Financial Capital

A new capital form created by the fusing of bank capital and industrial capital on the foundation of monopoly, the highest form in the development of capital and which reflects its full-fledged development. Capital is not an abstract, but a concrete thing. In the long history of capitalist development, capital has experienced a series of morphological changes, and each change has made capital develop to a new stage. Before the emergence of industrial capital, there was a period wherein commercial capital was the mainstay, which was called “the period of commercial capitalism”. The end of the 18th century saw the transformation of commercial capital into industrial capital, wherein latter became the mainstay, this period was called as the "period of industrial capitalism". At the end of the 19th century, industrial capital and the bank capital gradually merged, which transformed capital to financial capital, thus, capitalism entered the stage of financial capitalism. In Capital, Marx profoundly revealed the essence of capital and expounded the law of the emergence, development and extinction of capitalist mode of production.

In the fifth chapter of the third volume of Capital, Marx analyzed how the monetary capital became interest bearing capital. By virtue of his ownership of capital, the owner of interest-bearing capital requires the capitalists who borrow capital to divide the average profit among themselves, which is interest. Due to the separation of the ownership and the use rights on the capital, profits are divided into interest and income of business owners. On the basis of interest-bearing capital, bank capital came into being. In the third volume of Capital, Marx analyzed the generation, connotation, characteristics and function of bank capital in detail, which provided a theoretical basis for future generations to further study the changes in the forms of capital. However, due to the limitation of historical conditions, Marx only analyzed bank capital as a kind of capital subordinate to and serving industrial capital and did not study it as an independent and dominant capital form. With the concentration of production, and the formation and development of monopolies, industrial capital and bank capital have been increasingly integrated, thus the form of capital has seen changes, a new form of capital was in formation, development and was gradually occupying a dominant position.

At the end of the 19th century and the beginning of the 20th century, with the formation and development of monopoly, as well as the new situation and changes of capitalism, a series of works on financial capital emerged. Among Marxist economists, Lafargue was the first to study financial capital. In 1903, he published an article entitled “Les Trusts Americains: Leur Action Economique, Sociale, Politique”.

He put forward the concept of “financial capital”, and clearly pointed out that the concentration and monopoly of production formed financial capital, which was characterized by the integration of industrial capital and bank capital.

In the process of the formation and development of Marxist financial capital theory, Austrian-born German economist Rudolf Hilferding made theoretical contributions.

In his book Financial Capital published in 1910, he argued that with the development of capitalist production, credit also developed day by day. On the basis of developed credit, share capital is produced. At this time, industrial capital and bank capital also increasingly penetrated each other. Bank capital has been transformed into industrial capital to a greater extent. “We call the bank capital, that is, the capital in the form of money, which is actually transformed into industrial capital through this way, called financial capital.” The formation of financial capital first changes the status of various forms of capital in social and economic relations. The power of bank capital, developed on the basis of currency management, is not only the entrepreneur of industrial enterprises, but also the ruler of industrial enterprises. Secondly, the personal union of financial capitalists and government officials changed the economic policies of capitalist countries. Not only did they plunder the wealth of other countries through the policy of “free trade”, but also made the financial capital monopolize the domestic market and grab the interests of the people of our country through the policy of “protective tariffs”.

Thirdly, the financial capital has vigorously promoted colonialism.

The more developed the financial capital, the more intense the struggle for domination of the world market. The struggle to occupy the colonies will inevitably lead to wars among capitalist countries. “In these violent conflicts of hostile interests, the dictatorship of financial giants will eventually turn into dictatorship of the proletariat.” Lenin affirmed the theory of financial capital, at the same time pointed out the defects and methodological errors of the theory.

It is Lenin’s historical achievement to make a comprehensive and systematic exposition on the formation, characteristics, essence, law of development and development trend of financial capital. In 1917, Lenin’s Imperialism, the Highest Stage of Capitalism was published, marking the final establishment of Marxist financial capital theory. Financial capital is a capital form formed by the integration of industrial capital and bank capital on the basis of monopoly. It is the inevitable result of the basic contradiction between the socialization of capitalist production and the private possession of means of production. Lenin argued that monopoly is the economic basis for the production and development of financial capital, the domination of financial oligarchs is the essence of financial capital, foreign aggression, expansion and control of the world economy are the inevitable trend of financial capital development, and parasitic, decadent and dying are the basic characteristics of financial capital. The rule of financial capital intensified the inherent contradictions of capitalism. The war between imperialism was the eve of proletarian socialist revolution.

The concentration of production; the monopoly growing from concentration; the increasingly integrated or long-term integration of banking and industry—this is the history of the emergence of financial capital and the content of this concept.” Lenin’s theory of financial capital, as a link between the past and the future, provides a broad and profound theoretical vision for people to deeply understand the context and internal logic of capital development and change.