Economic Base of Financial Capital

The basic economic conditions under which financial capital arises and develops. Contrary to Hilferding’s view of financial capital as the result of changes in the capitalist sphere of circulation, Lenin always considered the changes in capital relations in the sphere of production, the concentration of production and the formation of monopolies, as the economic basis for the emergence of financial capital. To illustrate this phenomenon, Lenin did not base himself on individual examples and materials but applied economic statistics and materials from developed capitalist countries all over the world. After analysing and studying these materials, he concluded that “the rise of monopolies, as the result of the concentration of production, is a general and fundamental law of the present stage of development of capitalism”.

With the concentration of production and the formation of monopolies, the banking sector is also becoming concentrated and monopolistic. The basic and original business of banks was to act as intermediaries in payments. In this way, banks turn inactive capital into active capital, i.e., profit-generating capital, and bring together all kinds of monetary income to the disposal of the capitalist class. “As banking develops and becomes concentrated in a small number of establishments, the banks grow from humble middlemen into powerful monopolies having at their command almost the whole of the money capital of all the capitalists and small businessmen and also the larger part of the means of production and of the sources of raw materials of the given country and in a number of countries.” The process of bank concentration is the process of its integration with industrial capital. Because with the concentration of banks, the number of institutions that can make loans has also decreased, which makes large enterprises more dependent on a few big bank groups. Big industry capitalists observe the monopolization of banks and feel that it is necessary to seize the control of banks. As a result, they also began to infiltrate banks.

Industrial capital and bank capital gradually merge to establish the financial capital form. While the relationship between big industrial enterprises and big banks is getting closer and closer, the relationship between industrial monopoly capitalists and big banks has also become increasingly close, forming the so-called “personal union”. By holding shares and serving as directors and supervisors, the two sides have formed a financial oligarch that controls both enterprises and banks. Lenin said: “The concentration of production; the monopolies arising therefrom; the merging or coalescence of the banks with industry—such is the history of the rise of finance capital and such is the content of this term.” Lenin’s definition of financial capital correctly reflects the profound changes of capital form after entering the stage of monopoly capitalism, and also explains the essence and economic basis of this change.