Introduction: Money, finance, and capitalist crisis

Extraordinary growth of the financial relative to the nonfinancial sector has marked the development of mature capitalism during the last four decades. The changing balance between the two sectors has altered the outlook of the economy and facilitated the spread of financial concerns, practices, and outlook across society. The result has been the gradual transformation of contemporary capitalism—namely, its financialization since the late 1970s. Financialization is marked by three profound tendencies: first, reduced reliance of nonfinancial enterprises on borrowed funds for investment; second, turning of banks toward transacting in open markets and household lending; and, third, increasing involvement of households in formal finance. These tendencies are summed up in the extraction of financial profit by various agents.

We believe that there are similarities between the Marxian, the Post-Keynesian and other heterodox approaches to analyzing the profound changes in money and finance in the global economy since the 1980s. Prominent among them is a common focus on financialization but also on the limits of monetary policy, the transformation of banking, the tendency to crisis related to financial excess, and the problematic role of neoliberalism in finance. Furthermore, the complexity of the interrelationship between finance and the rest of the economy has increased since the great crisis of 2007-9. This special issue of JPE provides an opportunity to tackle some of these developments as well as engaging in debate among different currents of heterodox economics.

The paper by Costas Lapavitsas and Ivan Mendieta-Muñoz, titled “Profitability trends in the era of financialization: Notes on the U.S. economy” considers the evolution of financialization of the US economy by examining the profitability and the volume of profits of the financial sector relative to general profitability and total profits in the economy. It is shown that financial profitability rose strongly from the early 1980s to the early 2000s. Similarly, the volume of financial profits reached extraordinary levels in the early 2000s. The authors argue that the great crisis of 2007-9 acted as a threshold point beyond which both the profitability and the volume of profits of the financial sector have not recovered previous levels.

Junji Tokunaga in his paper titled “The Comparative Advantage of the U.S. Shadow Banking System and the Role of the U.S. Dollar” examines the factors that enabled European banks to expand their USD-denominated balance sheets across the Atlantic through the U.S. shadow banking system in the 2000s. He argues that the comparative advantage of U.S. shadow banking system relative to the less advanced system in the Eurozone allowed European banks to expand USD-denominated balance sheets across the Atlantic, resulting in the reign of the U.S. dollar in the shadow banking system in the 2000s. He concludes that strong demand for long-term private U.S. debt securities and short-term U.S. financial instruments contributed to the reign of the U.S. dollar in the shadow banking system. The U.S. dollar standard system remained as asymmetric as ever in the 2000s.

Engelbert Stockhammer and Christina Wolf in their paper “Building blocks for the macroeconomics and political economy of housing” examine the role of housing in the global financial crisis 2007–08 and the Euro crisis. They survey different theoretical approaches to housing: mainstream economics, Post-Keynesian theory, Comparative Political Economy, and Marxist political economy. They emphasize the importance of adopting a class- and rent-based approach to housing, empirically based on the link with political attitudes and macroeconomic dynamics. They also investigate empirical aspects of housing in the UK from a class-analytic perspective.

Makoto Nishibe, in his paper “Marx’s Financial Capitalism” argues that “financialization” is one aspect of the “free investment capitalism.” He identifies several stages of market domination of the real economy. The capitalist economy was established with the general commodification of goods and the external commodification of labor power. Nishibe proposes the application of the concept of fictitious capital to human labour as a means of analysing the financialization of household income through loans and the accumulation of financial assets. He further distinguishes three stages of the capitalist economy with regard to the mode of commodification of labour power: E(external) Mode; I(internal) Mode; and G(general) Mode. He argues that in G mode (capitalist market economy with general commodification of labor power) labor power becomes a capitalistic product aiming at profit, and it is then transformed into fictitious capital (human capital). Globalization is ultimately oriented toward “free investment capitalism” where people, goods, and money move globally in search of high profitability.

Finally, François Chesnais in his paper titled “Financialization and the impasse of capitalism” argues that the decisive characteristic of financialization is the preeminence of financial accumulation over productive accumulation and of capital-as-property over capital-as-function. He examines the importance of inter-corporate power relationships in the distribution of surplus value, and contemporary banking and the sources of financial profits.

We hope that this special feature will contribute to a critical assessment of financialization, initiating further debate among different currents of heterodox economics.