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Abstract
Rudolf Hilferding’s Das Finanzkapital dealt with the increasing role of finance in the German economy and the resulting structural transformations. The young Sraffa shared with Hilferding an interest on the role played by the banks in the transformation of capitalism. The relationship among banking and industrial capital implied different business models of the German and UK banks and determined the resulting domination of financial capital on the economy. We deepen the methodological and practical similarities and differences of the two scholars, discussing the aspects that are still relevant today to understand financialisation and instability of capitalism.
Acknowledgement
The author wishes to thank Prof. Stefano Solari for the many helpful discussions on these topics, Prof. Lorenzo Esposito and Dr. Ettore Giuseppe Gatti for the comments on the text and the anonymous referees for their thorough observations.
Disclosure statement
No potential conflict of interest was reported by the author.
Notes
1 Before the World War One, he assumed the role of editor of Neue Zeit, the monthly theoretical journal of the Social Democratic Party. After the war, he was one of the main leader of the party.
2 See the biography in Smaldone (Citation1998) and Greitens (Citation2012).
3 At the time, Hilferding supported the political position of Kautsky.
4 See Dobb (Citation1967) and the analysis of Kocka (Citation1974) and Puhle (Citation1984).
5 E.g., Monopoly Capital by Baran and Sweezy (Citation1966).
6 See the studies by Michaelides and Milios (Citation2005) and Peneder and Resch (Citation2015).
7 Panico (Citation1988) argues that “in his earlier writings, Sraffa proposed a view of the working of the economic system in which the “normal” or “equilibrium” position of the economy is affected by the conflictual relations between different social groups, pursuing their own interest. State intervention is part of these conflicts, being determined by them, and has an important influence on the formation of the “equilibrium” real wage rate and of the other distributive variables”.
8 These ideas are connected also to Hilferding’s interpretation of the theory of value and of the role of capital as a quantity of money (see Brancaccio and Cavallaro Citation2011).
9 For this reason, he has been criticized by Kautsky, Lenin and other Marxian scholars (Greitens Citation2012, 291, 338).
10 The distinction was not new, but here it is connected to the credit theory of money. The term ‘active money capital’ is used by Hilferding as opposed to the idle money of savings. Following the literature of his time, Hilferding gave importance to the asset side of the banking activity (basically corporate lending), whereas today money is linked to bank’s liabilities (deposits). However, this change does not lead to significant differences in the results of the analysis.
11 This view of Hilferding precedes and affects (via Schumpeter) Minsky’s concept of ‘money manager capitalism’. See Minsky and Whalen (Citation1996, 1997) and Wray (Citation2011).
12 Some historical studies questioned this emphasis on concentration and cartelization, arguing that not all sectors were higly concentrated (De Boer Citation1998). However, that of Hilferding was not meant to be a ‘concrete historical analysis’ (Greitens Citation2012, 315).
13 This methodology was not new (after the Historical school or Max Weber), but the specific application to the study of the different financial systems influenced comparative economics and economics.
14 Hilferding argues that the nature of credit conflicts with that of capitalism: it is based on the notion of ‘organization and control as opposed to anarchy’, which would otherwise characterize capitalism (1910: 180).
15 Schumpeter also used an ideal type of this kind: ‘neo-merkantilistischen Kondratieff’. See Puhle (Citation1984).
16 The political economy field of study from Hall and Soskice (Citation2001) to Amable (Citation2003).
17 This will affect German neo-liberalism, particularly the conceptions of Walter Eucken and Wilhelm Röpke, respectively, of competition policy and the decentralization of markets. The latter concept refers exactly to the kind of analysis developed by Hilferding although Röpke never cited this literature.
18 That would lead to socialism without the need of a revolutionary crisis.
19 There is obviously some affinity with, or even a direct influence on, the later speculation on this theme by Schumpeter (Citation1950).
20 Smaldone (Citation1998) gives a detailed account of this last part of Hilferding’s career.
21 The article was originally published in May 1940, when Hilferding was still alive, in Socialist Courier, a Russian language magazine based in New York.
22 The essence of a totalitarian government is tied to the expansion and consolidation of its power. The achievement of this end requires the development of a ‘war-economy’, the creation of a mighty military organization, the establishment of a well-organized, planned and autarchic economic system, and the consent of the largest portion of the population through various political promises of a nationalistic kind. The militarization of the economy reinforced expansionary policies, which no longer were simply determined by the international expansion of financial capital as in Das Finanzkapital, to reach raw materials and food that were functional to the autarchic economy.
23 We refer to the interpretation of the German development studied by Biscaini and Ciocca (Citation1977) and Civale (Citation1999).
24 In Schumpeter’s view, this is due to the capitalization of the value of innovation.
25 ‘I call bank capital, that is, capital in money form which is actually transformed in this way into industrial capital, finance capital’. This definition is supplied at the end of chapter XIV (Hilferding Citation1910, 224). Sraffa does not refer to Hilferding but to other sources, such as Parker Willis and Beckhart (Citation1929), based on documents of the American National Monetary Commission 1911, Riesser (Citation1905), Weber (Citation1902, revised in 1922 with updated statistics), Jeidels (Citation1905) and Goldschmidt (Citation1904, 1928).
26 Sraffa stated that banks’ liquidity depends on ‘the existence of a large market for the commodity or the security in question’ because ‘the more extensive their market, they more readily are they convertible into cash’(Sraffa Papers, D2/5/141).
27 Sraffa noted within brackets (Sraffa Papers, D2/5/25 2): ‘The advantage of this for the industrialist is that, simply by locking up a sum equal only to half the bank’s capital he can secure for his business all the deposits of the bank which may amount to several times that sum’.
28 Sraffa (D2/5/31) also dealt with the costs of German banks. He cited Le Montréer (Citation1928), who insisted on the negative consequences of the lack of specialization. The large variety of operations that every branch agency was obliged to perform and the habits of German customers (scarce diffusion of checks for payment and the costly administration of small savings deposits that have to be remunerated) were particularly costly. Finally, he remembers that saving deposits also were payable with a small commission, even if they should have been subject to recall with some forewarning.
29 The strength of this reserve was, according to Sraffa (D2/5/574), overestimated. He thought that balancing the banks’ currency reserves and foreign deposits was impossible. Actually, foreign capital was attracted by higher monetary interest rates, and if German banks had invested such foreign funds (and remunerated with a higher interest) abroad, where interest rates were lower, they would have incurred into losses. In fact, the German banks tended to lend in foreign currencies to German companies, reversing the foreign exchange risk to their clients. Sraffa correctly identified the risks emerging in the case of the sudden demand for refunding by foreign investors. The difficulty of refunding such loans would have been clear because of the difficulty to obtain the entire amount in foreign currency.
30 This is a quotation that Hilferding took from a paper written by Dr. Volcker of the Association of German Newsprint Producers (Hilferding Citation1910, 1981, 190–91).
31 The discussion of this topic in ch. XI uses Marx as the only theoretical reference. On the other hand, the result is that the rate of profit depends on the competition among capitals as in Smith. Hilferding does not discusses objections to the classical and Marxian idea of the lowering tendency of the profit rate even if he was aware of the first criticisms to it (for instance by Böhm-Bawerk to whom he replied in 1904).
32 Hilferding believed that, as underlined by Marconi and Fradeani (Citation2001), a tendency law can be depicted in capitalist development, which sees the progressive domination of the banking system over industry. This idea is related to the observation that ‘together with the development of capitalistic monopoly…the resources that the unproductive class makes available to banks is growing’ (Hilferding Citation1910, 1981, 225–226), which produces the need for such resources to be adequately invested and remunerated. If these sums were limited, big banks could employ them as credit to circulation and speculation. However, as these sums begun to increase, they had to be converted into industrial capital. That took place in a context of dissociation between the formation of savings and the investment decision. A growing part of industrial capital does not belong to the industrialists who employ it. They succeed in controlling this capital only through the banks, which, with respect to firms, represent the proprietors of money. Hence, the power of the banks grows, and they become the founders and dominators of industry, whose profits, in the form of financial capital, they seize, in the same manner as the ancient usurers usurped by the means of the ‘interests’ the income of peasants (Hilferding Citation1910, 1981, 91). The union of industrial and the bank’s capital comes from the same definition of financial capital: banking capital, that is, the capital in form of money was effectively transformed in industrial capital (Hilferding Citation1910, 1981, 225). This tie pushes the banking system to avoid and prevent competition in contexts that favor concentration. Even if these reflections were not accepted by mainstream economists of the time who dealt with the lack of development of Italian financial markets (e.g., Luigi Einaudi and Maffeo Pantaleoni), they influenced the ‘practical evaluations’ needed to address savings towards State controlled channels.
33 Hilferding did not highlighted the historically relevant phenomenon of the bank acquisition of stakes in companies as a result of the swap of bad credits into shares, which served to improve the financial structure of firms and to safeguard the banks’ income. This fact may be because of his ideological position and the lack of practical experience in the field. This aspect notwithstanding, Hilferding grasped a fundamental aspect of the consolidation of enterprises’ financial structure and banks’ interests.
34 We borrow this general interpretation from a reading of part three and part four of Hilferding’s (Citation1910, 1981) book. The role of banks is discussed in ch. XVIII. On the other hand, Hilferding never mentions the state or government in part three that deals with cartels and the restriction of competition. The discussion on the role of the State is in part five, ch. XXI, where Hilferding deals with the role of excise duties and other kind of protectionist regulation.
35 He underlined that this solution is not satisfactory for the public even if it safeguards the bank’s creditors.
36 …’urgent necessity, if new disasters are to be avoided, is to get the industries again under the control of those whose interests it to make them prosper’ (Sraffa Citation1922b, 196).