Finance capital and U.S. imperialism

The re-emergence of finance capital in the U.S. economy?

The recent book by Maher and Aquanno is an ambitious attempt to analyse the trajectory of U.S. capitalism during the last several decades. They delve primarily into the rise of the U.S. financial sector, aiming to draw conclusions about the broader development of U.S. capitalism and its geopolitical position.

At the heart of the book lies the claim that finance capital has re-emerged in the U.S., broadly along the lines that Rudolf Hilferding laid out in the early 1900s. U.S. non-financial corporations have become financialised roughly since the late 1970s, and at the same time, U.S. financial corporations have grown enormously. Moreover, the centre of gravity within the financial sector has shifted, particularly after the Great Crisis of 2007–9.

Commercial banks have retreated while various types of “shadow” institutions have ballooned. Three of the latter—BlackRock, State Street, and Vanguard—now control a huge proportion of the equity of the entire corporate sector of the U.S. The Big Three represent the re-emergence of finance capital, and they apparently dominate U.S. non-financial capital.

For Maher and Aquano, these developments represent the return of “American” finance to the driving seat of U.S. capitalism. Setting aside the unfortunate epithet—since “American” means a lot more than merely the United States—their claim has a broad historical dimension.

The return of finance capital has presumably occurred after a hiatus of several decades commencing in the 1930s when the state began to intervene and exercise a controlling influence on the financial system. Even during that time, however, there were precursors of financialisation as managerial capitalism emerged, and U.S .enterprises acquired organisational structures appropriate to handling financial operations.

The re-emergence of finance capital has thus relied on the crucial role of the state, particularly via the Federal Reserve. This is evident in the characteristic current practice of the state “de-risking” private money lending. The Fed engages in liquidity provision and manages the repo market to ensure returns and to protect the operations of U.S. finance capital.

Moreover, the authors believe that Hilferding (and Lenin) was wrong to claim that monopoly is a characteristic aspect of finance capital. Competition among huge corporations remains the name of the game, and financialisation has not occurred at the expense of the non-financial sector in the U.S. The profits of non-financial corporates have been substantial and distributed to equity holders via the stock market.

Finally, for Maher and Aquano, U.S. capitalism, led by finance capital, remains exceptionally powerful internationally. Even so, Hilferding made a serious mistake when he claimed that the rise of finance capital in this time would lead to “organised capitalism.” Crises are inherent, and U.S. capitalism has generated enormous pressures on domestic workers, raising the prospect of social reaction from the bottom up.

In sum, there are considerable strengths to Maher and Aquanno’s book, not least in recognising the importance of financialisation for U.S. capitalism as well as differentiating between the present period, dominated by “shadow banks,” and the previous period, marked by a strong role for commercial banks. It is also heartening to see an explicit discussion of Hilferding, the true originator of the Marxist theory of imperialism, which Lenin made canonical.

There is no doubt that a proper analysis of contemporary financialisation and imperialism must commence by settling accounts with the economics of Hilferding’s finance capital. But in this respect, the book lays itself open to criticism. The argument that finance capital has re-emerged and taken the driving seat in U.S. capitalism is not persuasive, as I will show in the rest of this article.

Equally seriously, the international power of U.S. capitalism is not what it once was—economically, politically, and militarily. The rise of China but also of India, Brazil, Russia, and other powers from what were the “Second” and “Third” Worlds is indisputable. U.S. hegemony is currently challenged, and the result is an unprecedented intensification of tensions and the threat of war, in which the U.S. is the leading culprit. Meanwhile, the “old” imperialist powers are, at least for the moment, following Washington.

Directly related to the emerging hegemonic challenges are the pronounced difficulties of capitalist accumulation in the U.S. and indeed across the core of the world economy. The list is long: growth rates are weak, investment levels are poor, productivity growth is often non-existent, profitability is precarious and depends heavily on pressing real wages downward, “zombie” firms are a permanent fixture of core economies, and so on. These key issues are not discussed at the requisite depth by Maher and Aquano. Welcome as their book is, it leaves the reader wishing for more insight from the authors.

It is thus helpful to look more closely at the theory of finance capital for the current era and draw some implications for imperialism, hegemony, and the persistent malfunctioning of capitalist accumulation at the core of the world economy. The discussion that follows is based on the recently published The State of Capitalism, which is concerned with precisely these issues.1

The political economy of finance capital, or Financialisation Mark I

If an analysis of contemporary U.S. capitalism is going to deploy the concept of finance capital—however adapted—it is important to get Hilferding’s economics straight.2

The first step is to appreciate the importance of the emphasis on monopoly. For the Marxist political economists of Hilferding’s time, monopoly indicated advanced concentration and centralisation of capital, which afforded market power and created room to direct entire sectors in terms of prices, trading processes, credit availability, and conditions of production. It did not indicate the absence of competition but rather pointed to competition occurring under conditions of pronounced market power for participants. Huge enterprises certainly cooperated, cartel-like, but they also competed ferociously, especially in the international arena.

The concept of finance capital proposed by Hilferding and adopted by Lenin3 is impossible to construct in the absence of such monopolistic tendencies, as will become clearer below. By this token, if the concept were to be somehow deployed to contemporary capitalism, it would have to refer to large concentrations of capital, above all, to the enormous multinationals. Clearly, it would not relate to the small and medium enterprises found across core and peripheral economies.

Taking a step further, for the concept to make sense it was—and remains—imperative to consider the investment practices of non-financial enterprises, i.e., the realities of production. Hilferding’s key economic point, which fit the evidence of his time, was that monopolistic non-financial enterprises engaged in heavy long-term investment in fixed capital.4 This was driven by the nature and technologies of production in Germany (and Austria)—steel production, heavy engineering, chemicals, and so on.

The question then inevitably arose: how did monopolistic enterprises finance such investment? Own capital was insufficient due to the volume of required funds, and thus monopolistic enterprises had to rely on external funding. This meant primarily borrowing from commercial banks but also issuing securities in the Stock Market, that is, shares and bonds. The issuing of securities again pivoted on banks, but this time on investment, not commercial banking.

It happened that, at the time, Germany was the classic country combining these banking activities into “universal banking.”5 Similar patterns could be observed in other leading capitalist countries, such as Belgium and even in the U.S., but not in the leading capitalist and imperialist country at the turn of the twentieth century, Great Britain.

For Hilferding, then, the “bank-based” German financial system, dominated by large monopolistic banks, represented the cutting edge of historic capitalist development. This had two fundamental implications.

First, the banks that lent for long-term fixed capital essentially locked their loanable capital into the enterprises for many years. Their loans became, in effect, a form of equity. Consequently, banks had a strong incentive—indeed, a need—to get actively involved in the management of enterprises at the very least to protect their loans.

Second, the banks that oversaw the issuing of securities by non-financial enterprises could make profits from the systematic difference in the price of securities compared to the monetary value of the actual capital invested by non-financial enterprises. This difference is a direct result of the pricing of securities in the Stock Market, which reflects ultimately the difference between the rate of interest (used as discount rate for securities) and the rate of profit across the economy (implicitly discounting the capital invested).

Hilferding was the first political economist to identify this type of return as “founder’s profit,” a source of rent-like income for Stock Market participants, i.e., the basic form of capital gains allowing for the financial expropriation of other people’s money and capital.6 This remains the most important theoretical innovation by a Marxist economist in the field of profit-making since the days of Marx.

Under these conditions, finance capital in Hilferding’s (and Lenin’s) theory represented the amalgamation of monopolistic industrial with monopolistic banking capital. Huge banks played an active role in monitoring the productive activities and managing the finances of huge industrial enterprises. They ruled the roost by placing their own people on management boards and ensured profits from lending as well as from “founder’s profit.”

Maher and Aquanno believe that the characteristic feature of Hilferding’s finance capital was the holding of equity by banks. This is, unfortunately, not the case. Banks held shares in enterprises, cementing the relationship between the two, though such equity holding was never a dominant aspect of German banking. But the economic processes that led to the emergence of finance capital were the advance of loans and the management of Stock Market operations aimed at financing long-term investment, not holding property rights over non-financial capital. This was the characteristic feature of the first historic version of finance capital, what we might call Financialisation Mark I.

Once that theoretical foundation was in place, it was possible for Hilferding—and mostly for Lenin—to spell out the underlying political economy of imperialism at the time. The economic “policy” of finance capital pivoted on domestic activities but also, crucially, involved activities abroad.

Regarding the former, it is clear with hindsight that Hilferding was led astray when he claimed that a domestic economy dominated by enormous monopolistic amalgamations of industry and finance would take an increasingly “organised” form, thus avoiding crises. Lenin never fell into this trap.

Regarding the latter, both Hilferding and Lenin insisted that finance capital would naturally seek to expand across borders and that meant accelerated internationalisation of commodity capital (i.e., imports and exports) and of loanable money capital (i.e., capital flows). Globally competing finance capitals sought to obtain exclusive privileges in these activities and in the conditions of the time that entailed creating territorial empires stretching over colonies and relying on the military support of the national state. Finance capital drove imperialism and led to world war.

Contemporary non-financial and financial enterprises, or Financialisation Mark II

How is Hilferding’s theory of finance capital relevant to U.S. capitalism today?

Τhe U.S. economy and indeed other core economies such as Japan, Germany, and the U.K. are dominated by huge non-financial and financial corporations. There is domestic financialisation, and the huge capitalist units are active internationally, leading to what could appropriately be called global financialisation. Moreover, the U.S. is the leading imperialist power, but hegemonic contests have greatly escalated, raising the prospect of world war.

Regarding the historic rise of finance since the late 1970s the classical Marxist theory of finance capital is indeed broadly relevant, and the period might be called Financialisation Mark II. Above all, the method of Hilferding and Lenin, namely seeking the roots of the period in the conduct of fundamental units of the capitalist economy, remains indispensable. However, in respect of the characteristic behaviour of monopolistic enterprises, both non-financial and financial, and the implications for contemporary imperialism, Hilferding’s concept has very limited applicability.

A crucial aspect of the period, especially since the Great Crisis of 2007–9, is the sustained underperformance of the core of the world economy. This is apparent in the case of Japan, which has stagnated for decades, but even more in Europe, which has performed abysmally in the 2010s and the 2020s up to now. The record of the U.S. has also been weak, despite a brief upsurge since the end of the pandemic, in large part due to extraordinary government spending.

The period since 2007–9 could properly be called an interregnum,7 during which financialised capitalism has lost its dynamism, but no new way of structuring accumulation is emerging. Its most pronounced feature is the weak growth of average labour productivity,8 despite the introduction of ever newer “industrial revolutions” pivoting on telecommunications, information technology, AI, and the like. Weak productivity growth restrains profitability and forces capitalists to seek higher profits by squeezing wages.

The single most important factor behind weak productivity growth is the relative lack of investment in the core countries of the world economy.9 This is a key point of difference with Hilferding and Lenin’s time. The monopolistic corporations of core countries do not invest strongly in fixed capital and, insofar as they do, rely heavily on their own funds. Moreover, they also hold vast amounts of money capital as liquid reserves.

Large corporations today are financialised, but this is mostly in the unusual sense of being holders of large sums of money capital for lengthy periods of time. Such capital is available for financial transactions, though that does not at all mean that corporations become banks. Their profits still come overwhelmingly from production and trade, not from finance.10 It means, however, that corporations are able to use a variety of financial methods, such as share buybacks, to shift profits in the direction of shareholders. It also means that they are not dependent on banks in the sense of Hilferding and Lenin.

The fundamental drivers that led to the emergence of finance capital at the turn of the nineteenth century are not present today. Large corporations naturally and inevitably relate to large banks as they engage in their operations, but there is no amalgamation of the two and no evidence that banks dictate terms of conduct to non-financial corporations. Hilferding’s finance capital simply does not exist today.

This is the appropriate context in which to approach the extraordinary rise of “shadow banking” in the U.S. and elsewhere, including the astounding proportion of the total equity of the U.S. held by the Big Three. The rise of the Big Three after the Crisis of 2007–9 signals the end of what might be called the Golden Era of contemporary financialisation. That period started in the early 1990s, was dominated by commercial banks, and came to a head with the real estate bubble of 2001–6, which ushered in the Great Crisis. Large commercial banks had their wings clipped by the crash and subsequent state regulation.

The path was laid even wider for investment funds and other types of “shadow banks” to expand within the financial sector. They are essentially portfolio managers who make profits by trading securities on both sides of their balance sheets, thus necessarily trading derivatives to protect and lock in the overall value of their portfolios. It should be stressed that there is no opposition between banks and investment funds; indeed, banks provide vital credit to funds. But banks are active lenders of loanable capital and not merely portfolio managers, signalling a shift in financialisation as the interregnum unfolded after 2007–9.11

In the most fundamental sense, fund profits depend on capital gains from securities trading and are thus crucially dependent on the difference between profit rate and interest rate across the economy. Fund profits thus reflect financial expropriation and are forms of Hilferding’s “founder’s profit” but in a complex and sophisticated form, following a century of financial development.

Furthermore, the funds are owners of corporate equity in the sense that they buy shares in the open market, but they are themselves owned by other funds, corporations, and rich individuals. The huge equity holdings of the Big Three are part of a complex and articulated structure of ownership in contemporary capitalism. Such holdings do not represent the concentration of property rights in the hands of a few capitalists.

Which brings us to what is perhaps the most striking absence in Maher and Aquano’s book. Do these funds dictate the conduct of the non-financial enterprises whose shares they hold? Only if that could be demonstrated would a plausible case be made for the re-emergence of a form of Hilferding’s finance capital today.

Maher and Aquanno assert as much in several places of their book but offer no commensurate evidence. In work by mainstream theorists there is some evidence that the vast shareholdings of the Big Three appear to have an impact on the decision-making of the management of non-financial corporations.12 But having an impact on decision-making is a long way removed from being in the driving seat of U.S. capitalism.

The available evidence indicates that, so far, the Big Three operate essentially as rentiers seeking to ensure returns from securities trading, which are then distributed among the owners of the funds (policyholders). This is consistent with the motives of fund managers, whose remuneration is basically linked to the monetary value of the assets they manage and who therefore have a strong incentive to increase the volume and the prices of fund assets.

In sum, there is no finance capital today in the sense of Hilferding and Lenin or in any sense in which large financial institutions dominate large non-financial enterprises. There is, however, a pairing of huge corporations with huge banks and “shadow banks.” In no meaningful way are these components structurally opposed to each other. Rather, they are integrally related while extracting profits from production, trade, and financial operations.

The role of the state and the re-emergence of imperialist conflict

This brings us to the role of the state, first, in the domestic economy but, second and crucially, in the international arena. Financialisation Mark II would have been impossible without the active involvement of the state in the U.S. and elsewhere. The list of state actions that have catalysed its emergence is well-known,13 and there is no need to rehash them here except to mention that the state has intervened at crucial moments to rescue financialised capitalism from its own lethal contradictions. The most prominent such intervention occurred in the Great Crisis of 2007–9, which ushered in the interregnum.

The point that must be mentioned, however, is that the main lever of state intervention is the central bank, the dominant state economic institution of the decades of financialisation.

The unprecedented role of the central bank in contemporary capitalism merits detailed analysis, especially as it involves some of the most complex arcana of finance. There is currently an expanding literature on the central bank in the repo market, its role in the provision of liquidity and in supporting index funds, and so on. Much of it comes from Modern Monetary Theory and post-Keynesian radical economists, for instance, the emphasis on the “de-risking” role of the state, which Maher and Aquanno adopt.

The historic significance of the central bank, however, does not lie with the obscure technicalities of the repo or any other market. It rests squarely with the issuing of state fiat money, the true pillar of Financialisation Mark II.

It is easy to imagine that the period of financialisation has been characterised by the expansion of credit money issued by private banks, which is undoubtedly a prominent aspect of contemporary capitalism with several complex implications. But the most striking monetary feature of the period is the issuing of state-backed central bank money with a strong fiat character.

During the interregnum, the volume of such money issued by the Federal Reserve, the European Central Bank, the Bank of Japan, the Bank of England, and other core central banks has been without historical precedent. Issuing fiat money has allowed the balance sheet of the U.S. central bank to achieve enormous dimensions in the region, for instance, of $9 trillion in 2022.14 Quite apart from the gigantic boost this gave to the U.S. state’s ability to engage in fiscal expenditure, the expansion also enabled the absolute domination of the money market by the central bank.

The money market is the fundamental market of the financial system, the terrain where the rate of interest is determined.15 In advanced capitalist countries the money market currently pivots on the repo market, but it is also broader, and its dominant player is the central bank, as it has long been historically. Indeed, in the U.S. in the years of financialisation and especially during the interregnum, the Federal Reserve has effectively engulfed the money market.

The historically unprecedented power of central banks deriving from the issuing of fiat money has allowed them to control interest rates with great facility. The implications are crucial, always bearing in mind Hilferding’s crucial concept of “founder’s profit.” Manipulating the rate of interest relative to the rate of profit has been a pivotal factor in securing capital gains and thus profits for both financial and non-financial enterprises. This is particularly important for the “shadow banks” that have risen to such prominence in the contemporary system.

In short, the pairing of monopolistic enterprise with monopolistic financial institutions that characterises contemporary capitalism relies crucially on the state not only for its survival but also for its regular profit-making. The economic foundation of its dominant domestic position is the issuing of fiat money by the state.

Equally crucial for the dominant capitals in the U.S. has been the role of the U.S. state in the international arena. This is the field of imperialist and hegemonic contests which have become notably acute in the years of the interregnum and currently raise the threat of world war.

The most crucial point in this respect, which is unfortunately not discussed by Maher and Aquanno, is that large U.S. non-financial enterprises are internationally active not simply through exporting and importing commodities or by engaging in loanable money capital transactions but also by producing across borders. The internationalisation of productive capital is a distinguishing feature of Financialisation Mark II and a point of qualitative difference with the times of Hilferding and Lenin.

The world economy is currently shaped by global production chains dominated by huge financialised monopolies. The expansion of commodity trade is in large measure an outcome of the globalisation of productive capital. Moreover, the production chains that encircle the globe do not necessarily rely on property rights possessed by the lead multinationals. On the contrary, local producers can join purely based on contract. Lead multinationals control these chains through privileged access to technology, pricing, tax avoidance, subsidies, and so on. Not least among such factors is access to international finance.

The internationalisation of productive capital has proceeded alongside the internationalisation of financial capital by banks and more recently by “shadow banks.” The crucial element here is the export of loanable money capital in the form of capital flows. The great bulk of such flows in the last four decades has been among core countries, but a significant part has also been from the core to the periphery. In the interregnum, flows have increased from China to the periphery but also from periphery to periphery.16

These are decisive developments that help characterise contemporary imperialism. The pairing of non-financial and financial enterprises at the global level is the driver of globalisation and financialisation across the world, led by the U.S. The underlying force of imperialism today is this combination of capitals.

Contrary to Hilferding and Lenin’s time, these enterprises do not seek territorial exclusivity through colonial empire. Their international profit-making is served through open access to global markets for loanable, commodity, and productive capital. What they require are clear and enforceable rules for investing, trading, and lending abroad. Even more important is a reliable form of world money to act as a unit of account, means of payment, and reserve of value.

The state that meets these requirements is the hegemon, and that is obviously the U.S., supported by a host of international institutions—IMF, World Bank, WTO, and so on. However, the most important institution in this regard is domestic to the U.S., namely the Federal Reserve. The U.S. central bank is a vital pillar of the domestic configuration of U.S. capitalism, as well as being the main pivot of the hegemonic and imperial power of the U.S. Both roles are served through the issuing of fiat dollars.

The trouble for the U.S. is that the global dominance of huge multinationals from the core has had contradictory results for its hegemony.

On the one hand, it has encouraged the export of productive capital and the establishment of capacity abroad, thereby weakening the domestic industrial base of both the U.S. and other core countries. This has contributed to the underperformance of core economies in recent decades, which is characteristic of the interregnum.

On the other hand, the export of productive, commodity, and loanable capital has helped the emergence of independent centres of capitalist accumulation in what were previously the “Second” and the “Third” Worlds. To be sure, the main factor in this regard was the action of national states in those parts of the world, but the shift of industrial capacity boosted the process.

Large concentrations of industrial, commercial, and financial capital have now emerged in key countries—China, above all, but also India, Russia, Brazil, and so on. The features of these capitals differ according to country, but the broad parameters are similar: internationalisation of production wherever possible, internationalisation of finance, and a pairing of the two on a national basis.

Internationally active capitals from different countries compete incessantly for productive capacity, markets, and lending. There is no world capitalist class and never will be. The uniquely hegemonic dominance of the U.S. for nearly three decades after the collapse of the Soviet Union allowed this essentially misleading notion to take root for a while, particularly as the U.S. also gave the enterprises of other historic imperialist countries room to manoeuvre globally.

A highly unusual historical situation has thus arisen in which the old European powers, Japan, and others adapted to the hegemonic position of the U.S. In the years of the interregnum, this has taken the form of submission, though there is nothing that would guarantee the long-term perseverance of such arrangements.

Even more critical is that the new arrivals in the world market have begun to contest U.S. hegemony with China in the economic and Russia in the military lead. Theirs is not an attempt to create separate imperial blocs since their underlying economic structures are not of that type. Rather, they seek a powerful independent say in setting the terms of investment, trade, and finance. Above all, they seek a say in how world money is determined and supplied.

U.S. hegemony has paid handsome benefits to the U.S. ruling bloc, not least through a flow of implicit returns from other countries holding vast amounts of dollar reserves. Private U.S. corporations have drawn profits from their globally dominant positions, especially in finance. But other forms of U.S. capital have had to carry the burden of an underperforming domestic economy, the U.S. working class has paid a painful price in terms of downward wage pressure and poor employment, and the country as a whole has had to carry the costs of a vast industrial-military complex to support is hegemonic imperial position.

U.S. hegemony is now challenged in ways that were simply impossible for a long time after the collapse of the Soviet Union. To be sure, the “old” imperial powers are quiescent, but nothing guarantees that this is permanent. Moreover, the challenge posed by the new powers is fundamentally economic and neither ideological nor truly political. In this regard, the current disposition of world powers resembles that of pre-1914. Challenging hegemony ultimately involves armies, navies, and airpower, and hence the threat of world war is as serious as at any time during the long U.S.-Soviet confrontation.

Maher and Aquanno have laid out some of the relevant factors in this regard by analysing the trajectory of U.S. capitalism while focusing on financialisation and the interactions between non-financial and financial enterprises. There is a lot more to say, however, based on a Marxist political economy. Engaging in this work and drawing political conclusions is the primary task of the Left today.

Some questions about The Fall and Rise of American Finance: From J.P. Morgan to BlackRock

“Occupy Wall Street” made a big but fleeting splash in the public mind. But it is Wall Street itself that has truly occupied the minds of social scientists and interested “lay people” for several decades now. The Great Financial Crisis of 2008 not only instigated political movements on the left (“Occupy”) and the right (“Tea Party”) but also ushered in dramatic changes in the nature of our financial institutions and markets. In response, research using the concept (or at least the term) “financialization” has become commonplace as economists and other social scientists have tried to grasp the nature and dynamics of finance and its connection to non-financial corporations, labor, and the state. Yet the pace of innovation and change in financial institutions, markets, regulation, and politics has been so rapid that it has become a profound challenge to truly comprehend the nature of this financialized economic and political system that seems to drive our world.

In this situation, any careful attempt to explain our current dynamic financial system and contribute some new interesting insight is to be welcomed. The Fall and Rise of American Finance does just that. Here are a few of the useful contributions the book offers. Whereas some accounts of the financialization of the non-financial corporation suggest that this is a phenomenon associated with the Neo-liberal era, Maher and Aquanno argue that major U.S. corporations developed internal financial logics as they became multinational corporations in the 1960s, as they became far-flung in different parts of the globe and had to develop ways of managing the allocation of resources, financial and otherwise, within their corporations. Finance became a key disciplinary and allocation mechanism that naturally led to a type of financialization after 1980.

Usefully, The Fall and Rise of American Finance also centers the important role of relatively autonomous (which they sometimes pointedly call “authoritarian”) state financial institutions—especially the Federal Reserve and U.S. Treasury—as lynchpins of the modern, global, financialized economy. They argue that the relative autonomy of the Fed is a structural necessity for the reproduction and expansion of the financialized capitalism they analyze. This argument has enormous merit in my view, though as I explain shortly, I believe that the Federal Reserve’s vaunted “independence” is more complicated and less structural or functional than they suggest.

Let me start there. One of the book’s contributions is to emphasize the importance of Finance-State interdependence and connection. Here, as I just mentioned, they emphasize the role of the Federal Reserve which they argue, in Poulantzian fashion, exists because an autonomous state institution is required from the smooth operations of capitalism. The Fed’s independence is thus functional for the system and for that reason is supported politically by the leading capitalists including the leading financial actors. In short, the Fed acts as the organizing committee for the capitalist class.

I take serious issue with their argument.1 I agree that a central bank autonomous from capitalist meddling could be functional for the capitalist class. But, in the case of the United States, such autonomy and independence are difficult if not impossible. This is because the Federal Reserve needs to cultivate a political constituency to create and protect its autonomy and that constituency is usually finance. Is this functional for the system? Well, one might ask how the Great Financial Crisis of 2008 occurred on the Federal Reserve’s watch. An autonomous central bank would never have allowed the reckless and costly activities undertaken by commercial and investment banks, but the Fed did because of the instrumental power of these elites in the Federal Reserve.2 This example raises a broader concern about some of Maher and Aquanno’s arguments, which tend to be “functionalist” rather than those based on Political Economy.

Maher and Aquanno also interestingly focus on understanding the top asset management funds, especially what they call the Big Three (Black Rock, State Street, and Vanguard) as the leading institutions driving our financialized economy. Their discussion raises many fascinating and provocative issues and usefully moves the debate forward as to the nature of our post-2008 financialization, who is driving it, and what its impacts are. In making these points, the authors make the case that there is a unified capitalist class, not a class divided between finance and industry as Keynes identified in his day. This seems correct to me. But, as I discuss presently, I have serious concerns about some of the larger economic and political claims that they make about this asset manager-led financial capitalism and its relationship to the economy, society, and the state.

In making these broader claims, Maher and Aquanno’s book is nothing if not ambitious. The authors’ goal is no less than to lay out a coherent theory and description of the current stage of capitalism, the stage they call Finance Capitalism by developing a Marx-inspired theoretical apparatus, and to show that their views of this new system are correct and that virtually all the views of social scientists who have studied financialization in the past are mistaken. Thus, the authors organize their argument, to a significant extent, by claiming that most existing analyses of financialization are simply wrong. Few well-known analysts of financialization emerge uncriticized: even iconic Marxist economists such as Paul Sweezy and Paul Baran fail to escape the authors’ sharpened pens. Coming in for the sharpest criticism are those who argue that “financialization” undermines the productive economy—for example, by adopting short-term strategies, by diverting resources from productive investment and toward unproductive speculation, and/or by monopolizing markets and reducing competition. In other words, Maher and Aquanno reject almost all of the previous heterodox analyses of financialization. A counterexample would be Robert Boyer who wrote a famous article on finance led-growth, but as far as I can tell, he was not mentioned one way or another. Authors such as William Lazonick, who has undertaken a significant amount of research showing that non-financial firms’ focus on stock buybacks leads to a short-term strategy of “downsize and divest” which has hollowed out U.S. non-financial corporations and harmed U.S. workers and U.S. corporate competitiveness comes in for special criticism, as do authors who argue that financialization and asset manager capitalism in particular has stifled competition and thereby led to inefficiencies and reduced innovation.

Maher and Aquanno argue that, on the contrary, the Big Three Asset Management, by owning a significant share of U.S. corporate stock, have turned themselves into long-term stewards of American Capitalism. They claim that because these Big Three asset managers’ fates are tied up with the asset values of U.S. non-financial corporations, the asset managers have developed long-term oriented investment strategies, pushed their corporations to take long-term investment decisions, and enhanced their efficiency and the allocation of resources to their most efficient use. Why do the big asset managers push the non-financial corporations so hard? Because each of these asset managers compete with the others for clients. And, the authors claim, the asset managers get more clients when their targeted companies’ stock values are higher, and their stock values go higher when they are more efficient. So, the Big Three use their equity ownership to push their non-financial corporations to be more efficient and dynamic. In other words, the magic of competition leads, like an invisible hand, to an efficient, competitive, dynamic capitalist economy. Far from extracting value and harming the underlying economy for the purpose of short-term oriented accumulation, competition for financial clients leads to efficient and dynamic capitalist firms. This result is simple application, in modern form, of Marx’s arguments about the role of competition in driving capitalism to “Accumulate! Accumulate! That is Moses and the Prophets!” (Or is it profits?)

I have many questions/concerns about this argument (and some apply to many other arguments in the book, as I suggest below).

First, what is the evidence that this modern finance capital has operated to make American Corporations so efficient and competitive? The authors provide little to none. They simply assert it as a just-so story that traces a logic sequence from some basic assumptions. One might ask, for example, if this system were so efficient and dynamic, why is it that Chinese firms (and to some extent German firms) have taken over so many industries in the last forty years? They could argue that this is a phenomenon of the last twenty years, but have American firms caught up over the last twenty years? Maybe they have, but one wouldn’t know from any evidence provided in the book.

Second, in the absence of evidence, one has to rely on the “logic” of the authors’ argument, in which they trace the connection between asset managers’ competition over financial clients and pushing their invested firms to make long-term investments in technology and efficiency. As I suggested earlier, the authors try to bring Marx’s view of competition and capital allocation up to date. But remember that Marx’s theory was about the equalization of profit rates through allocating “real investment.” Here, the authors are talking about maximizing equity values. What is their theory of the determination of equity values? They never explicitly say. They do mention that Federal Reserve monetary policy has something to do with it, but that can’t be their story because if that were their story, the asset managers would just have to sit back and wait for the Fed to work its magic. They wouldn’t have to strong-arm their target firms to do anything at all.

No. The authors’ implicit equity pricing theory must be that the equity prices are determined by investors “rational” estimates of long-term profits on capital—a well-worn neoclassical economic model that, as Keynes and my colleague James Crotty, among others, have shown, is folly in a world of fundamental uncertainty and speculative financial markets. In the General Theory, Keynes argued that equity markets are like casinos and only by accident do equity values reflect long-run efficiencies. The authors try to channel Marx, but in this venue, they would have done much better to channel Keynes. If they had, however, the link between the value of BlackRock’s asset portfolio and the efficiency of General Motors’s firms would have been rather more tenuous.

Moreover, the authors have a tendency to sometimes ignore some inconvenient truths on the road to arguing for the efficiency and long-term orientation of dominant financial markets and institutions. Nowhere is this clearer than in their discussion of private equity (PE) firms. The authors tell a tale of PE firms as taking over inefficient firms, restructuring them for long-term efficiency, and perhaps engaging in some unfortunate creative destruction in the name of capitalist progress, but in the end, PE firms too, on balance, lead to more long-term and efficient orientation of target firms. The authors somehow ignore study after study—for example, by Eileen Appelbaum and Rosemary Bhat and analysts at Americans For Financial Reform, among others—that have documented the degree to which many PE firms extract value from firms and workers, provide poor services in hospitals and nursing homes they acquire, and even bankrupt otherwise healthy firms as the General Partners of the PE firms walk away with enormous returns. The authors could have confronted this evidence carefully and tried to refute it, but they didn’t. They mostly just ignored it.

Given these arguments and the relative lack of evidence about the frightening efficiency of modern Finance Capital, you might be forgiven if you had thought you were reading a book from Verso Press but were actually reading a treatise from the University of Chicago. The Marx-flavored arguments are there, but substantively, you might wonder if this seems rather more like Milton Friedman than Karl Marx.

As a college student reading Marx and Milton Friedman around the same time, I was struck by some of the similarities, in fact, about the unrelenting nature of competition and the accumulation of capital that this competition engendered. But I was also struck by the profound difference. One of course, for Marx, was the concept of exploitation and the discussion of the human costs associated with capitalism as in Volume I of Capital. One finds very little of that, except in passing, in The Fall and Rise.

And second, crucial for Marx and not for Milton Friedman, was the discussion of the deep contradictions of capitalism and how the system would crack and be superseded in due time by its own development and forces. And in fact, the last chapter of The Fall and Rise is entitled “Crises, Contradictions, and Possibilities.” When I saw this, I thought: Yes! The book is in fact in the world of Marx, not Milton Friedman. And of course, the authors are not Friedmanites—far from it. But the argumentation would leave the naïve reader in some doubt. And, unfortunately, this last chapter would not disabuse him or her of this notion. For the contradictions that the authors discuss are not about the undermining of the productive economy or the exploitation of labor or the violent reproduction of wealth inequality that this system creates. The authors mention climate change here and there, but this comes out of nowhere. It is not something that is coherently developed as a contradiction of the system.

And what is the solution to these problems? Does it develop naturally out of the womb of this new system, as socialism was said by Marx to develop out of the womb and contradictions of capitalism? Is it brought about by an endogenously created change agent, like the proletariat in Marx’s rendering?

No and no. The solution, say the authors, is a total nationalization of the financial system. Nothing less. And who will bring this about? Without any previous discussion of political or social movements and with a discussion of a hegemonic, authoritarian, capitalist Federal Reserve and Treasury running the show, it is impossible to see who this could possibly be.

In short, the authors have kind of painted themselves into a corner. They have argued that this system is highly efficient and productive. But, of course, they are critical enough to know that it is profoundly unfair and possibly even dangerous, especially when it comes to climate change. But they do not provide any serious contradictions or offer any change agents plausibly presented that can do anything about it.

Still, I found this book extremely stimulating and thought-provoking. The authors’ bold claims really got me thinking. And I hope it does the same for many other readers.

The Rise and Fall of Worker Prosperity

Stephen Mahler and Scott Aquanno deserve enormous credit for writing a comprehensive history of American finance. It’s an ambitious project that provides important detailed analysis of the powerful and integral role of high finance. But as a labor educator who designs programs for union members on political economy, I read their text with an eye to finding information that can help empower working people. Doing so with The Fall and Rise of American Finance is challenging.

That’s because the authors appear to argue that the power and resilience of financialized capitalism make social democracy improbable, if not impossible. They call instead for a massive transformation, “fundamentally remaking the centers of state power, such that in place of their current functions in sustaining the system of class rule, they come to facilitate radical new forms of popular participation in economic and social life—from national investment decisions to community involvement in running social services.”

That’s pretty much a call for a revolution that includes turning high finance into a public utility and creating new spaces for cooperative enterprises.

But does that ultimate goal rule out a more modest effort to promote social democracy—higher wages, more stable employment, and strong social programs—really lead us up a blind alley?

A more careful look at the role of labor in their analysis suggests a different direction. Mahler and Aquanno claim that “worker militancy,” a phrase they use repeatedly, was somehow the cause of a profit crunch that ended the post-WWII boom and served as the fundamental cause of the wage-price spiral that spun into stagflation in the 1970s.

My problem is that I can’t find the worker militancy they claim was so central to the postwar history of capitalism. They correctly describe how the more politically radical CIO merged with the bureaucratic AFL in the mid-1950s, which greatly reduced the militancy of the labor movement. Yet somehow, they argue that these same anti-communist bureaucrats successfully engaged in “wage militancy” that crippled corporate profits and undermined the entire economy.

I wasn’t around the labor movement during the 1950s and 60s, but I worked closely in the 1970s with the Oil, Chemical and Atomic Workers, a progressive CIO union, as well as with the UAW and other former CIO unions in New York and New Jersey. I didn’t see that militancy. Rather, I saw unions trying to survive as inflation and unemployment skyrocketed. It’s true that those unions with cost-of-living clauses in their contracts saw their wages rise as prices shot up. But not many of those unions were able to hold onto those clauses, let alone negotiate for wage and benefit increases. In short, the labor movement I worked with looked remarkably weak.

Strike data compiled by the Bureau of Labor Statistics also does not show a rise in worker militancy as tracked by the number of strikes involving 1,000 or more workers nor the percentage of workers who went on strike. During the 1950s there were an average of 352 mass strikes per year. In the 1960s, it dropped to 283 per year. The 1970s yearly average was almost identical to the 1960s with an average of 289 per year. And similarly, the percentage of workers involved in mass strikes dropped from 0.2 percent in the 1950s to 0.12 percent in the 1960s and .13 percent in the 1970s.

This misperception of the power of the labor movement also leads me to question the authors’ account of 1970s inflation and the demise of Keynesian economics. They do not acknowledge the impact of the Cold War on capitalism, during which vast sums were spent on the Vietnam War and more than 700 military bases around the globe. By the late 1960s, these expenditures created a classic “guns versus butter” problem. On the one hand, the Civil Rights Movement (which, along with the anti-Vietnam War movement, was the real source of militancy during this period) was demanding more expenditures on domestic programs, while the military needed more money to conduct the hot and cold wars. Clearly, the economy was driving substantially past its productive capacities.

At that point, Keynesian theory called for either large increases in taxes or substantial spending cuts. Lyndon Johnson wanted to do neither, as he feared revealing to the public the true costs of the war. As a result, inflation rose from 1 percent in 1964 to 6.2 percent in 1969 as unemployment fell to 3.5 percent. Richard Nixon subsequently also had no intention of drastically cooling the economy as he desperately sought reelection in 1972. The overheated economy then got absolutely clobbered during the 1973 Arab oil embargo triggered by U.S. support for Israel in the Yom Kippur War, leading to massive price increases in an economy heavily constructed around cheap oil.

The confluence of these events, not phantom labor militancy, provides a better account of the rise of stagflation.

Wages, Profits and Productivity

Maher and Aquanno’s misreading of labor militancy, I believe, also leads them to argue that rising wages eventually caused a corporate profit decline that crippled the economy. The only way out was for workers to receive less so that inflation could be tamed and profits restored. Because of this link, they imply that reforms that would increase the worker share of the bounty are not feasible.

They use the productivity/worker compensation chart to make their case.1 The chart shows worker compensation and productivity rising in tandem until about 1980, when productivity continued to rise while wages stagnated. They conclude that “when productivity growth slowed as the postwar boom began to wind down by the end of the decade, continued union wage militancy increasingly squeezed corporate profits.”

But their chart doesn’t support their argument. It doesn’t show that wages increased faster than productivity during the critical 1970s period. From 1948 until about 1978, the two lines run in tandem. They then break apart with a vengeance as an enormous gap between wages and productivity emerges with rising productivity dwarfing flat earnings.

We use the very same chart in our Runaway Inequality curriculum to show how the financialized economy shifted income and wealth away from working people. We estimate that worker wages would be double today if those wages had continued to rise with productivity.

The critical question for Mahler and Aquanno is: why can’t wages and productivity rise in tandem once again? Must a modern globalized economy only function with greater and greater increases in inequality? Or could a more powerful labor movement claim more of this wealth without undermining the economy?

Stock Buybacks and Predatory Finance

This takes us into the authors’ argument that stock buybacks, along with derivatives and leveraged buyouts, are not really economic problems. They write off the claims of William Lazonick, made forcefully in “Profits Without Prosperity,” that stock buybacks harm enterprises by shifting funds away from R&D and worker development and delivering that money to top executives and stock owners. Mahler and Aquanno argue that R&D spending has been going up, not down, so there’s plenty of excess cash for stock buybacks and dividends without weakening the productive capacity of corporations. In fact, they claim, along with many Wall Streeters, that “stock buybacks release surplus cash from highly profitable corporations into financial markets for use elsewhere.”2 It would be interesting to hear how Lazonick would respond.

My focus, however, is on the failure of Mahler and Aquanno to explore the impact of stock buybacks on job instability. The research for my recent book, Wall Street’s War on Workers, shows a strong connection between stock buybacks and mass layoffs.3 In a very real sense, worker jobs are often sacrificed to raise cash for stock buybacks. As a result, it’s possible to discuss with workers policy proposals that would ban involuntary layoffs in any corporation that engages in stock buybacks. If corporations have sufficient funds for stock buybacks, they must have sufficient funds to provide ample voluntary compensation packages if they wish to reduce the number of employees. (Siemens, in Germany, under pressure from unions through their co-determination structure, agreed to just that.)

They also fail to highlight the predatory aspects of Wall Street’s behavior. For example, the collapses of Bed Bath & Beyond and Toys“R”Us resulted directly from exploitative Wall Street actions. These two companies were milked dry, and the thousands of workers who once worked for them lost their jobs. Certainly, one can argue that the wealth extracted moves “into financial markets for use elsewhere.” But that explanation would justify every financial scam imaginable.

Their justification for derivatives is similarly limited. They argue correctly that derivatives are used to hedge the inevitable risks that derive from a massive complex global economy. But it’s not correct to view them as entirely benign. The 2008 financial meltdown was not just the result of the natural tendencies of capitalism towards crisis. They say, “transitions between phases of capitalist development … were marked in each case by crises. The financial meltdown of 2008 was no different.”4

It looked different to me. The total deregulation of derivatives in 1999 opened the door to a new era of risky and destructive fantasy finance. Synthetic CDOs were created using credit default swaps that were claimed to transform sub-prime, high-risk mortgages into good-as-gold securities. These synthetic CDOs (and CDOs squared) were sometimes designed to fail so that billions could be made by those who had bet against them. This was not just the inevitable friction that occurs from tectonic shifts in capitalist structures. It was the institutionalizing of rules that permitted scammers to run wild.5

It probably is unfair to ask of the authors, but The Fall and Rise of American Finance needs more explicit connections between the processes they describe and their impact on working people—a two-sided approach to the resilience of modern capitalism. On one side are the incredibly complex and powerful forces that enhance competition and profits throughout the economy. On the other side are the explicit destructive impacts of these actions on the day-to-day lives of working people.

Finally, I urge the authors to once again look at their productivity/wage chart. Clearly, trillions of dollars that once went to working people are now going elsewhere. It’s hard to imagine that the system would collapse if a fair chunk of that money went to improve the lives of working people by providing more job stability, decent wages (both social and personal), and a sustainable environment.

Our political economy programs show that kind of discussion can be had with working people of all political perspectives. It would be great if Stephen Maher and Scott Aquanno, using all their excellent skills, joined in.

Finance, Globalization, and Class Power: A Reply to Lapavitsas, Epstein, and Leopold

First off, let us say that it is an honor and a privilege to have this discussion with some of the most eminent political economists studying financialization today, whose work has been so important to our own intellectual journey. We wish to extend our heartfelt thanks to Walter Benn Michaels, Adolph Reed, Jr., and the other editors at nonsite for organizing this symposium, as well as Costas Lapavitsas, Gerald Epstein, and Les Leopold for taking the time to write such generous and thoughtful responses to our book.

The central argument we make in the book, contrary to the received wisdom on the left, is that the rise of capitalist finance in the current period cannot be understood as a cause or symptom of the decline of the “real” industrial economy. Nor can it be considered as “separate” from production. Rather, finance is and has been utterly integral to the dynamism, flexibility, and strength of capital. Moreover, we show that it is precisely as a result of the role of finance that capitalist development has not led to increasing monopolistic stagnation, as the influential Monthly Review school has claimed. Quite the contrary: we show that the development of the financial system, from the nineteenth century to the present, has increased the competitiveness of capital by facilitating its growing mobility across space and among economic sectors. Capitalist financialization has thus served to intensify the competitive discipline on all investments to maximize monetary returns.

Strikingly, these central points are not really challenged by any of the responses. While Les Leopold, and to a lesser extent Gerald Epstein, imply that they agree with William Lazonick that share buybacks have “hollowed out” industry by diverting investment away from production and instead lining the pockets of shareowners, they do not challenge the data we provide which shows that corporate investment, R&D spending, and profits are all strong—even above the postwar average during the period of “financialization.” Similarly, while Gerald Epstein has argued elsewhere that the contemporary financial sector is “too big” and has become a drag on capital, he notably does not offer a defense of this position in his response—and even indicates his agreement with us that financial and industrial capital are today “united.” Meanwhile, Lapavitsas suggests that we are now in a period of “interregnum” characterized by economic stagnation but in no way suggests that financialization is either a cause or effect of this. On the contrary, he concurs with our view that finance provided the essential infrastructure for the internationalization of capital that was critical for restoring competitiveness coming out of the 1970s crisis.

It should go without saying that strengthening capital, as we argue finance has done, may come at the expense of the livelihoods of workers—and indeed necessitates class discipline and exploitation. Yet very often, those claiming that finance has somehow harmed capital support this argument by pointing to the many ways that working class life has become more precarious in recent decades. The assumption seems to be that the “exploitation” of industrial capital by finance is responsible for the competitive profit-maximizing strategies of industry. Thus, Epstein points to the harmful impacts of private equity ownership on healthcare outcomes, for example, while Leopold goes so far as to assert that our book “justifies” capitalist finance. Of course, it should not be surprising that opening healthcare up to competitive monetary accumulation leads to worsening outcomes for patients. This simply reflects the basic dynamics of capitalism itself: in the context of competition, every firm faces pressure to cut costs, increase workloads, and accumulate value. This is as true for industrial firms like Boeing as it is for financial firms.

Our point is that finance expresses and intensifies the forces of capitalist competition and that this is a bad thing for workers and the planet. The problem is not finance per se but the competitive disciplines of capitalism. Insofar as society remains market-dependent and thus disciplined by the “coercive laws of competition,” the search for the most competitive forms of capitalist organization will continue to lead to social inequality and ecological devastation. And, as we argue, these same pressures will continue to reproduce a systemic tendency toward financialization as an adaptive institutional response to such an environment. In this respect, a primary takeaway from our book is that we need to stop talking about finance and start talking about capitalism; similarly, we need to stop seeing “competitiveness” as a goal to be achieved, as nearly all Social Democratic parties have come to do, and start seeing it as a barrier to getting somewhere better.

Competition and History

We use a historical and institutional methodology to make the case that finance has not harmed industrial capital but has rather underpinned its dynamism. It is therefore surprising that Epstein interprets us as advancing static economic models akin to those of neoclassical economics. He claims that our view of finance as facilitating the mobility and competitiveness of capital resembles Friedmanite notions of “perfect competition” within “efficient” and “frictionless” financial markets. But we do not see the economy as a spaceless and timeless abstract “model.” Rather, we show how the capacities and structures of the financial system and industrial corporation emerged through a turbulent historical process—never perfect, never complete, and certainly incapable of “equilibrium” but always in a state of becoming. Our view of the financial system as a crisis-prone institutional ensemble whose historical development is disciplined by the competitive imperative to profitably circulate value is as different from the neoclassical conception “as war is from ballet.”1

We define financialization as an inherent tendency of capitalism, whereby the imperative to develop competitive organizational forms drives the ascendency of money-capital within firms and across the economy. As the most abstract and liquid form of capital, money-capital is also the most mobile and competitive, leaping in and out of particular concrete forms and circuits in pursuit of maximum profit. In doing so, it disciplines all assets and circuits of capital to maximize monetary returns or face the withdrawal of investment. This empowerment of money capital recurs throughout the history of capitalist development, manifesting in various forms as a result of systemic disciplines to create institutional mechanisms for efficiently circulating and allocating investment. And far from being merely an “economic” phenomenon, the dominance of money capital also reproduces and shapes relations of power, both among fractions of capital and of capital over labor.

If none of this sounds particularly Friedmanite, we may take some solace in the fact that, according to Epstein, even Marx himself was rather too close to Milton Friedman—or perhaps Friedman was something of a Marxist. Of course, this would add a new twist to Marx’s famous remark, “What is certain is that I myself am not a Marxist.” The basis for Epstein’s assertion is Marx’s supposed proto-neoclassical emphasis on “the unrelenting nature of competition,” as he writes. The implication is that there is effectively no significant distinction between Marx’s theory of competition and the subsequent neoclassical theory. However, this is very far from the case. Indeed, Epstein fails to address the fact that our understanding of competition, drawn directly from Volume 3 of Capital, is an explicit and direct challenge to the neoclassical “quantity theory” of competition.

Indeed, we criticize Paul Baran and Paul Sweezy’s “monopoly capital” theory for adopting the neoclassical view of competition and rejecting Marx’s very different theory. Although Epstein portrays Baran and Sweezy as emblematic of a monolithic Marxian tradition, their reliance on neoclassical theory has long been contentious within Marxian economics. According to the neoclassical view, competition is determined by the number of sellers in a market: as markets become dominated by a smaller number of larger firms, “perfect competition” gives way to “imperfect competition.” We argue, on the contrary, that competition is a function of capital mobility. With the development of institutional capacities to circulate capital more cheaply, quickly, and easily, competitive disciplines are intensified. Furthermore, since large firms are more mobile—able to invest in new opportunities, divest from unprofitable operations, and circulate capital among internal operations with greater ease—concentration and centralization do not diminish competition but increase it.

As Epstein points out, Marx’s theory of competition focused on understanding how the movement of investment leads to the tendential equalization of the profit rate, as capital flows into outlets with high returns and out of those with relatively low returns. In elaborating on this theory, Epstein claims we are “bring[ing] Marx’s view of competition and capital allocation up to date.” Yet he cautions that Marx’s theory pertains only to “real investment,” making our application of this theory to analyzing asset management companies, which profit from stock prices, problematic. In this regard, Epstein claims that we “never explicitly say” what our theory of equity prices is, even though we do in fact spell this out in significant detail.2 Following Hilferding (and alongside the classical Marxian school), we argue that stock prices must ultimately correspond to underlying economic fundamentals, above all firm profitability, albeit in turbulent and contradictory fashion. As such, stock markets play a role in the equalization of the profit rate by directing capital toward the firms that are expected to be the strongest and away from others.

Epstein dismisses the notion of a correspondence between stock prices and the real economy as merely a “well-worn neoclassical economic model” decisively debunked by Keynes. As such, he suggests that stock prices must be understood in Keynes’s terms, as the plaything of mysterious “animal spirits.” Yet here it is Epstein who aligns rather closely to neoclassical economic theory, as this involves adopting a subjective theory of price formation divorced from any objective relationship to production. While Epstein claims this is necessary given the “fundamental uncertainty” of such markets, there is no reason to believe this is the case. As we argue, that stock prices reflect “speculation on the future prospects of sections of capital” inherently involves significant uncertainty, including the possibility for destructive “bubbles” large and small. However, firm profitability remains the center of gravity around which these markets oscillate. The bottom line, as we say, is that “holding the stock of firms that are unable to [produce profits] cannot serve as the basis for investors to accumulate money-power over the longer term” (FRAF, 112).

As Epstein suggests, the reasons for our rejection of the Keynesian theory are clear: adopting it would mean that “the link between the value of BlackRock’s asset portfolio and the efficiency of General Motors’s firms would have been rather more tenuous.” Yet Epstein also suggests that he agrees with us that “there is a unified capitalist class, not a class divided between finance and industry as Keynes identified in his day.” This apparent contradiction reveals a gap in Epstein’s own framework, one which makes it difficult to perceive the interconnection between financial and industrial capital. Indeed, Epstein is one of the leading theorists arguing that the rise of finance, as it transitioned from what he calls the stable and effective “boring banking” of the postwar decades to the so-called “roaring banking” of today, came at the expense of the rest of the capitalist economy. If finance is effectively “exploiting” industrial firms through the rentier siphoning off of value, how can it also be understood as a component of a “unified capitalist class”? Why wouldn’t industrial capital support expanding state regulations to curtail such financial parasitism?

To us, the answer is clear: industrial capital is not open to imposing such regulations precisely because the rise of finance has in no way come at the expense of industry. On the contrary, the rise of finance during the neoliberal period underpinned the rejuvenation of industrial capital coming out of the 1970s crisis. Finance was not a problem but a solution for capital. The integration of global finance formed the critical institutional infrastructure for circulating capital across borders, and thus for the internationalization of production that underpinned the restoration of industrial profits. It was this role in restoring industrial profitability that led industrial capital to accept the empowerment of finance entailed by neoliberal restructuring. As time went on, the interests of financial and industrial capital became ever more closely entangled around perpetuating globalization—which served to sustain class discipline and from which both finance and industry to this day continue to profit handsomely. Finance was—and is—truly hegemonic within the capitalist class.

Indeed, one of the primary purposes of our book is to demonstrate that these conjoined processes of financialization and globalization have foreclosed any possibility for the renewal of a social democratic compromise between industrial capital and workers. Epstein, on the other hand, suggests that expanding state regulations could reduce the size of contemporary finance and restore the more healthy and functional “boring banking.” Here we see precisely the juxtaposition of “bad” financialized capitalism as opposed to “good” industry-led capitalism that we aimed to challenge. Yet the idea of a “pre-financialized” Golden Age capitalism is simply a myth. The roots of financialization lay in the very heart of the postwar period, as corporations dealt with the challenges of diversification and the growing international scope of their operations by establishing competitive internal capital markets for allocating investment. As they did so, they increasingly came to resemble financial institutions, with “general” managers akin to investors or money-capitalists.

Given all this, we were left scratching our heads by Epstein’s suggestion that we are not attentive to “the deep contradictions of capitalism,” including its crisis tendencies and class conflict. Indeed, the four periods of capitalist development we lay out—classical finance capital, managerialism, neoliberalism, and new finance capital—are delineated from one another by major crises, which imposed the need for restructuring. And our entire analysis of finance is oriented toward understanding its role in the reproduction of class power, from the formation of the modern corporation to the emergence of market-based finance. As we show, this hinged on exploiting and disciplining labor. Epstein’s claim that we fail to identify any “change agents” reflects not a flaw in our analysis but rather the unfavorable balance in this historical moment—that is, the crisis of the left. The critical task ahead is to build the forces needed to mount a serious challenge to global capital by organizing a mass socialist movement rooted in the working class.

Class Power, Crisis, and the Limits of Social Democracy

The primary thrust of Les Leopold’s response is to insist that there is today more space for a social democratic politics of class compromise than we suggest. For him, the 1970s crisis did not point to the fundamental limits of capitalism’s ability to support social democratic programs and distributional bargains. Rather, an economy overstimulated by Cold War military spending was further overheated as Johnson tried to accommodate the Civil Rights movement through the “Great Society” and was then further hammered by the 1973 Arab oil embargo. For Leopold, therefore, the crisis of the New Deal order emerged from a mix of bad policy and bad luck. There were (and are?) no structural limits to capitalism’s ability to support social democratic politics. However, this conclusion could be challenged even on his own terms: in what parallel 1970s reality would the American state not engage in the military spending necessary to sustain its global empire nor feel compelled to legitimate the system in the face of a mass social uprising?

Yet Leopold gets our argument about the crisis very wrong. Firstly, he claims that we “do not acknowledge the impact of the Cold War on capitalism, during which vast sums were spent on the Vietnam War,” leading to a “guns versus butter” problem by the late 1960s. In fact, every one of the factors mentioned by Leopold are central to our analysis of the crisis (FRAF, 87–90). As we explain, what James O’Connor called “the fiscal crisis of the state,” whereby state spending rose faster than GDP, was one of the most important dynamics driving the crisis. Leopold further claims that we argue that “worker militancy … was somehow the cause of a profit crunch that ended the post-WWII boom.” According to Leopold, we see unions as having “successfully engaged in ‘wage militancy’ that crippled corporate profits and undermined the entire economy.” He takes issue with this on the basis that the labor movement in this period was, in his view, “remarkably weak.”

But this is not what we argue. Indeed, the quotation from our book that Leopold himself draws on in support of his summary conveys a very different explanation: “when productivity growth slowed as the postwar boom began to wind down by the end of the decade, continued union wage militancy increasingly squeezed corporate profits” (FRAF, 85–86, italics added). For us, this slowdown in productivity growth was rooted in the exhaustion of the postwar wave of technological development. In order to restore profits, capital had to ratchet up the rate of exploitation. But, as we say, workers temporarily blocked capital’s ability to increase exploitation and restore profits by waging defensive battles against the reduction of real wages and the introduction of labor-saving technologies. In other words, it wasn’t that wages rose too much but that they didn’t fall as workers tried to maintain their expectations. This is reflected in the BLS figures Leopold cites: as growth slowed by the 1970s, sustaining (even slightly increasing) 1960s levels of mobilization increasingly became a problem for capital, forcing the draconian response of the Volcker Shock to tame labor and end inflation.

The key factor underlying the crisis was a decline in the profit rate (demonstrated in chart 3.5, which is not mentioned by Leopold). Profits are central for regulating the capitalist economy, ultimately driving investment and therefore growth—and thus supporting social programs and military spending. Surprisingly, profits are missing from Leopold’s list of the “confluence of factors” that led to the crisis. Leopold even suggests that there was no decline in productivity growth, thus implying that the postwar “productivist” class compromise could have gone on indefinitely if not for the (apparently exogenous) factors of military spending, working-class demands on the state, and oil prices. Though not necessarily easy to see on the chart he refers to (chart 3.4), which depicts a longer time horizon, the period from 1973–1979 in fact saw a roughly 85% decrease in business hourly productivity as compared with 1960–1973. Following the resolution to the crisis and the restoration of class discipline, productivity rates returned to levels similar to those of the 1960–1973 period.

As we argue, financialization played a pivotal role in the restoration of accumulation and capitalist class power which brought the 1970s crisis to an end. This shift was reflected in the rising rate of exploitation and the explosion of the mass of profit, as productivity growth was restored but wages no longer kept up—leading to growing inequality, as Leopold says. Yet here Leopold’s analysis gets even more confusing. He sees “financialized capitalism” as leading to an increase in capital’s share of national income, the resumption of productivity growth, and class discipline. It is thus unclear how he can conclude that the rise of finance is somehow a problem not only for workers—as the strengthening of capital often is—but also for industrial capital. Rather than seeing the strengthening of finance as restoring the power of the capitalist class and intensifying the exploitation of labor, Leopold frames this as marking the ascent of a parasitic financial sector over industrial capital, which drained income not only away from workers but also from their bosses. Thus, it would seem both workers and industrial capitalists would have an interest in forming an alliance to rein in financialized extraction: once the power of industrial corporations is restored, they will, as in the last chapter of a Charles Dickens novel, raise workers’ wages, leading to shared prosperity.

Of course, Leopold does not think industrial capitalists are the “good guys” and understands very well the importance of class struggle and workers’ power for winning wage and other gains. Yet at the same time, he conflates the interests of workers and industrial corporations in opposing finance, thus implying that there is an opening for workers to form a social democratic alliance with their employers around limiting financial power, which would supposedly result in gains for the working class. What this ignores, which is a central argument in our book, is the deep interconnection between financial and industrial capital, particularly around sustaining globalization. If a “Keynesian” social democratic class compromise with industrial capital is today not on the table, as we argue, it is because both financial and industrial capital are continuing to massively benefit from the post-1980 internationalization of production, as demonstrated by the high profits they are raking in.

In fact, Leopold ignores globalization altogether. In asking “why can’t wages and productivity rise in tandem once again,” he seems to believe, first, that limiting the power of finance will somehow contribute to this happening. But more importantly, he overlooks our argument that shifting the balance of class forces and creating space for income redistribution and progressive reforms must begin by challenging globalization. It would obviously be outlandish to suggest that the “system would collapse” if workers were to receive wage increases, and we certainly do not suggest this is the case. Rather, our argument is that neither financial nor industrial capital today has an interest in compromising with workers around redistribution. Globalization has intensified competitive disciplines among workers for jobs and among states for corporate investment, which has immensely favored both of these fractions of capital. Reversing this, therefore, requires more than just singling out “finance” but rather taking on both financial and industrial capital.

Throughout Leopold’s commentary, he seems to assume that anything that makes capitalism work is “justified.” Thus, he accuses us of siding with “Wall Streeters” in pointing out that the surplus value distributed from non-financial corporations to the financial system through the mechanism of stock buybacks is then reallocated to where these investors can receive the highest returns. Workers, he claims, have been laid off to pay for stock buybacks. But could Leopold really believe that in the absence of “financialization” non-financial corporations would not seek to maximize profits by cutting costs and squeezing labor? Our point is precisely that intensifying the competitiveness of capital is a bad thing. Similarly, Leopold claims we are “justifying” derivatives by describing their role in managing the risks of globalization and securing the flow of credit across the economy. Far from seeing these as “entirely benign,” as he says, we argue that they are part of a financial system that has served to strengthen the capitalist class and increase the exploitation of labor. Our point is not to “justify” buybacks or derivatives but to show that they are functional for capitalism today. It is Leopold, in fact, who ends up justifying capitalism.

The problem we must address is not merely “financial scams,” as Leopold puts it, but capitalism itself. Leopold claims that the 2008 crisis was “different” from the other great crises of American capitalism we analyze in that it did not result from “the inevitable friction that occurs from tectonic shifts in capitalist structures,” but rather “the institutionalizing of rules that permitted scammers to run wild.” He sees derivatives in particular as an element of this “scam.” Of course, each crisis is unique, emerging from the institutional and social contradictions in a particular conjuncture. But crisis as such is inevitable. We show that it was not derivatives per se at the root of the crisis—even if, as we say, it was “amplified significantly” by these instruments (FRAF, 142)—but rather the volatile and contradictory system of which they are a part. Leopold conveys the old-school Keynesian confidence that, given the right regulatory and policy mix, capitalism’s crisis tendencies can be more or less resolved. Prior to the disaster of the 1970s crisis, this social democratic argument was used to suggest that a socialist transition was unnecessary. We disagree.

The State of Capitalism Today

Epstein, too, sees “deregulation” as the cause of the 2008 financial crisis, as the “capture” of the state by a homogenous financial sector gave rise to the “roaring banking” that culminated in the 2008 meltdown. Epstein thus suggests that our notion of the “relative autonomy of the Fed” from capital is not borne out by history. As he argues, “the Federal Reserve needs to cultivate a political constituency,” which in the case of the Fed is finance. Yet Epstein leaps from the observation that the Fed must develop a political constituency to the conclusion that it is the passive instrument of this constituency. Of course, these are very different things. As for Leopold, this tends to lose sight of the fact that although capitalism may be regulated in different ways, its crisis tendencies can never be resolved. But more fundamentally, it can make the state’s necessary systematic management of capitalism appear as the contingent result of corporate lobbying. The state, from this perspective, is essentially neutral and only does capitalist things because individual capitalists force it to.

As we argue, a degree of autonomy is necessary for the state to organize an “unstable equilibrium of compromise” among competing firms with often conflicting interests. Epstein’s critique of the applicability of the Poulantzian concept of relative autonomy to the American case tends to obscure the fundamental difference between this notion and the later Skocpolian “new institutionalist” view of state institutions as fully autonomous from capital. As we have shown elsewhere, based on extensive archival research covering a century of American history,3 the relatively autonomous state actively organizes a consensus among a fragmented capitalist class by systematically coordinating with business. Moreover, the ability of particular agencies to mobilize corporate constituencies in turn shapes hierarchies within the state. In this way, as we argue in the book, the rise of finance was intimately tied to the empowerment of the Fed, which was deeply interconnected with the financial system.

Epstein’s assessment is complicated by the extensive post-crisis regulations imposed on banks, including Dodd-Frank. In his recent book, Epstein dismisses this as a toothless charade. Costas Lapavitsas’s conclusion in his response to us that “[l]arge commercial banks had their wings clipped by the crash and subsequent state regulation” is much closer to the mark. Indeed, as we show, these limitations on the banks were critical for the rise of the “shadow banks” that were excluded from them. And of course, the big banks were hardly upset by Trump’s later efforts to roll back these regulations. To be clear, none of this means these policy measures aimed at anything other than strengthening and stabilizing finance, nor is it to claim that industry groups do not have a voice—even a loud one—in the process through which policy is negotiated among competing interests. What it suggests, rather, is a relatively autonomous state acting on behalf, but not necessarily at the behest, of capital.

Which brings us to the question of capitalism since the 2008 crisis. In his response, Lapavitsas agrees with us that the post-2008 period has marked a new phase of capitalist development. He also agrees that this phase has been characterized by the ascent of “shadow banks,” significantly as a result of the Fed’s Quantitative Easing programs. He further agrees that the power of these institutions is supported by their ownership of an “astounding proportion of the total equity of the U.S.,” and that “there is some evidence” that this concentrated ownership has “an impact on the decision-making of the management of non-financial corporations.” Additionally, he claims that this phase has been marked by “a pairing of huge corporations with huge banks and ‘shadow banks.’” Lapavitsas states that the latter profit through the same mechanism that the investment banks did in the finance capital period—Hilferding’s “founders’ profit,” which he sees as “the most important theoretical innovation by a Marxist economist in the field of profit-making since the days of Marx.”

And yet Lapavitsas takes issue with our use of Hilferding’s term “finance capital,” defined as the fusion of financial and industrial capital, to describe this regime. Lapavitsas claims that we “believe that the characteristic feature of Hilferding’s finance capital was the holding of equity by banks,” to which he responds, “[t]his is, unfortunately, not the case.” In fact, Lapavitsas is here engaged in one of several significant misreadings of our book reflected in his response. We repeatedly state throughout our lengthy summary of Hilferding’s argument that “the classical form of finance capital … stood largely on two pillars: equity and credit” (FRAF, 178). And we are very clear that at the core of the relationship between banks and corporations in this period was the fact that “[t]he volume of the loans banks issued to corporations was so great that their own stability came to be completely tied up with these corporations” (FRAF, 41). We then explicitly differentiate “the new finance capital of today” from the nineteenth-century regime in that “this power is primarily established through their possession of huge concentrations of corporate stock” (FRAF, 178).

Although he acknowledges that the unprecedented concentration of ownership by the Big Three has “an impact,” he argues that “[o]nly if that could be demonstrated” that “these funds dictate the conduct” of corporations whose shares they own would it be appropriate to refer to the post-2008 regime as a form of “finance capital.” Of course, this is Lapavitsas’s litmus test, not ours. We define the new finance capital as a long-term institutional fusion between financial institutions and non-financial corporations formed through unprecedented centralization of equity and the ability to shape corporate strategy. Moreover, as we show, neither the classical finance capital regime of the eighteenth and nineteenth centuries centered around J.P. Morgan nor the new finance capital of today would be able to meet Lapavitsas’s test. Lapavitsas argues that “having an impact on decision-making is a long way removed from being in the driving seat of U.S. capitalism.” To us, a small group of owner firms “having an impact” on the strategy of effectively every publicly-traded corporation in the U.S. economy very much means “being in the driving seat”—indeed, what else could this possibly mean?

Despite the immense concentration and centralization within this regime, we challenge the idea that this should be thought of in terms of “monopoly capital.” On the contrary, we argue, the large corporation is actually more competitive in that it is able to circulate capital more easily and cheaply across a wider range of investment opportunities. Financialization, we show, has been about increasing the mobility and therefore competitiveness of capital on a global scale. Lapavitsas, however, claims that the concept of “monopoly” is essential for understanding both the finance capital of Hilferding’s day as well as contemporary global capitalism. Yet it is hard to see why he thinks so, as the role this concept plays in his analysis, which differentiates it from ours, remains unclear. As he writes, monopoly does not “indicate the absence of competition but rather … competition occurring under conditions of pronounced market power.” This strikes us as a distinction without a difference: if by “monopoly” Lapavitsas simply means competition on an enlarged scale between giant firms with large investments in fixed capital, we would certainly agree that this is a significant feature of contemporary capitalism. If, on the other hand, he means inefficient firms setting prices and thus receiving monopoly super-profits, then it becomes hard to see how he avoids falling into “monopoly capital” theory.

But the most significant difference between us and Lapavitsas is that he sees “Financialization Mark II” as characterized by stagnation and decline. He agrees with us that financialization played a critical role in resolving the 1970s crisis, restoring profits by facilitating globalization—what he calls “Financialization Mark I.” Indeed, given that a major focus of our argument is that finance has served as a structural foundation of globalization and the American empire, we were a bit taken aback by Lapavitsas’s claim that the fact that “large U.S. non-financial enterprises are [engaged in] producing across borders” is “unfortunately not discussed by Maher and Aquanno.” In any case, Lapavitsas argues that after the 2008 crisis things changed, and “financialised capitalism has lost its dynamism.” In this period of “interregnum,” he claims, “pronounced difficulties of capitalist accumulation in the U.S.” have emerged: “growth rates are weak, investment levels are poor, productivity growth is often non-existent, profitability is precarious and depends heavily on pressing real wages downward, ‘zombie’ firms are a permanent fixture of core economies, and so on.”

Lapavitsas simply ignores the data we provide to the contrary. In fact, every variable on his list shows the opposite of what he suggests: far from stagnating, American capitalism remains impressively strong. Lapavitsas argues that the “single most important factor” leading to supposed stagnation is “the relative lack of investment in the core countries.” In fact, as we show (FRAF, 138, chart 4.7), corporate investment in the U.S. has actually increased in relation to GDP since the 1970s crisis and has been particularly strong since 2008. Nor was there any reduction in corporate R&D investment as a percent of GDP, which has actually expanded significantly since the 2010s and is currently at its highest level since 1980 (FRAF, 136, chart 4.6). Meanwhile, far from being “precarious,” profits have exceeded the 2007 peak every year following the post-2008 recovery and are currently at record highs (FRAF, 140, chart 4.8). Although Lapavitsas shrugs off the post-pandemic recovery as “a brief upsurge” that interrupted secular decline, data released since we wrote the book strongly reinforces our conclusion about the health of the U.S. economy. As The Economist put it,4 “America’s outperformance has accelerated recently” and has “left other rich countries in the dust”—with real growth since 2020 at around 10%, three times the average for the rest of the G7.

As we show, the expansion of the power of the central bank, along with its linkages to the financial system, was central to the recovery from the 2008 crisis and the consolidation of a new form of financialization. We thus agree with Lapavitsas that the “historically unprecedented power of central banks” is a central feature of the current period. Yet for Lapavitsas, this is a matter of propping up a moribund financialized capitalism that would otherwise effectively collapse or cease to function by manipulating interest rates. Obviously, in the absence of significant fiscal stimulus, the central bank played an outsized role in supporting growth and investment, but it was also about strengthening the market-based financial system which imploded in the 2008 financial crisis. Most importantly, this has not been a matter of what Robert Brenner has called the “escalating plunder” of the public, nor individual financial capitalists instrumentalizing the state, à la Epstein, but rather a relatively autonomous state managing a crisis—and doing so successfully.

Accounting for the power of central banks within contemporary capitalism should serve to counter common perceptions that capitalism is in decline. Over the past decade and a half, these institutions have repeatedly demonstrated their capacity to sustain and rebuild capitalist finance despite unprecedented crises, contradictions, and challenges. And as they have done so, their power within the state has been continually reinforced. Grasping how central banks, especially the Federal Reserve, have supported the dynamism, strength, and flexibility of capital requires getting beyond old-fashioned theories of “loanable funds,” whereby the banking system simply pools and lends deposits. We must grapple with contemporary theories of money, banking, and finance that have been the subject of an expanding literature, as Lapavitsas notes. But this poses no fundamental challenge to Marxists. Indeed, although Marx himself left only a few fragments on central banking and the credit system, often in chapters that are mere sketches, as we show, he actually anticipated many of the most important subsequent theoretical developments.

What Is to Be Done?

As we argued above, the left is today in a deep crisis. Resolving this means finding ways to build a socialist movement grounded in the working class that can offer a serious path toward a better future. Of course, this is no easy task, given the profound decomposition of the left and working class. Epstein frames the political conclusions of our book as insisting on “total nationalization of the financial system” and “[n]othing less.” Leopold makes similar statements. This amounts to the familiar social democratic hand-waving about the impossibility of socialism, thus leading to the conclusion that the left should limit its political horizons to tweaking corporate capitalism. The truth, however, is that the real utopians are not those insisting on the need for fundamental change but rather those who believe anything less is capable of addressing the existential challenges we face. Surely financial regulation to return to “boring banking” would hardly be sufficient to address the ecological collapse unfolding all around us. And as we show, given the balance of forces and the alliance between industry and finance, even this would require monumental struggle.

It is telling, in a way, that Epstein and Leopold seem to think that nationalizing the financial system is so unthinkable. In fact, as we show, major financial institutions are already effectively fused with state power, albeit run in the interests of private profit. Is it so unreasonable that the public should demand some say over what these institutions do? Rather than bailing out the banks when the next crisis hits (and it will, regardless of what regulatory regime is implemented in the meantime), perhaps it would make more sense to press for deeper democratic reforms. But this, in turn, requires that we begin to imagine what these might be and build the capacity to achieve them, here and now. There is unfortunately a long sad history within even the strongest and most progressive social democratic parties of continually marginalizing socialist ideas as “unserious.” Instead, they claimed they could manage capitalism better than their conservative rivals. This lack of vision led directly to the impasse these forces faced when confronted with capitalist crisis—leading them to embrace, one after the other, different varieties of neoliberalism in the name of “pragmatism.”

Despite Epstein and Leopold’s framing of nationalization as some unreachable dream, we in fact argue this would have to be just one step toward a deeper socialist transition, which would have to involve a much more substantial democratization of the state and economy. But that does not mean this would have to be the first step, either—and of course, it could not be. And in fact, as we say in the book, despite Epstein’s caricature, creating space for progressive reforms and redistribution must begin by breaking with globalization by imposing capital controls—as was once argued by Epstein himself, along with the late James Crotty, in a now-classic Socialist Register essay. As we have written for years, we are now faced with the long and difficult task of building working-class power. Obviously, this can only take place through a struggle for reforms. But the fate of our species now hinges on our ability to incorporate such fights within a more fundamental political vision: the need to create a more humane, democratic, ecological—and socialist—society.