Whatever their relationship in the middle ages and the early modern period, the industrial revolution ushered in a long struggle between industrial and financial capital. As industrial capital accumulates it generates funds for which the owner has no immediate use. He may wish to expand, but he cannot buy a fraction of a machine or half of a new factory. He must amass a considerable volume of capital from profits before the great day comes. The same goes for depreciation: write off the machine over five years and save one fifth of its replacement cost every year. That leaves cash in the safe.
Soon there appears the figure of the banker. At one level she will keep your money secure until there is enough to invest in expanding the enterprise. But she can – and must – do more. Instead of making a charge for looking after it she will pay interest on the sum borrowed. She will do this because for her it represents the opportunity to lend at higher rates than she pays. For the industrial capitalist, production begets money; for the banker, money begets money.
To whom does our banker lend? Perhaps householders need domestic loans, perhaps landowners need to repair buildings. But it is not here that the peculiar power of the banker resides. The point is that by pooling the temporarily surplus funds of many industrial capitalists she can award one of them the privilege of expanding not in 5 or 10 years but immediately. Not only that but the new machine or even entirely new plant so acquired will be more modern, more productive than the old one, so allowing the borrower to cut production costs and prices. True, he must pay the banker interest, but what is that compared with the opportunity to increase his market share and drive his competitors to the wall?
So now the industrialist seeks out the banker, who henceforth dominates him socially as well as financially. But the dominance of the banker does not end there. Even governments are in thrall to her, because after all our banker is not obliged to lend to any particular enterprise, however politically or electorally convenient. She is not even required to lend to home industry at all. Finance capital is not patriotic: in its pursuit of profit it has a global perspective.
Until the 1970s governments more or less knew this. By means of exchange controls, manipulation of interest rates and (usually ineffective) appeals to patriotism they sought to clip the wings of that most footloose of economic beasts, funds in search of a profitable investment opportunity. But then came the neoliberal catastrophe.
En masse governments and the economists who were their
faithful retainers accepted the argument that open capital markets were by themselves the
most efficient mechanism for shifting funds to where they were most needed and
most productive. Free capital markets at
home, free capital markets in the developing world; indeed free markets
Today we are looking at the wreckage of that outlook. What is needed is not a rebooting of the financial system such as envisaged in the Washington bail out or the British bank nationalizations. On the contrary we need to rethink fundamentally the relationship not only between economy and state but between bank capital and an industry constrained by social goals.