main drive of capitalist development in the sense that it is much more important for the development of capitalism than accumulation alone. Accumulation is a very slow process compared with centralisation:
The world would still be without railways if it had had to wait until accumulation had got a few individual capitals far enough to be adequate for the construction of a railway. Centralization, however, accomplished this in the twinkling of an eye, by means of joint-stock companies . . . Therefore, when we speak of the progress of social accumulation, we tacitly includethese daysthe effects of centralization. (Marx, 1976, p. 780)

This explains the nancial systems indispensable central role in the development of capitalism, and the inherent tendency of capitalism to both monopolise and nancialise. So far the inherent tendency of capitalism to monopolise has not been a subject of much controversy, but the fact that as a tendency it cannot take place without nancialisation has been much overlooked. The nancial system forms the principal basis for the gradual transformation of capitalist enterprises into capitalist joint-stock companies (Marx, 1981, p. 571). They are intrinsically related and mutually reinforcing dimensions. Moreover, crises intensify competition and this increases resorting to nance as a weapon in the battle of competition. On the other hand, as crises show the barriers of capitalist production, capital, which cannot nd direct application in the production, increasingly assumes the commodity form. Even Marx, while criticising Ricardians, attributes the rise of the nancial system to the difculty of employing capital productively, i.e., protably (Marx, 1971, p. 122). In other words, the barriers of capitalist production are constantly broken through the development of nancial system, just to reproduce them on a higher level. So crises aggravate nancialisation, monopolisation and hence the commodication of capital. What can be said for the reasons of nancialisation, as a dimension of a tendency of capitalism, other than competition, monopolisation and crises? The expansion and concentration of the nancial system (Marx, 1981, p. 627) accelerates on its own the formation and centralisation of capital as commodity in the nancial system: The development of the credit system and the tremendous concentration of the moneylending business in the hands of big banks must therefore already accelerate in and of itself the accumulation of loanable capital (ibid., p. 634). With the expanded and centralised nancial system, the strata of nance capitalists gain enormous power to control and speculate on the whole social capital as will be explained below. For a capitalist, the opportunity to make extra prots beyond the limits of its own capital is too important to dismiss. Thus, the nancial system has its own dynamics that reinforce nancialisation. The nancial system accelerates the centralisation and hence the monopolisation of capital rst in the form of joint-stock companies. Marx explicitly sees joint-stock companies as developed with the nancial system (Marx, 1981, p. 512). In his analysis
9 Marx uses the term credit system, but in this article the term nancial system is preferred, since it is the widely used modern term.

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of joint-stock companies (Marx, 1981, ch. 27) Marx foresees the separation of ownership of capital from its application to production as becoming the dominant characteristic of capitalism. With this development, capital becomes increasingly commodied under the control of nancial institutions. Therefore, it becomes social capital and this is the abolition of capital as private property within the connes of the capitalist mode of production (ibid., p. 567). For the owners of capital, prots increasingly assume the form of interest, dividend and other nancial gains. On the other hand, capitalists increasingly become money capitalists and withdraw from production. For Marx, the development of capitalism creates circumstances which increasingly turn the function of industrial capitalist into a monopoly of large-scale money capitalists, either individual or associated (Marx, 1978, p. 187). With the development of joint-stock companies the capitalist vanishes from the production process as someone superuous (Marx, 1981, p. 512). Hence, capitalists become rentiers and even speculators, since the developed nancial system gives them the opportunity to speculate on the whole social capital: what the speculating trader risks is social property, not his own . . . Success and failure lead in both cases to the centralisation of capitals and hence to expropriation on the most enormous scale (ibid., p. 570). Capital is centralised in the hands of a relatively small class of capitalists by this nancial expropriation: Expropriation now extends from the immediate producers to the small and medium capitalists themselves (ibid., p. 571). The result is a new nancial aristocracy, a new kind of parasite in the guise of company promoters, speculators and merely nominal directors; an entire system of swindling and cheating with respect to the promotion of companies, issue of shares and share dealings. It is private production unchecked by private ownership (ibid., p. 569). At the same time, as also Pinto points out (Pinto, 1998, p. 228), capitalist property is increasingly transformed from productive assets into negotiable securities: Ownership now exists in the form of shares (Marx, 1981, p. 571). The stock market is a market for ctitious capital. It is a market for the circulation of property rights as such (Harvey, 1999, p. 276) and in the stock exchange capitalist property has lost any direct connection with use value (Hilferding, 1981, p. 142). This crystallisation of capitalist property in the form of securities is the result of the increasing commodication of capital. Just as exchange produces a differentiation of the commodity into two elements, commodity and money, an external opposition that expresses the opposition between use value and value that is inherent in it (Marx, 1976, p. 199), the commodication of capital produces a differentiation of capital into two elements, real and ctitious, an external opposition that expresses the opposition between productive forces and relations of production that is inherent in it. In fact, in one of the translations of Capital III, the title of chapter 24 is Externalization of the Relations of Capital in the Form of Interest-Bearing Capital (Marx, 1998). Elsewhere, Marx also says that interest-bearing capital is capital as property as against capital as function (Marx, 1981, p. 503, emphasis in the original). According to Marx, bank capital, a notion utilised by Hilferding in his denition of nance capital, consists of cash and securities (ibid., p. 594). In either form bank capital is commodied capital. Therefore, recalling that Hilferding calls bank capital as nance capital, we can say that nance capital consists of commodied capital, of which bank capital proper is only a part.

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5. The implications of nance capital as commodied capital

Using Marxs notion of commodied capital we can suggest the following denition for nance capital: Finance capital is commodied capital, which circulates in nancial markets and is controlled by the class of nance capitalists mainly through nancial institutions, and monopolises industrial capital by constituting a large and increasing part of it, especially after crises. There are important implications of conceiving nance capital as commodied capital. The aim here is not to give an exhaustive list of the implications, but rather discuss those that evolve around the concept of nance capital. First of all, by generalising nance capital as commodied capital instead of bank capital proper, two problems in the theoretical coherence of the concept of nance capital that are mentioned by Harris (1991, p. 202) can be solved. Harris sees the main problem as two distinct entities, nancial capital in the hands of banks and industrial capital organized in corporations, are conceived as merging but yet remaining distinct to the extent that one remains dominant over the other (op. cit.). Actually these two distinct entities merge in the sense that the source of industrial capital becomes commodied capital. All large corporations were and still are the institutional form of application of commodied capital to industry. The historical turning point that occurred at the beginning of the twentieth century owes its existence to the large pool of commodied capital centralised by nancial institutions (led by J.P. Morgan in the USA). Without the nancial system the institution of giant rms would have been impossible. Therefore commodied capital, and hence nancial institutions, became an inseparable part of the monopolies. It is only in this sense that the merging, or coalescence, of nancial capital with industrial capital is meaningful. Once formed this became an everlasting formation. Moreover, once monopolies are established, monopolisation spreads and takes over new spheres of production. Hence, nancial institutions remain at the centre of the corporate network and will remain there until capitalism itself is abolished. On the other hand, industrial capital and commodied capital remain distinct in two senses. First, they will remain distinct in the conceptual sense of distinct forms of capital, which have their distinct circulations (real and nancial). Secondly, a part of industrial capital, which consists of relatively smaller capitals, still remains directly owned; hence, its source is not commodied capital. The second problem that Harris mentions is the identication problem (op. cit.). As he points out, nance capital is identied with banks or nancial corporations and industrial capital with non-nancial corporations. From the theoretical point of view explained above, this is completely misleading. Industrial capital is an abstract notion and cannot be identied with an institution. These so-called large non-nancial corporations are the institutional form of the application of commodied capital to industry. Hence, Overbeek, who wrote an important article on the subject, was erroneous in stating that money capital as a form of capital in the abstract, however, must be clearly distinguished from banking capital or nance capital, which refers to the institutional framework in which capital appears in the real world (Overbeek, 1980, p. 102). Banking capital and nance capital are also abstract notions and not institutional ones. As explained above, the concept of nance capital does not necessarily refer to a specic institutional framework.

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Moreover, so-called multinational corporations should be accounted as part of nance capital, as also stressed by Brewer (1990, p. 93). In addition to commodied capital, which became part of their foundation and subsequent development, their accumulated capital continuously enters and exits the nancial circulation outside the real circulation. Especially after the crisis of the 1970s this became more pronounced. Under the conditions of decreasing rates of prot and hence intensied competition, they increasingly transferred their accumulated capital to nance, instead of direct real investments, and this transferred capital was redistributed by nance. Crises once again aggravated the inherent tendency of capitalism to both monopolise and nancialise and hence to commodify capital. Thus, the acts of these rms should not be confused with the old industrial entrepreneur capitalists. Identifying multinationals as non-nancial corporations would not be realistic. Increased blurring of the alleged distinction between nancial and nonnancial institutions reinforces, rather than weakens, the concept of nance capital. As much as old antimonopoly and other legal constrains are removed, this formal distinction becomes more and more meaningless. A second implication is about the relation of nance capital to the circuit of capital. There is considerable confusion about relating nance capital to the circuit of capital. For example, Overbeek denes nance capital as the integration of real circuits of capital by just adding a monopolisation dimension: By nance capital we mean the integration of the circuits of money capital, productive capital and commodity capital under the conditions of monopolization and internationalization of capital by means of a series of links and relationships between individual capitals (Overbeek, 1980, p. 102). This takes us back to Sweezy (1942): nance is declared to be superuous in dening nance capital or, in other words, the essence of transformation at the turn of the century is reduced mainly to monopolisation. However, nance capital is neither money capital nor nancial capital, of which the latter is dened as the equity capital of nancial institutions. While money capital is part of the productive sphere, nance capital as commodied capital is not: In as much as money functions in the circuit of capital, it certainly forms money capital at one point, but it is not transformed into loanable money capital (Marx, 1981, p. 641). On the contrary, as explained above, Marx species the circuit of interestbearing capital outside the real circuit of capital: Capital functions in the circulation process as commodity capital and money capital. In neither of these two forms, however, does capital as capital become a commodity. (Marx, 1981, p. 463). He stresses this point in several other instances. For example, in the further course of our investigations we shall show how money capital is confused in this context with moneyed capital in the sense of interest-bearing capital, although money capital in the former sense is never more than a transitional form of capital as distinct from its other forms, i.e. commodity capital and productive capital (ibid., p. 594). According to Marx, nance capital would be outside the sphere of real capital and hence would be in the circulation sphere of nance. A third implication is about the issue of control. Often the concept of nance capital is mistakenly equated with a kind of bank control to which industrial corporations yield themselves under coercion and against their interests:
The common theme in these arguments was the claim that banks and other enterprises involved in the granting of credit have interests that are, in important respects, opposed to those of manufacturing enterprises. The two types of enterprise are seen as forced into antagonistic relations, in which banks are able to assert their dominance by coercing manufacturers to act under conditions that serve nancial rather than productive interests. A number of confusions

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run through these debates. Although Hilferding clearly stated that nance capital was to be seen as a fusion of banking and industrial capital, his emphasis on the organizational centrality of banks has led many subsequent commentators to interpret him as proposing a theory of bank control. While there is some textual support for this interpretation, it is clear that Hilferding was positing a more general account, and that the model of bank control was simply one variant of this. (Scott, 1997, pp. 1034)

Even if their denitions were in terms of the institutional setting of their time, Hilferding and Lenins emphasis is not on an antagonism between banking capital and industrial capital, but on their coalescence and increasing transformation of their owners to rentiers:
Finance capital develops with the development of the joint-stock company and reaches its peak with the monopolization of industry . . . It is clear that with the increasing concentration of property, the owners of the ctitious capital which gives power over the banks, and the owners of the capital which gives power over industry, become increasingly the same people. We have seen how industry becomes increasingly dependent upon bank capital, but this does not mean that the magnates of industry also become dependent on banking magnates . . . As capital itself at the highest stage of its development becomes nance capital, so the magnate of capital, the nance capitalist, increasingly concentrates his control over the whole national capital by means of his domination of bank capital. (Hilferding, 1981, p. 225)

Therefore, the issue of control should be understood as the capacity of the nancial system to commodify and centralise capital in the hands of a few capitalists and the joint command of these few capitalists and nancial institutions over social capital, rather than the institutional relations between nancial and non-nancial companies. Finance capitalists as a class or a class segment have always retained the power through the ownership of securities, which can be seen in wealth distribution data. The richest 1% of households holds half of all corporate stock in the USA (Scott, 1997, p. 286; Wolff, 2007, p. 25). Beyond the stock ownership, wealth ownership has always been highly concentrated. According to Wolff (1996, pp. 789; 2007, p. 11), in the USA since 1922 the richest 1% of households has never held less than 19.9% of net worth. On average the gure was 32.6% between 1922 and 2004. During the period of nancialisation this gure of concentration of wealth greatly increased in the USA, from 19.9% in 1976 to 34.3% in 2004, approaching the high levels of the 1920s, which Harvey denotes as: The incredible concentrations of wealth and power that now exist in the upper echelons of capitalism have not been seen since the 1920s (2005, p. 119). When the top richest individuals in the USA are examined, wealth becomes even more concentrated. According to the data provided in Smith and Franklin (1974, p. 166), around 80% of the wealth held by the top 1% of the population is held by 0.5% of the population. Moreover, in both the UK and the USA, almost half the wealth now held by the top 1 per cent is held by the top 0.1 per cent (Scott, 1997, p. 284). These shares have always been more than large enough to control social capital as claimed by Marx, Hilferding and Lenin, and as also asserted by them at the top, almost all income is in dividends, capital gains, rents, royalties, and interest (Zeitlin, 1989, p. 147). Finance capitalists wealth is only a base for controlling social capital: But the whole point is that the private property of the nance-capitalists is capable of attracting and subordinating an enormous amount of other peoples capitals and free money. In form these capitals and money remain the property of many million people but, in fact, they are administered by a numerically small upper crust, the plutocracy (Menshikov, 1969, p. 136).

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So what is critical for understanding nance capital is not to show that banks are in absolute power of every single corporation, but to grasp the theoretical reason why the logic of this fetish and insane form of capital (Marx, 1981, pp. 515, 596) governs all large corporations. This fact is seen, for example, in the inexorable effort to push stock values. By various means, the concrete analysis of which is beyond the scope of this study,10 the top manager of a corporation actively pursues this logic and is strongly encouraged to make corporate decisions as if he were an owner (Useem, 1984, p. 31). So these top managers should be accounted in the same class of nance capitalists but in a subordinate position. Because of this, the control of nance capitalists and nancial institutions might remain latent and need not be actively exerted at any time. This control pattern justies Varga, who says that the question of the relations between banks and industrial monopolies, however, is becoming of less and less signicance because a very small group of nancial magnates is gaining control over both banks and industries (Varga, 1972, p. 121). This in turn conrms the irrelevance of describing the dominance of nance as bank control over industrial corporations.

6. Concluding remarks
Putting nance and monopolisation in their right places has proved difcult so far. Generally, the dominance of nance has been sacriced for the sake of monopolisation, and this dimension of the concept of nance capital has been declared to be, even if not superuous, institutional and historically or country specic, which could partly be explained by the terms of the original denition. The centralisation (or the monopolisation) of capital and the increased role of the nancial system are inseparable, inevitable, irreversible and mutually reinforcing processes. Marx expresses this succinctly in Grundrisse: Modern credit institutions were as much an effect as a cause of the concentration of capital (Marx, 1993, p. 122). They are irreversible in the sense that there is a structural tendency in capitalism to both monopolise and nancialise, even if not at an even pace. This is in contrast with Lapavitsas statement that the structure of the capitalist nancial system and the connection between banking and industrial capital do not easily admit of endogenous theorization, as is obvious with a centurys hindsight (Lapavitsas, 2006, p. 25). There is a structural endogenous dynamic that leads to the emergence of nance capital and this is the commodication of capital. In capitalist development the commodication of capital increases as argued by Marx: As material wealth increases, the class of money capitalists grows. On the one hand there is an increase in the number and wealth of the retired capitalists, the rentiers; and secondly the credit system must be further developed, which means an increase in the number of bankers, money-lenders, nanciers, etc. (Marx, 1981, p. 642). Another conclusion is that nance capital cannot be reduced to joint-stock capital. Itoh and Lapavitsas defend this on the grounds that joint-stock capital possesses both monopolistic features and complex relations with banks that are specic to nations and periods of time (Itoh and Lapavitsas, 1999, p. 107). However, as discussed above, relations with banks or generally nancial institutions should not be left indeterminate by marking it as complex.
10 For the analysis of concrete means of control, like stock ownership, nancial and social ties, and interlocking directorships, see Mills (1956), Menshikov (1969), Zeitlin et al. (1974), Kotz (1978), Useem (1984), Zeitlin (1989) and Scott (1997).

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According to Marxs method, capitalism has its own tendencies, and along with these tendencies capital as a social relation constitutes classes and class relations govern institutions; in other words, it goes from the abstract to the concrete. Following a similar methodology, this article points out that: (i) The inherent tendency of capitalism to both monopolise and nancialise, which expresses itself in the increasing commodication of capital with the development of capitalism and is aggravated by crisis. (ii) The transformation of capital at the turn of the nineteenth century, which is understood as capital became largely commodied, hence the coalescence of nancial and industrial capital. (iii) The dominance of nance, conceived as a class relation based on the understanding that nance capital is commodied capital, which is a social relation of production that is externalised to real circulation and centralised in the hands of a class of nance capitalists who gain the ability to command over social capital and hence, institutions. The article tried to revive the concept of nance capital by dening it on a more abstract level. This revival has further implications, which we can only touch on here. In the context of the current world crisis, one of them deserves special attention, which is the relation between the nancialisation and increasing commodication of capital, and crises. Beyond the problems of his denition of nance capital, Hilferdings later conclusion that organised capitalism would lead to greater stability was certainly wrong. This conclusion was in sharp contradiction to Marxs analysis, which we followed here. Marx was very clear about the effect of the development of the nancial system on crises. While he saw this development as accelerating the material development of the productive forces, at the same time he says credit accelerates the violent outbreaks of this contradiction, crises, and with these the elements of dissolution of the old mode of production (Marx, 1981, p. 572). The nancial system forces the reproduction process to its most extreme limit and becomes the principal lever of overproduction and excessive speculation (op. cit.). In addition, credit benets the individual capitalist, by reducing the circulation time of productive capital, and it economises on the need for money by holding the money capital of the capitalist class as a whole in a common pool, but it has an independent inuence, overcoming the immediate barrier of the market, but only to generalize and intensify the crisis tendencies of capitalist accumulation (Clarke, 1994, p. 275).11 So nancialisation accelerates the tendency toward crises rst by forcing overproduction. Marx reasserts this idea in different forms, for example, Banking and credit, however, thereby also become the most powerful means for driving capitalist production beyond its own barriers and one of the most effective vehicles for crises and swindling (ibid., p. 742). Secondly, nancialisation accelerates the tendency toward crises by leading to excessive speculations. This is because a great part of the social capital is applied by those who are not its owners, and who therefore proceed quite unlike owners who, when they function themselves, anxiously weigh the limits of their private capital (ibid., p. 572). Since nance capital is controlled mainly through nancial institutions and hence these institutions do not speculate with their own capital, cutthroat nancial competition for prot necessarily
11

For the role of nance in crises, see also Crotty (1985).

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leads to fraud, manipulation, extravagance, etc. Therefore, the epoch of nance capital compared with the epoch of industrial capital has the characteristics of parasitism and decay beyond the liquidity and mobility of private wealth (Pinto, 1998, p. 229), as seen in the current global crisis. Although the literature of nancialisation has provided considerable empirical support for this new denition of nance capital, the author of this article believes that further research can contribute much to our understanding of the mechanisms of nance capital, which means a contribution to the understanding of imperialism.

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