Monopoly-Finance Capital

The year now ending marks the fortieth anniversary of Paul Baran and Paul Sweezy’s classic work, Monopoly Capital: An Essay on the American Economic and Social Order (Monthly Review Press, 1966). Compared to mainstream economic works of the early to mid-1960s (the most popular and influential of which were John Kenneth Galbraith’s New Industrial State and Milton Friedman’s Capitalism and Freedom), Monopoly Capital stood out not simply in its radicalism but also in its historical specificity. What Baran and Sweezy sought to explain was not capitalism as such, the fundamental account of which was to be found in Marx’s Capital, but rather a particular stage of capitalist development. Their stated goal was nothing less than to provide a brief “essay-sketch” of the monopoly stage of capitalism by examining the interaction of its basic economic tendencies, narrowly conceived, with the historical, political, and social forces that helped to shape and support them.

Hence, the most important question to address on the fortieth anniversary of Baran and Sweezy’s book is: Has capitalism changed, evolving still further within or even beyond the monopoly stage as they described it? There is of course no easy answer to this question. As in the case of all major historical developments what is most evident in retrospect is the contradictory nature of the changes that have taken place since the mid-1960s. On the one hand, it is clear that the system has not yet found a way to move forward with respect to its driving force: the process of capital accumulation. The stagnation impasse described in Monopoly Capital has worsened: the underlying disease has spread and deepened while new corrosive symptoms have come into being. On the other hand, the system has found new ways of reproducing itself, and capital has paradoxically even prospered within this impasse, through the explosive growth of finance, or what Sweezy was to refer to as “The Triumph of Financial Capital” (Monthly Review, June 1994). I will provisionally call this new hybrid phase of the system “monopoly-finance capital.”1

In bare outline the argument of Monopoly Capital can be summarized as follows. At the brink of the twentieth century, capitalism underwent a major transformation, marked by the rise of the giant corporation. The early decades that followed were dominated by world wars and a depression associated with this great transformation. Following the Second World War the new stage of capitalism was fully consolidated, particularly within the United States, the most advanced capitalist economy. The result was a situation in which a handful of giant corporations controlled most industries. This constituted an enormous departure from the freely competitive system of the nineteenth century, in which the economy had been mostly made up of small, family-based firms that had little control over price, output, and investment levels—all of which were determined by larger market forces.

In the new monopoly capitalist order firms behaved not as the freely competitive enterprises of textbook economics but as what Joseph Schumpeter in Capitalism, Socialism and Democracy called “corespective” firms, or rational, profit-maximizing oligopolies, each of which took their main rivals into consideration in their pricing decisions, and in their attempts to increase their profit margins and market shares.2 Such monopolistic firms abandoned mutually destructive price-competition, which was dubbed “price warfare.” Instead they competed mainly in the areas of cost-cutting and the sales effort. The result was what Baran and Sweezy called a “tendency of the surplus to rise” in the economy as a whole, and particularly in that part represented by the large corporations.

This meant that the main problem of the economy was to find ways to absorb the enormous actual and potential economic surplus. In line with earlier pioneering work by Michal Kalecki and Joseph Steindl, Baran and Sweezy argued that the monopoly capitalist economy was characterized by a tendency to stagnation as profitable investment outlets for the surplus were found lacking and as other ways of absorbing surplus (such as the sales effort and government spending) were ultimately unable to pick up the slack. The resulting chronic overcapacity in production kept capital accumulation on a short leash by reducing expected profits on new investment and hence the willingness to invest.

Short of the appearance of a new epoch-making innovation that would reignite the accumulation process with the scale-effects of the steam engine, the railroad, and the automobile, the system might remain mired in stagnation indefinitely. As Kalecki put it in his Theory of Economic Dynamics (1965), “Our analysis shows…that long-run development is not inherent in the capitalist economy. Thus specific ‘development factors’ are required to sustain a long-run upward movement.”3

The pivotal issue for monopoly capital was to find additional outlets for surplus, beyond capitalist consumption and investment, that would serve to keep the system from sinking into an economic malaise. Indeed, at the time Baran and Sweezy were writing capitalism was enjoying a “golden age,” a period of prosperity reminiscent of the best times of its youth. Much of their work was therefore directed at identifying those forces countering the system’s stagnation tendency. Chapters 5–7 examined how capitalist consumption and investment were supplemented as surplus absorbers by civilian government spending, military/imperialist expenditures, and the sales effort. However, growth of civilian government spending was strictly limited by the fact that it tended to intrude on areas of private accumulation. Military spending needed to be justified in terms of some external threat, and hence could only go so far. The sales effort was only rational at the level of the firm insofar as it translated into additional sales and increased market share. In general, Baran and Sweezy argued, there was a lack of symmetry between stagnation and those factors combating it. While the stagnation tendency was deeply rooted, powerful and persistent, the countervailing tendencies were more superficial, weaker and self-limiting.4

Looking back at this argument a quarter-century later in his article “Monopoly Capital After 25 Years” (Monthly Review, December 1991), Sweezy remarked: “On the whole I think it holds up pretty well when judged in the light of all the developments and changes that have taken place in this eventful quarter-century.” The prosperity of the early post–Second World War decades had begun to unwind almost as soon as their book was published and the 1970s saw a return to conditions of stagnation, reminiscent of the 1930s but not so gloomy, that have remained with the U.S. and world economy ever since. Monopoly Capital’sbold assertion in the middle of the post–Second World War boom that “the normal state of the monopoly capitalist economy is stagnation” (108), turning the usual assumption of rapid growth on its head, was therefore confirmed to a considerable extent by the subsequent historical record.5

Nevertheless, Sweezy on the twenty-fifth anniversary of Monopoly Capital saw its analysis as deeply flawed in one respect: the failure to envision the financial take-off that began in the 1970s and accelerated in the 1980s. As he put it, “There is one glaring discrepancy [between the theory and actual historical development] which is not even hinted at, let alone explained, in Monopoly Capital. This is the burgeoning in precisely these last twenty-five years of a vastly expanded and increasingly complex financial sector in both the United States and the global capitalist economies. And this development in turn has reacted back in important ways on the structure and functioning of the corporation-dominated ‘real’ economy.” He went on to describe three features of this financialization of the economy that modified or undermined important aspects of the Monopoly Capital argument.

First, the chapter on the giant corporation had assumed that the firm structure of corporate capitalism was more or less stable. The leveraged buy-out mania of the 1980s fed by junk bonds, however, changed all of that, demonstrating that even some of the largest corporations were vulnerable to outside takeovers by financial entrepreneurs. Such financial interests, led by junk bond kings, drew on huge cash reserves to court and buy out stockholders and to dump increased debt on the targeted firm once the takeover was completed, looting the acquired company. Although only relatively few giant corporations were subject to such hostile takeovers, the overall effect wrought on the corporate universe was enormous, forcing firms to load themselves down with debt in order to be less attractive to financial wolves looking for assets to leverage. Corporations as a whole took on “the coloration of speculative finance,” while the previous stability of the corporate world was shaken. This, Sweezy noted, “calls into question the corporate paradigm that Baran and I treated as a built-in feature of monopoly capitalism.” To some extent, control over the economy had shifted from the corporate boardrooms to the financial markets. Corporations were increasingly seen as bundles of assets, the more liquid the better.6

A second way in which Monopoly Capital came up short, Sweezy observed, was in its failure to anticipate the explosion of finance in the 1970s and ’80s, which was to have far-reaching effects on the laws of motion of monopoly capital. This, he stated, had “several dimensions: the number and variety of markets [and financial instruments] involved…; the dramatic expansion of activity in these markets; the absolute and relative growth in employment in financial occupations; and the increase in the share of finance in GNP. Along all these dimensions the relative size of the financial sector has grown enormously in the last two decades.”

This ballooning of finance produced new outlets for surplus in the finance, insurances, and real estate (FIRE) sector of GDP in the form of new investment in buildings, office equipment, etc. Nevertheless, the great bulk of the money capital devoted to finance was used for speculation in securities, real estate, and commodities markets rather than for investment in capital goods, and thus did not feed into the growth of GDP, which continued to stagnate.

Third, the argument advanced in Monopoly Capital, Sweezy observed, did not foresee a shift that was to occur in the overall direction of investment. Relying on his analysis with his MR coeditor Harry Magdoff of “The Strange Recovery of 1983–84” (Monthly Review, October 1986), he noted how business cycle recoveries traditionally took the form of strong investment in plant and equipment in manufacturing, transportation, and public utilities. But these areas of investment were now seeing little rise even in the recovery stage of the business cycle in comparison to those areas such as office equipment associated with FIRE.

“Why,” Sweezy asked, “did Monopoly Capital fail to anticipate the changes in the structure and functioning of the system that have taken place in the last twenty-five years? Basically, I think the answer is that its conceptualization of the capital accumulation process is one-sided and incomplete”:

In the established tradition of both mainstream and Marxian economics, we treated capital accumulation as being essentially a matter of adding to the stock of existing capital goods. But in reality this is only one aspect of the process. Accumulation is also a matter of adding to the stock of financial assets. The two aspects are of course interrelated, but the nature of this interrelation is problematic to say the least. The traditional way of handling the problem has been in effect to assume it away: for example, buying stocks and bonds (two of the simpler forms of financial assets) is assumed to be merely an indirect way of buying real capital goods. This is hardly ever true, and it can be totally misleading.

This is not the place to try to point the way to a more satisfactory conceptualization of the capital accumulation process. It is at best an extremely complicated and difficult problem, and I am frank to say that I have no clues to its solution. But I can say with some confidence that achieving a better understanding of the monopoly capitalist society of today will be possible only on the basis of a more adequate theory of capital accumulation, with special emphasis on the interaction of its real and financial aspects, than we now possess.

Reviewing Sweezy’s reassessment of Monopoly Capital a decade and a half further on, I believe he was too harsh a critic of his and Baran’s book for what he called its “glaring discrepancy” with respect to its understanding of accumulation and finance. Far from failing to even “hint” at the role of finance, Monopoly Capital had included at the very end of their chapter on “The Sales Effort” a separate section on the role of the finance sector as an outlet for surplus absorption, arguing that this was “on an equal footing with the sales effort.” There Baran and Sweezy stressed the “sheer magnitude” of surplus diverted into FIRE in the national accounts. This represented, they argued, nothing less than a “gigantic system of speculating, swindling, and cheating,” mounting ever higher along with the rising surplus and contributing to the growing irrationality of the system (139–41).

If there was one U.S. economist who was closest to Baran and Sweezy while Monopoly Capital was being written it was Harry Magdoff, who was party to the discussions that led to Baran and Sweezy’s book, and who was to join Sweezy as coeditor of Monthly Review in 1969. In the 1965 issue of the Socialist Register, appearing at about the same time that Monopoly Capital was completed, Magdoff stressed the problem of the rise in credit/debt in the U.S. economy. In addition, in the final sentence of his 1967 review of Monopoly Capital, Magdoff wrote: “Other areas that seem to be especially pertinent to the development and testing of the Baran-Sweezy thesis are: the role of credit and speculation in the expansion and contraction of the surplus; and the interrelation between the U.S. as world banker, the dollar as an international currency, balance of payments difficulties, and the international nature of the U.S. economy.”7 It is therefore not surprising that very soon after the publication of Monopoly Capital, Magdoff and Sweezy were to take up all of these issues, focusing in particular on the critical problem of credit and speculation in the absorption of the surplus.

The financialization of monopoly capital, it is now apparent, represented a whole new historical period—one that no one had any inkling of in the 1960s, and that, according to existing economic doctrine, both mainstream and Marxian, remains largely inexplicable today. When the first real signs of a massive secular increase in debt appeared in the 1970s and ’80s it was Magdoff and Sweezy writing for Monthly Review who were among the first to perceive the magnitude of the changes taking place, and who were almost alone in emphasizing the significance of the dual reality of stagnation and the financial explosion.8

Indeed, from the standpoint of today one is struck by how early the MR editors recognized the importance of the change taking place in the workings of capitalism. As Fred Magdoff has recently noted in “The Explosion of Debt and Speculation” (Monthly Review, November 2006), what they “observed in the early to mid-1980s was only an early portent of what was to be an unprecedented upsurge of debt in the economy….In the 1970s [when they first pointed to the phenomenon] outstanding debt was about one and a half times the size of the country’s annual economic activity (GDP). By 1985, about the time they were increasingly focused on the subject, it was twice as large as GDP. By 2005 total U.S. debt was almost three and a half-times the nation’s GDP and not far from the $44 trillion GDP for the entire world.”9

The principal backdrop against which we normally view the growth of finance is production, the so-called real economy. In cutting through the usual obscurities of economic thought and focusing on the real-world tendencies of rising surplus and stagnation, Monopoly Capital had provided the theoretical basis with regard to production from which Sweezy and Magdoff were able to ascertain the enormity of the qualitative transformation represented by the explosion of finance almost from the moment of its inception.

Yet, if the basic argument of Monopoly Capital, I argue,remains crucial, there is still no avoiding Sweezy’s own contention that his and Baran’s book contained a flaw common to both Marxian and mainstream economic theory in its reliance on a one-sided view of the capital accumulation process. According to the argument that he advanced in the 1990s, the accumulation of capital cannot be seen as simply adding to stocks of existing capital goods. It must also be perceived as a build-up of financial claims to wealth. Moreover, the latter cannot be written off as merely a fictional mirror of the former as has been customary in economic theory, which has long distinguished between what it calls the “real” and the financial aspects of the economy—a byproduct of its tendency to treat money as mainly “neutral” in its effects on the economy apart from the price level.10 Both production and finance under capitalism are at one and the same time both real and monetary in nature.

The rise of monopoly capitalism in the late nineteenth through the twentieth century went hand in hand with the rise of the market for industrial securities, i.e., the introduction of the stock market. Traditionally, the accumulation of stocks and bonds and other financial instruments has been seen as a form of the collective pooling of savings (or surplus) for investment in production. This, however, is seldom actually the case since very little of what passes through the stock exchange and other financial markets is channeled into investment in the productive economy. The development of a massive and sophisticated system of finance associated with corporate finance and banking, centered on the stock market (which Marx already in his time saw as the basis of a vast expansion of the credit market) was a product of the desire of investors to limit their risk associated with investment within production by the holding of “paper” claims to wealth. Such paper claims were liquid and easily transferable, and thus separate from the “real” assets that resided with the corporation. “So long as it is open to the individual to employ his wealth in hoarding or lending money,” Keynes wrote in The General Theory, “the alternative of purchasing actual capital assets cannot be rendered sufficiently attractive…except by organising markets wherein these assets can be easily realised for money.”11

But the contradiction that this creates for accumulation is far-reaching. As Magdoff and Sweezy explained in “Production and Finance” (Monthly Review, May 1983), “corporate securities acquired the attribute of liquidity—instant convertibility into cash—which the physical assets of corporations by their very nature could never have. And once this stage had been reached, the way was open for a proliferation of financial instruments and markets which, so far at any rate, has proved to be literally unlimited.” Focusing on this contradiction of the capitalist economy, Keynes in 1931, had noted that to a considerable extent “the actual owners of wealth [say of corporations] have claims, not on real assets, but on money….The interposition of this veil of money between the real asset and the wealth owner is a specifically marked characteristic of the modern world.”12 Such a dual system of accumulation was bound to generate a rise in speculation, and an ever more layered/leveraged financial system. Under such circumstances, Keynes observed in an oft-quoted expression, the danger is that “enterprise becomes the bubble on a whirlpool of speculation.”13

In the late 1950s and early 1960s, when Monopoly Capital was being written, industrial capital was still firmly in control, financing its investment through its own internal funds, and it was common to see the basis of the system at the level of the giant firm as fairly stable. But the changes that emerged with the resurfacing of stagnation altered all of that. The golden age of the 1960s was succeeded by a leaden age that dragged on seemingly endlessly with no hope of full recovery. “A new stimulus was badly needed” under these conditions, Sweezy observed in “The Triumph of Financial Capital,” “and it emerged in a form which, while certainly unanticipated, was nevertheless a logical outcome of well established tendencies within the global capitalist system.” Unable to find profitable outlets for their investment-seeking surplus within the productive economy, corporations/capitalists, sought to augment their money capital by means of financial speculation, while the financial system in its turn responded to this increased demand for its “products” with a bewildering array of new financial instruments—including stock futures, options, derivatives, hedge funds, etc. The result was the rise by the 1980s of a financial superstructure that increasingly took on a life of its own.

Naturally, this autonomy of finance from production is of a relative rather than an absolute kind. Financial euphorias during which speculative finance seems to be breaking away from its moorings in production, inevitably lead to widespread notions of a “New Economy,” as in the late 1990s, rooted in the mistaken assumption that the laws of gravity have been suspended.14 Such financial bubbles inevitably burst in the end, as in the stock market crashes of 1987 and 2000. What Hyman Minsky, based on the work of Keynes, called “the financial instability hypothesis,” according to which advanced capitalist economies inevitably shift toward progressively more fragile financial structures not supported by the underlying accumulation process, thereby generating financial crises, remains an irrefutable truth.15 Reflecting this, a recently released collection of interviews of Wall Street financial investors and analysts is ironically entitled What Goes Up.16

Nevertheless, what is most startling, looking back on the last two decades since the 1987 stock market crash, is that the major financial meltdowns over the period did little to halt the long-run growth of debt as a percent of GDP in the U.S. economy, which continued to skyrocket with only brief pauses after the financial blowouts. While the stock market lost nearly 50 percent of its value (in terms of the Standard and Poor 500) between March 2000 and October 2002, it had regained around half that loss two years later.17 Debt, meanwhile, continued its inexorable rise. The economic shock from the bursting of the stock market bubble was eased by the expansion of the debt bubble in housing prices, based on speculation in the housing market—a bubble that has now been pricked by rising interest rates, slowing down economic growth (“Housing Cools Down Economy,” New York Times, October 28, 2006). Doubtless other bubbles will follow only to burst in the end.

None of this is to deny of course that a much bigger financial shock and debt-deflation might have a more lasting effect—producing a severe form of stagnation that alters the rules of the game. In Japan a major financial crash at the beginning of the 1990s contributed to what has been called “The Great Stagnation,” in which that country has been mired ever since.18

A lot depends not on conditions in the United States alone but on the global economy and the global financial system. World production as a whole is characterized by slow growth, surplus capacity, and an ever greater polarization, with the poorest of the poor (especially in Africa) sinking into a horror of immiseration and plummeting life expectancy. Meanwhile, the massive U.S. current account deficit has made it the world’s largest debtor economy. This means that there is a surfeit of dollars globally. China alone holds no less than a trillion U.S. dollars in its foreign reserves. Under these circumstances of increasing global financial fragility centered on the dollar, it is not difficult to envision a meltdown of truly earth-shaking proportions. The Asian financial crisis of 1997–98 gave some indication of how fast financial contagion can spread.

But if a global debt meltdown and debt-deflation is certainly one possibility at present, another is that the dual contradiction of stagnation and financial explosion will be prolonged indefinitely, barring some major external shock to the system. The Federal Reserve and the central banks of other leading capitalist states are prepared to pump liquidity quickly into the system at any sign of a major financial disruption, acting as lenders of last resort. The possibility that they might be able to prop up this whole shaky structure for some time to come cannot therefore be entirely discounted. The question then arises: What are the likely consequences of a long-run continuation of the financial explosion of the last three decades? Historical experience suggests that while the financial expansion has helped to absorb surplus it has not been able to lift the productive economy out of stagnation to any appreciable degree—so the two realities of stagnation and financial explosion coexist. As Business Week once editorialized (September 16, 1985), “Slow growth and today’s rampant speculative binge are locked in some kind of symbiotic embrace.” Making money increasingly displaces making goods (and services) and the latter is consequently dwindling in proportion.

Indeed, bigger and bigger injections of debt now seem to be necessary to stimulate a given growth of GDP. As Fred Magdoff noted in “The Explosion of Debt and Speculation” in November, “Although there is no exact relationship between debt creation and economic growth, in the 1970s the increase in the GDP was about sixty cents for every dollar of increased debt. By the early 2000s this had decreased to close to twenty cents of GDP growth for every dollar of new debt.”

A system geared to speculation under conditions of increasing financial fragility needs constant new infusions of cash, much of which is obtained from the working population through drastic increases in exploitation. For most U.S. workers the economic contradictions of monopoly-finance capital have created a situation something like the closing of a vise-grip. Real wages for most workers have been stagnant for a generation or more; household debt is rising as a proportion of disposable income; unemployment/underemployment has climbed; labor force participation is falling (reflecting weak job creation and the discouragement this engenders); heath care benefits, pensions, and governmental services to the population (including education) are all in decline; and the share of taxes paid by workers is expanding. It would seem from all of this that under monopoly-finance capital “an accumulation of misery” is “a necessary condition, corresponding to the accumulation of wealth.”19

One issue that urgently needs to be addressed is the specific relation of the new phase of monopoly-finance capital to imperialism. The present decade has seen the emergence of a new naked imperialism, marked by U.S. wars in Iraq and Afghanistan, an expansion of U.S. military bases globally, and a big jump in U.S. military spending. Washington’s aggression is aimed primarily at regaining some of the lost U.S. hegemony over the world economy. But behind this imperialist expansion there are also deep-seated concerns at the top of the U.S. global empire over economic stagnation, control of the world’s oil supply and other strategic resources, and the bases of financial dominance and stability (including the hegemony of the dollar).

Moreover, this new naked imperialism is an extension of tendencies already visible in neoliberal globalization that arose in response to the spread of stagnation in the 1970s and ’80s, and that took a particularly virulent form with the onset of the third world debt crisis in the early 1980s. There is no doubt that monopoly-finance capital requires enhanced intrusion into the economic and social life of the poor countries for the purpose of extracting ever greater surplus from the periphery. Third world countries have long experienced an enormous net outflow of surplus in the form of net payments to foreign investors and lenders located in the center of the world system. These and other payments for services (for example freight charges owed to capital in the rich countries) have a negative effect on the current account balances of underdeveloped countries and tend to pull them into the red irrespective of the trade balance, which is also normally stacked against them.20 Neoliberal economic restructuring, characteristic of the age of global monopoly-finance capital, only worsens this overall situation, removing whatever limited controls peripheral economies had on international capital in their countries and whatever limited supports were established for their own populations. Such neoliberal restructuring is spearheaded by the economic troika of the IMF/World Bank/WTO, and by the governments and coporations of the center countries. But it is ultimately backed by the military forces in the advanced capitalist states, particularly the U.S. gendarme, which exceeds in the production of means of destruction all of the other imperial powers put together. If history is any guide, the current revolt emerging against neoliberalism throughout the periphery will be met with increased interventions from the imperial center of the system, led by the United States.

Four decades after the publication of Monopoly Capital the contradictions of capitalism depicted there have metamorphosed into altogether more destructive forms. There is no existing economic theory that adequately explains the phase of monopoly-finance capital. But the specific answer to “the irrational system” that Baran and Sweezy provided in the closing sentences of their book (which they dedicated to their friend Che) is now more pertinent than ever: “What we in the United States need is historical perspective, courage to face the facts, and faith in mankind and its future. Having these, we can recognize our moral obligation to devote ourselves to fighting against an evil and destructive system which maims, oppresses, and dishonors those who live under it, and which threatens devastation and death to millions…around the globe.”

Notes

1. In using the term “finance capital” here I am not doing so in the specific sense in which it was introduced in Rudolf Hilferding’s great work Finance Capital (1910) where it was defined at one point as “capital controlled by the banks and utilized by the industrialists.” Rather the term is meant in this case to refer to the employment of money capital in financial markets and speculation more generally. In this regard, Doug Henwood’s sharp criticism of Hilferding’s position on bank control is worth quoting: “I’m very critical of Hiferding…for arguing that the German-style model of capitalism, with a handful of big banks owning big industrial concerns, was the future of the system, and that the Anglo-American stock-market system was on the way out. He couldn’t have been more wrong; as the gloomy Wall Street economist Henry Kaufman put it a few years ago, we’re seeing the Americanization of global finance.” Doug Henwood interviewed by Geert Lovink, “Finance and Economics After the Dotcom Crash,” December 20, 2001, http://www.nettime.org. See also Paul M. Sweezy, The Theory of Capitalist Development (New York: Monthly Review Press, 1942), 266.
2. Joseph Schumpeter, Capitalism, Socialism and Democracy (New York: HarperCollins, 1942), 90n.
3. Michal Kalecki, Theory of Economic Dynamics (London: George Allen and Unwin, 1954), 161. See also Josef Steindl, Maturity and Stagnation in American Capitalism (New York: Monthly Review Press, 1976).
4. Later in their book Baran and Sweezy also pointed to historical factors, such as the second wave of automobilization of the U.S. economy in the 1950s (which included the building of the interstate highway system, the growth of the suburbs, etc.). However, the automobilization of the U.S. economy, they argued, was no longer an expansive factor, and was entering a period of simple reproduction.
5. For a work applying this theory to today’s global economy see Bill Lucarelli, Monopoly Capitalism in Crisis (New York: Palgrave Macmillan, 2004).
6. The dominance of finance is not the same thing as a shift in power from non-financial to financial institutions, since the distinction between the two has become increasingly blurred. Non-financial corporations from General Motors to Wal-Mart are increasingly involved in lending activities from which they derive much of their income, as well as in outright speculative finance. For empirical evidence of what could be called the financialization of non-financial firms see Greta R. Krippner, “The Financialization of the American Economy,” Socio-Economic Review 3, no. 2 (2005): 173–208.
7. Harry Magdoff, “Monopoly Capital,” Economic Development and Cultural Change, 16, no. 1 (October 1967): 145–50, and “Problems of United States Capitalism” in Paul M. Sweezy and Harry Magdoff, The Dynamics of U.S. Capitalism (New York: Monthly Review Press, 1972), 7–29.
8. See in particular Harry Magdoff and Paul M. Sweezy, Stagnation and the Financial Explosion (New York: Monthly Review Press, 1987).
9. Fred Magdoff, “The Explosion of Debt and Speculation,” Monthly Review 58, no. 6 (November 2006): 7. The figures on the debt explosion in the U.S. economy, though startling, underestimate the growth of financial speculation. There is no accepted way of measuring the full scale of such speculation since numerous financial instruments now exist that, as Henwood points out, are “completely outside the conceptual realm of traditional accounting, which can think of debt and equity, liabilities and assets, but not more insubstantial instruments like options, futures, and inverse floaters. And unlike stocks or loans, it’s hard to put a dollar volume on them, since the purported value of the transaction—the notional principal—is usually far more than the sum of money actually at risk….But the very immeasurability of the things underscores the point about financialization: layers of claims have been piled upon layers of claims, most of them furiously traded, with some resisting definition and measurement…[I]f there were some way to capture their growth, the line on the chart would no doubt run off the page.” Doug Henwood, After the New Economy (New York: The New Press, 2005), 192. See also Doug Henwood, Wall Street (New York: Verso, 1997).
10. The enormous difficulties that economists encounter in any attempt to relate “real” and financial markets can be seen in John H. Cochrane, ed., Financial Markets and the Real Economy (Northampton, MA: Edward Elgar, 2006).
11. John Maynard Keynes, The General Theory of Employment, Interest and Money (London: Macmillan, 1973), 160–61.
12. John Maynard Keynes, Essays in Persuasion (New York: Harcourt, Brace and Co., 1932), 169.
13. Keynes, The General Theory, 159.
14. For a critique of the “New Economy” myth used to rationalize the stock market bubble of the late 1990s (prior to its bursting in 2000) see The Editors, “The New Economy: Myth and Reality,” Monthly Review 52, no. 11 (April 2001): 1–15. One of the empirical points brought out in this piece is that the great bulk of information technology investment occurs in the finance, insurance and real estate sector and other services (such as retail trade) and not in manufacturing.
15. Hyman P. Minsky, John Maynard Keynes (New York: Columbia University Press, 1975), and Can “It:” Happen Again?: Essays on Instability and Finance (Armonk, NY: M.E. Sharpe, 1982). See also Gary Dymski and Robert Pollin, eds., New Perspectives in Monetary Macroeconomics: Explorations in the Tradition of Hyman P. Minsky (Ann Arbor: University of Michigan Press, 1994).
16. Eric J. Weiner, What Goes Up: The Uncensored History of Modern Wall Street (New York: Little, Brown and Co., 2005).
17. Henwood, After the New Economy, 231.
18. Michael M. Hutchinson and Frank Westermann, eds., Japan’s Great Stagnation (Cambridge, MA: MIT Press, 2006).
19. Karl Marx, Capital, vol. 1 (London: Penguin, 1976), 799.
20. See The Editors, “A Prizefighter for Capitalism: Paul Krugman vs. the Quebec Protesters,” Monthly Review 53, no. 2 (June 2001): 1–5.