‘Finance Capital Today: Corporations and Banks in the Lasting Global Slump’ reviewed by Bill Jefferies


Finance Capital Today: Corporations and Banks in the Lasting Global Slump

Brill, Leiden and Boston, 2016. 310pp., €127,00 / $152.00 hb
ISBN 9789004255470

Reviewed by Bill Jefferies

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Bill Jefferies’ book Measuring National Income in the Centrally Planned Economies; Why the …

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Francois Chesnais is a French Marxist of long standing. “Finance Capital” is his attempt to apply the categories that Lenin and Hilferding developed in their analysis of imperialist financial capital, to the period of contemporary financialisation particularly after 2008.He considers this to be a “lasting global slump” or “long depression” (3), a crisis of capitalism “tout court” (12). This is then a work of catastrophist orthodoxy, closely echoing the main stream of contemporary Marxianism.

For Chesnais the world crisis consists of a “downward trend” (1) in growth, investment and profit. It has been ongoing since the 1970s in the West. This crisis isnot then one of social turmoil.There is no attempt to either explain or analyse how a claimed economic collapse can be reconciled with an almost total absence of the class struggle. This “crisis”persists in spite of a practically total lack of social crisis.

Chesnais sustains his stagnationist thesis by systematically underestimating the impact of creation of globalisation on world capitalism. According to Chesnais the doubling of the world labour supply that resulted from the integration of the transitional economies into the world market could more properly be described as an increase in the “potential global industrial reserve army” (41). Presumably China’s 150 million industrial workers could more properly be described as “potential”unemployed? In any respect growth in Chinahas seen a “marked slowdown” after the “collapse of its stock markets” (3).But how pronounced is this downward trend? According to the World Bank (not cited by Chesnais) World Fixed Capital Formation was 1966 23.7% and 2015 23.8%. According to the IMF (cited by Chesnais)world growth is around 3%. Do such innocuous figures really provide proof of a capitalist slump?

Things do not improve when discussing profitability. Chesnais inherits and repeats widely acceptedMarxian estimations of the US rate of profit that use official US estimates of the value of the fixed capital stock.In line with neo-classical orthodoxy these estimates vary directly with the mass of profit. The value of the fixed capital stock is a function of the mass of profit, so as profits rise, so does the value of the fixed capital stock(at least as represented in the national accounts). Although US profits as a proportion of national income are at post-war highs,the Marxian estimates of the rate of profit havebarely moved since 2008, as the denominator (the neoclassical value of the fixed capital stock) has increased in proportion to the rise in the numerator (the mass of profits), so the rate has not changed.Unfortunately, Chesnais seems unaware of any of this. He considers it “bizarre” to deny that profit rates are falling (35).As Chesnais’ whole book is predicated on this mis-estimation it is difficult to assess its merits beyond it.

Chesnais downplays the significance of a genuinely global market for capitalist accumulationso his analysis feels out of date. There is a review of the liberalisation of financial markets with the end of the post war boom. Much is made of the rise of debt as a proportion of GDP. There is a discussion of interest bearing capital and debt and of the organisational embodiments of finance capital concentrating on the USA and Europe. Although Chesnais takes inspiration in his use of the term Finance Capital from Hilferding and Lenin, there is only a little analysis of how finance capital exploits emerging nations, of national oppression or the labour aristocracy. Chesnais’ emphasis is more on the mechanisms for financial trading themselves and the instability injected into the world market by the obscure and unregulated nature of these trades. Chesnais relates the growth of finance and transnational corporations to Marx’s categories, particularly focussing on fictitious capital. There is a discussion of how foreign direct investment can be measured and this is related to value chains, and changes in retail conglomerates, although this is not effectively related to unequal exchange or the exploitation of emerging markets.There is a discussion of mergers and acquisitions and foreign exchange trading. This is related to the growth of derivatives and contemporary developments in banking. The impact of the deregulation of banks and financial institutions in the run up to the credit crunch is assessed. While much of this information is useful and informative, it is separate from developments in manufacturing, technology and the shift in power away from the traditional Western centre of financial imperialism. The conflation of the potential for crisis wracked stagnation inherent in financial capitalism with actual stagnation and crisis, prevents a measured assessment of how developments in the financial system relate to the productive base of capital accumulation.

The reader is left to puzzle over the intended audience for this book. The rise of financialisation is well documented by various sources, the mechanisms of debt trading and the potential chaos they inflict on the world economy, their role in the crash of 2008,are well discussed. Derivatives may have been weapons of mass destruction, threatening the stability of the world economy, but they had only a peripheral role to the last crash and have done nothing really since. The discussion does not feel technical enough to really add anything new, and as a popular summary itcovers familiar territory.

In the conclusion Chesnais bemoans the marginalisation of Marxism from the academic mainstream.The world “tout court” crisis of capitalism appears to leave the rich ever richer, their rule secure and unchallenged in society and the academy, which continues along quite happily, immune to the crisis tout court. Chesnais thinks that telling this“truth” is a revolutionary act. He believes that the Marxians must persist with their stories of collapse even if no one listens.Must they?

30 March 2017

7 comments

  1. This is a little bit too dismissive of the valuable data etc contained in the book and Chesnais deserves more credit as a pioneer of French Marxist analysis of globalizing capital but this is certainly not his best book and a translation of his earlier work of 20 years ago would have been preferable.
    That said I comment primarily in response to your very interesting critique of use of the US National Income accounts. Have you a specific source for how a rise in the mass of profit in the US, as since 2009, leads to an adjustment of the measure of the stock of capital?

  2. I wasn’t convinced about the value of the data and unfortunately, I haven’t read anything else that Chesnais has written.
    Anwar Shaikh’s new book Capital has a chapter in the appendices which explains how he attempts to use the SNA’s estimates of the of the fixed capital stock. In it he cites the official sources who explain that the value is adjusted along the lines I outlined here. I checked myself, and indeed the nominal value of the FCS has soared over the last five years, alongside the rise in the mass of profit.
    Paradoxically Shaikh doesn’t seem to appreciate the significance of this for his own estimates, and (as far as I can tell) takes no account of it in his own rate of profit figures.

  3. “Much is made of the rise of debt as a proportion of GDP”. It is not really meaningful to compare the total debt to GDP, as economists and historians often do, since GDP is a measure of total factor income or gross value added from production (not the same as the total income receipts of a country). At best you could strike a ratio between the total of annual debt “repayments” and GDP, to understand the weight of debt on the new income generated. When you want to understand the significance of total debt, you have to set it against the total asset base (the capital) which is the ultimate collateral for that debt. The total volume of (global) capital assets is many times more than (global) GDP. In 2005, when I looked at this a bit, total US physical assets were estimated in the Federal Budget documents conservatively at about $46 trillion, and US “marketable” financial assets were also estimated by the IMF at $46 trillion in 2007. Add that up, and you get about $92+ trillion worth of assets. Since US GDP was $13 trillion in 2005 (BEA), this implies that the total amount of US capital assets must have been “at least” fourteen times larger than US GDP! At that time, US public debt was said to be about $7.7 trillion, total US household debt was $11 trillion, non-financial business debt was $3 trillion, and all-sector debt securities were about $43 trillion. So the total US debt load, excluding financial institutions, was actually much less than the total US capital assets. Obviously the debt isn’t payable in one year; it is paid off across a series of years. As regards the value of total derivatives contracts which is touted: it is certainly huge, but this number is virtually meaningless, (1) because assets and funds are often insured several times over in one year as they are traded, (2) the actual income obtained from derivatives contracts is only a few percent of the insured sum. The conundrum of the post-Keynesian narrative is just that, at one point, they want to argue that debt growth is “unsustainable”, while, on the other hand, they want to claim there is too much “hysteria” about debt growth, because it is really not so consequential. It is not a coherent anti-austerity narrative. The crucial questions are really about who the creditors are, who owns the debt, what the structure of that debt is, how much has to be paid back per year, and who has to pay for it. There are few good studies about that, but Sandy Brian Hager’s work is excellent.

  4. If the profits of a type of business rise within a longer time-frame, then ceteris paribus its fixed assets will rise in value too, and vice versa, if the profits of a type of business fall, then the value of its fixed assets will fall too. But mathematically all that means is, that (ceteris paribus) changes in the valuation of fixed assets tend to moderate the extent of fluctuation in average profit rates on capital. Just how large the effect of such price changes in fixed assets can be, is difficult to say, because then you have to somehow separate out just one of a variety of factors which can influence the market valuation of fixed assets. At the extreme end, in a severe depression, many fixed assets cannot be sold at all, because nobody can thinks that any net income can be obtained from owning them.

  5. Following on from Jurriaan’s point, you can find the details of fixed capital stock valuation in here;

    http://www.bea.gov/papers/pdf/a-primer-on-the-measurement-of-net-stocks-depreciation-capital-services-and-their-integration.pdf

    p22

    “the fundamental equation of capital theory. This equation, which has been known for more than a hundred years, states that in equilibrium the price of a capital asset will equal the discounted present value of the net income expected to be derived from owning it over its lifetime. For non financial assets that are used by their owner, the net income is equal to the implicit rental value or user cost of the asset’s services. In other words, this net income is given by the asset’s gross income, less any associated inputs such as maintenance and repairs, fuel, etc. that we can describe as being operating costs. In the case of housing, think of operating costs as being any costs that a landlord might incur. This fundamental equation can be used to derive the user cost of capital measure of an asset’s services.”

  6. Although Karl Marx obviously did not subscribe to any Keynesian or neoclassical definition of the value of capital (in terms of the income that can be obtained from owning it), he did mention in Das Kapital Vol. 3 that rises and falls in the average rate of profit on capital are likely to cause corresponding rises and falls in the valuation of the capital assets themselves. Unfortunately, I cannot find the relevant passage right now, but when I do, I will post it.

  7. The world population is six times greater than in Marx’s time, and the massive increase in the post-colonial areas provides a gratuitous belated “confirmation” of the competitive labour reserve expectation, both in the sweatshop possibilities of Africa and southern Asia, and in the mobile diaspora (corporations welcome immigration as much as their revolutionary opponents). However, the develoment of automation aggravagates the unemployability problem. The question of the distribution of the products of Industry 4.0 & the exploitation of possibly dwindling planetary resources remain for solution without crash, or warfare. The idea of a world communist government, however, seems as remote as ever, less practicable than in the time of Lenin and Trotsky.

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