Global finance as capital rule. The “creative” role of the ECB

Spyros Lapatsioras
University of Crete,
John Milios
National Technical University of Athens,
1. The prevailing heterodox approaches to neoliberalism and financialization
A crucial aspect of many heterodox approaches to modern capitalism, finacialization
and crisis is the idea that the domination of neoliberalism and of the globalized
financial sector of the economy produces a predatory version of capitalism, a
capitalism that inherently tends towards crisis.
Recent heterodox literature is dominated by a single and persistent argument,
according to which contemporary financial liberalization should be approached as a
process in which the financial elites and financial intermediaries, i.e. contemporary
rentiers in the Keynesian terminology, have a leading role in working out the details of
the neoliberal form of capitalism.2 Writing in the mid 1930s, Keynes (1973: 377)
predicted the eventual extinction (“euthanasia”) of the rentiers “within one or two
generations”. Many present-day Keynesians portray the developments of the last
decades as the “revenge of the rentiers” (Smithin 1996: 84, coins this phrase), who are
said to have shaped the contemporary political and economical agenda in accordance
with their own vested interests.
In this quasi-Keynesian discourse the economic and political strengthening of
rentiers entails: (i) an increase in the economic importance of the financial sector as
opposed to the “real” industrial sector of the economy, (ii) the transfer of income from
the latter to the former, thereby increasing economic inequalities and depressing
effective demand, (iii) the exacerbation of financial instability, transforming it into central aspect of modern capitalism.
According to these approaches, industrial corporations have ceased to be the
“steam-engine of the economy” as Keynes and Schumpeter portrayed them in the past.
Their priority is to serve the interests of rentiers (i.e. of major shareholders and the
financial institutions representing them): to increase remuneration for major
shareholders, enhancing their influence over company decision-making at the expense
of the interests of other stakeholders (viz. workers, consumers and managers).
It appears that two relevant changes have taken place in enterprises. Firstly, joint-
stock companies are now conceived of as portfolios of liquid subunits that home-office
management must continually restructure to maximize their stock price at every point
in time. Secondly, and as a consequence of the first change, there is a fundamental
(forced) change in the incentives of top managers who now think rather in terms of
maximization of short-term stock prices. The end-product of the whole process is anti-
labour business policies on the one hand and on the other a focus on short-term
(speculative) gains rather than on long-term economic development, stability, and
Hence, neoliberalism is conceived as an “unjust” (in terms of income
distribution), unstable, anti-developmental variant of capitalism whose direct
consequence is contraction of workers’ incomes and the proliferation of speculation.
To put matters schematically, the rentier owners of financial securities induce a fall in
the “price” of labour so as to increase the value of their stocks (bonds and shares) at
the same time engaging in speculation so as to obtain short-term advantages vis-à-vis
rival rentiers.
This general conception seems to be prevalent in the realm of Marxist discussion
also. For a number of theoreticians influenced by it, neoliberal capitalism has not
succeeded (at least to date) in restoring the profitability of capital (the rate of profit) to
high levels, that is to say to levels satisfactory for dynamic capitalist accumulation. It
appears to be entrapped (since the mid-1970s) in a perennial crisis, the end of which is
3 These analyses are all more or less variations on the same theme and within the same problematic.
Shareholders and the managers they hire are conceptualized as collective economic agents with distinct
economic behaviours and objectives. Managers are supposedly interested in promoting their personal
power and status through an infinite expansion in the size of the firm, but not interested in increasing
dividends to shareholders. The renewed dominance of rentiers that has come with the resurgence of
neoliberalism has forced managers to comply with shareholder demands. They were obliged to abandon
the long-term policy of “retain and reinvest” in favour of a short-sighted practice of “downsize and
2not readily visible. The result of this is that large sums of capital are unable to find
outlets for investment. This has two probable consequences. Firstly, this “surplus”
capital stagnates in the money markets, creating “bubbles”, or is used to underpin
ineffective policies of forced accumulation that depend on lending and debt (Brenner
2001, 2008, Wolff 2008). Secondly, this capital circulates internationally in pursuit of
accumulation by dispossession (Harvey, 2010), even profiting, that is to say, not from
exploitation of labour but from direct appropriation of income chiefly from those who
are not financially privileged or do not occupy an appropriate position in the market
for credit (Lapavitsas 2008).
Their basic weakness – and it is at the same time the link that holds them together
– is that they represent the neoliberal formula for securing profitability of capital not
as a question of producing surplus value but as a question of income redistribution
pertaining essentially to the sphere of circulation. It thus appears that the
developmental “ineptitude” and the instability of present-day capitalism are the result
of a certain “insatiability”, or at any rate of bad regulation, in the relations governing
In other words, these approaches understand extreme austerity policies, which
prevailed in many parts of the developed capitalist world and especially in the
European Union (EU) and the Euro-area (EA), after the outbreak of the 2008 global
economic crisis, as irrational. This supposed irrationality further deteriorates the
economic crisis by creating a vicious cycle of falling effective demand, recession and
However, these criticisms can hardly explain why this “irrational” or “wrong”
policy persists, despite its “failures”.4 In reality, economic crises express themselves
not only in a lack of effective demand, but above all in a reduction of profitability of
the capitalist class. Austerity constitutes a strategy for raising capital’s profit rate.5
4 For a critique of these approaches see: Sotiropoulos, Milios, Lapatsioras (2015).
5 Karl Marx has clearly illustrated this point. Criticizing underconsumptioninst approaches, according to
which the cause of crises is a lack of effective demand, he notes that it is exactly when the purchasing
power of the working people reaches a relatively high level that crises erupt: “It is sheer tautology to say
that crises are caused by the scarcity of effective consumption, or of effective consumers. The capitalist
system does not know any other modes of consumption than effective ones, except that of sub forma
pauperis or of the swindler. That commodities are unsaleable means only that no effective purchasers
have been found for them, i.e., consumers (since commodities are bought in the final analysis for
productive or individual consumption). But if one were to attempt to give this tautology the semblance
of a profounder justification by saying that the working-class receives too small a portion of its own
32. A Marxian approach: Financialization, Crisis, Austerity
2.1. Austerity as a cost saving capitalist strategy
Austerity constitutes the cornerstone of neoliberal policies. On the surface, it works as
a strategy of reducing entrepreneurial cost. Austerity reduces labour costs of the
private sector, increases profit per (labour) unit cost and thus boosts the profit rate. It is
complemented by economizing in the use of “material capital” (alas, another demand
curtailing strategy!); and also by institutional changes that, on the one hand, enhance
capital mobility and competition and, on the other, strengthen the power of managers
in the enterprise and share- and bondholders in society. As regards fiscal consolidation,
austerity gives priority to budget cuts over public revenue, reducing taxes on capital
and high incomes, and downsizing the welfare state.
However, what is cost for the capitalist class is the living standard of the working
majority of society. This applies also to the welfare state, whose services can be
perceived as a form of “social wage”.
It is clear, therefore, that austerity is primarily a class policy. It constantly
promotes the interests of capital against those of the workers, professionals,
pensioners, unemployed and economically vulnerable groups. In the long run, it aims
at creating a model of labour with fewer rights and less social protection, with low and
flexible wages and the absence of any substantial bargaining power for wage earners.
Austerity does lead, of course, to recession. However, recession puts pressure to
every individual entrepreneur, both capitalists or middle bourgeoisie, to reduce all
forms of costs, to more intensively follow the path of “absolute surplus-value”, i.e. to
try to consolidate her profit margins through wage cuts, intensification of the labour
product and the evil would be remedied as soon as it receives a larger share of it and its wages increase
in consequence, one could only remark that crises are always prepared by precisely a period in which
wages rise generally and the working-class actually gets a larger share of that part of the annual product
which is intended for consumption. From the point of view of these advocates of sound and “simple” (!)
common sense, such a period should rather remove the crisis. It appears, then, that capitalist production
comprises conditions independent of good or bad will, conditions which permit the working-class to
enjoy that relative prosperity only momentarily, and at that always only as the harbinger of a coming
crisis.” Marx 1992, pp. 486-87. A crisis means rather a “lack of surplus value”, not of demand.
4process, infringement of labour regulations and workers’ rights, massive redundancies,
etc. From the perspective of big capitals’ interests, recession gives thus birth to a
“process of creative destruction”. There is a redistribution of income and power to the
benefit of capital, and concentration of wealth in fewer hands as small and medium
enterprises, especially in retail trade, are being “cleared up” by big enterprises and
shopping malls.
This strategy has its own rationality which is not completely obvious at a first
glance. It perceives the crisis as an opportunity for a historic shift in the correlations of
forces to the benefit of the capitalist power, subjecting societies to the conditions of
the unfettered functioning of financial markets, attempting to place all consequences
of the systemic capitalist crisis on the shoulders of the working people.
2.2. The regulatory role of finance
Starting from Marx’s analysis in Capital we will put forward the view that
neoliberalism is a form of capitalism particularly favourable for valorization of
capital, that is to say particularly well-suited, for the bourgeoisie as a whole, for
enforcing capital’s aggressive exploitation strategies of labour.
One comprehensive introductory definition of capital could be the following: a
historically specific social relation that expresses itself in the form of “money as an
end in itself” or “money that creates more money”. At this level of generality, the
capitalist occupies a specific position and plays a specific role. He is, and behaves as,
the embodiment of autonomous movement of value, embodying the “self-movement”
of capital M-C-M ́. The theory of capital is not an analysis of the actions of the
capitalist. It is not a response to the actions of a subject. On the contrary, it is the
movement of capital that imparts “consciousness” to the capitalist. The power of
capital is impersonal. In reality it is the power of money as such (Marx 1990: 165-6,
Balibar 1984).
Proceeding to a more concrete level of analysis, Marx acknowledges that the
place of capital is in general occupied by more than one subject: a money capitalist
and a functioning capitalist. This means that a detailed description of capitalism
cannot ignore the circulation of interest-bearing capital, which depicts the structure of
the financial system. Marx’s argumentation might be represented in the following
5In the course of the lending process, the money capitalist Α becomes the recipient
and proprietor of a security S, that is to say a written promise of payment (contingent
in character) from the functioning capitalist Β. This promise certifies that A remains
owner of the money capital M. He does not transfer his capital to B, but cedes to him
the right to make use of it for a specified period. We will recognize two general types
of securities: bonds SB and shares SS. In the case of the former the enterprise
undertakes to return fixed and prearranged sums of money irrespective of the
profitability of its own operations. In the latter case it secures loan capital by selling a
part of its property, thereby committing itself to paying dividends proportional to its
profits. If the company has entered the stock exchange and what is involved is share
issue, then capitalist B corresponds to the managers and capitalist A to the legal owner.
In any case, in the hands of B the sum M functions as capital. Money taken as the
independent expression of the value of commodities enables the active capitalist B to
purchase the necessary means of production Mp and labour power Lp for organizing
the productive process. The latter takes place under a regime of specific relations of
production (comprising a specific historical form of relations of exploitation) and in
this way is transformed into a process for producing surplus value. The money reserve
that B now has at his disposal is the material expression of his social power to set in
motion the productive process and to control it.
Four very basic consequences are implied by this analysis and are, briefly, as
Firstly, the place of capital (the incarnation of the powers stemming from the
structure of the relations of production) is occupied by agents that are both “internal”
to the enterprise (managers) and “external” to it (share and bond holders). Marx’s
general conception abolishes the basic distinction drawn by Keynes between the
productive classes “within” the enterprise and the parasitical class of “external”
rentiers. In his own words: “in the production process, the functioning capitalist
6represents capital against the wage-labourers as the property of others, and the money
capitalist participates in the exploitation of labour as represented by the functioning
capitalist” (Marx 1991: 504). The secondary contradictions developed between the
managers and the big investors certainly do exist but they evidently pertain to a more
concrete level of analysis.
Secondly, the pure form of ownership over capital (whether it is a question of
money or productive capital) is the financial security, corresponding, that is, to
“imaginary money wealth” (ibid.: 609). The ownership title is a “paper duplicate”,
either of the money capital ceded in the case of the bond SB, or of the “material”
capital in the case of the share SS. Nevertheless the price of security does not emerge
either from the value of the money made available or from the value of the “real”
capital. The ownership titles are priced on the basis of the (future) income they will
yield for the person owning them (capitalization in accordance with the current interest
rate that embodies the risk), which of course is part of the surplus value produced. In
this sense they are sui generis commodities plotting a course that is their very own
(ibid.: 607-9, 597-8).
Thirdly, every enterprise is Janus-faced comprising, on the one hand, the
production apparatus per se and, on the other, its financial existence, its shares and
bonds, which are being traded on the global financial markets. The financial “mode of
existence” of capitalist property – as a promise and at the same time a claim for
appropriation of the surplus value that will be produced in future – brings into
existence a broader terrain within which each flow of income can be seen as revenue
corresponding to a “fictitious capital” with the potential to find an outlet on secondary
markets (ibid.: 597-9). Hence, the potential for securitization is inherent in the
movement of capital.
Fourthly, one of the basic characteristics of the neoliberal model is the increase
in non-bank funding of credit, both by states and by enterprises. Above and beyond the
other consequences, this places at the centre of the financial markets risk management,
that is to say the factoring in of the contingency of non-achievement of the expected
yield (particularly in an international market where a number of diverging forces are
affecting profitability). Because the very character of production of surplus value as
well as the overall claims being placed on the latter is contingent, risk management is
organically linked to capital movement as such.
The theoretical sketching that we tried to present above apprehends the
phenomenon of capitalist globalization and financialization as a complex technology
7of power, the main aspect of which is the organization of capitalist power relations. It
is a technology of power formed by different institutions, procedures, analyses and
reflections, calculations, tactics and embedding patterns that allow for the exercise of
this specific, albeit very complex, function that organizes the efficiency of capitalist
power relations through the workings of financial markets.
3. Market discipline as capital discipline
The above general framework has a number of less visible but more crucial
implications for the analysis of present-day capitalism.
(1) The capitalist firm is totally immersed in class struggle. The functioning
capitalist (whether she is a small capitalist or one of the top managers of a large
enterprise) is the point of articulation between the two distinct fields of capital
movement. On the one hand, she is called upon to achieve efficient organization of
surplus value production inside the factory. This process generally entails a persistent
endeavour to modernize the means of production, economize on constant capital and
reduce labour’s share of the net product.6 But none of these procedures are mere
technical decisions to be taken. They are the mutable outcome of class struggle.
Therefore, on the other hand, the capitalist enterprise is the location for the organized
confrontation of social forces and in this sense comprises, on a continuing basis, a
political field par excellence. It bears the inherent imprint of class struggle, a reality
sharply in conflict with the orientation of neoclassical or most heterodox approaches.
(2) Organized financial markets favour movement of capital worldwide,
intensifying capitalist competition. In this way they contribute to the trend towards
establishment of a uniform rate of profit in the developed capitalist world, at the same
time securing more favourable conditions for valorization (exploitation) of individual
capitals.7 Keynes believed that completely illiquid markets would be efficient in the
mainstream sense, because “once investment was committed, the owners would have
an incentive to use the existing facilities in the best possible way no matter what
unforeseen circumstances might arise over the life of plant and equipment” (Davidson
2002: 188). But such a view is very far from the truth. Illiquid financial markets (or
highly regulated markets) mean that capital, not being able easily to move to different
employment, remains tied up in specific “plant and equipment” for reasons that are not
6 Marx (1991: 170-240), Milios et al. (2002).
7 See Marx (1990), Marx (1991, 295-300), Busch (1978), Hilferding (1981: 130-150).
8necessarily connected with its effectiveness in producing surplus value (profitability).
Or, to put it differently, capital’s inability to move generates more favourable terms for
the forces of labour, given that less productive investments are enabled to survive
Capital does not necessarily have to be committed to a particular employment for
a long period of time. Given the liquidity of financial markets, it is always in a
position to reacquire its money form without difficulty and seek new more effective
areas for its valorization. Capital is always on the lookout for opportunities to make a
profit, which cannot come from maintaining effective demand but must come from
intensifying class exploitation. What capital is “afraid of” is not dearth of demand but
dearth of surplus value (Mattick 1980: 78-79). Capital is not obliged to provide for
labour employment. On the contrary, a reserve army of unemployed labour is always
welcomed by employers. It keeps real wages down and paves the way for compliance
with the capitalist’s strategies of exploitation (Marx 1990: 781-802). Moreover,
flexibility of labour is not only a prerequisite for mobility of capital. It is also the
method capital finds most suitable for adjusting to fluctuations in the capitalist
economic cycle.
(3) Financial markets generate a structure for overseeing the effectiveness of
individual capitals, that is to say a type of supervision of capital movement. Businesses
that fail to create a set of conditions favourable for exploitation of labour will soon
find “market confidence”, i.e. the confidence of capital, evaporating. These businesses
will either conform to the demands of capital or before long find themselves on a
downhill path. In this manner capital markets “endeavour” (not always reliably) to
convert into quantitative signs “political” events within the enterprise.
On the one hand, the manager assumes a critical intermediary function, becoming
the point of articulation between the “despotism of the factory”, which he himself must
ceaselessly impose, and the market discipline, to which he himself is permanently
subject (Balibar 1984). On the other hand, outside of the precincts of the firm, money
capitalists come up against a “performance chart” that is shaped by the financial
markets and to a significant extent “monitors” the conditions of accumulation and
valorization that prevail at every moment in production (in relation to different parts of
the world). In this way the organized financial markets exercise a critical function:
they reward profitable and competitive companies and at the same moment punish
those that are insufficiently profitable.
The decisive criterion is that the value of the company’s securities (shares and
9bonds) as they are assessed by the international markets, should be maximized.8 Thus,
equity holders’ and bondholders’ interests are basically aligned with respect to
enterprise profitability.9 The demand for high financial value puts pressure on
individual capitals (enterprises) for more intensive and more effective exploitation of
labour, for greater profitability. This pressure is transmitted through a variety of
different channels. To give one example, when a big company is dependent on
financial markets for its funding, every suspicion of inadequate valorization increases
the cost of funding, reduces the capability that funding will be available and depresses
share and bond prices. Confronted with such a climate, the forces of labour within the
politicized environment of the enterprise face the dilemma of deciding whether to
accept the employers’ unfavourable terms, implying loss of their own bargaining
position, or whether to contribute through their “inflexible” stance to the likelihood of
the enterprise being required to close (transfer of capital to other spheres of production
and/or other countries). Evidently the dilemma is not only hypothetical but is
formulated pre-emptively: accept the “laws of capital” or live with insecurity and
This pressure affects the whole organization of the production process, the
specific form of the collective worker, and the income correlation between capital and
labour. It ultimately necessitates total reconstruction of capitalist production, more
layoffs and weaker wage demands on part of the workers. Restructuring of enterprise,
above all, means restructuring of a set of social relations with a view to increasing the
rate of exploitation. It is thus a process that presupposes on the one hand an increasing
power of the capitalist class over the production process itself, and on the other a
devalorization of all inadequately valorized capital (downsizing and liquidating
enterprises) and thus economizing on the utilization of constant capital (which is
assured by takeovers). It therefore presupposes not only increasing “despotism” of
manager over workers but also flexibility in the labour market and high
8 For the shareholder value maximization strategy see Jensen (2001).
9 It should be noted that the high profitability of a capitalist firm usually translates into high share
prices, but at the same time the low risk that goes with being a healthy firm reduces the rate of discount
and thus increases the value of the bonds being issued.
10 Marx’s analysis shows that the ability of the capitalist class to reorganize production, is not a
technical aspect of the economy but an outcome of the social relation of forces, anchored in class
struggle. “[W]ithin the capitalist system all methods for raising the social productivity of labour are put
into effect at the cost of the individual worker; all means for the development of production transform
10The above analysis shows that “market discipline” must be conceived as
synonymous with “capital discipline”. In developed capitalism the key role of
financial markets does not have only to do with supplying credit to companies. For
example, most trades of shares in listed companies consist of movements from one
shareholder to another, with no new capital being supplied.11 The complementary
function of financial markets is to “monitor” the effectiveness of individual capitals,
facilitating within enterprises exploitation strategies favourable for capital. Financial
markets commodify the claims on future surplus value. The striking growth of
financial derivatives since the early 1980s assists in the consummation of this
monitoring process of scrutinizing corporate asset portfolios (i.e. scrutinizing firms’
capacity for profit making) by commodifying the risk exposure.12
In conclusion, neoliberalism is an exceptionally effective strategy for capitalist
(and not rentier) hegemony. Apart from theoretical consequences, this finding has
important political implications: the community of interest of those “inside” the
enterprise (labourers and managers) as against the “outsiders” of the financial
markets is a construction of fantasy. Such an outlook narrows the strategic horizon of
the workers’ movement to defence of a “better” capitalism, that is to say a “better”
system of class domination and exploitation.
It is however worth noting that the “wisdom of the markets”, an important
element in constructing the core of the neoliberal model, prescribes market evaluation
themselves into means of domination over, and exploitation of, the producers; they distort the worker
into a fragment of a man, degrade him to the level of an appendage of a machine…. But all methods for
the production of surplus-value are at the same time methods of accumulation; and every extension of
accumulation becomes, conversely, a means for the development of those methods. It follows therefore
that in proportion as capital accumulates, the lot of the worker, be his payment high or low, must grow
worse.” Marx (1990: 799).
11 The stock market is not the main means for obtaining investment capital. Even in the extreme case of
market-based systems (such as those of the U.S.A., UK and Australia), the main loan sources are
retained earnings, bank loans, and bond issues (Bryan and Rafferty 2006; Dumenil and Levy 2004;
Deakin 2005). At the same time, it is useful to note that in contrast to what is often asserted by
heterodox authors, since the beginning of the 1980s joint-stock companies have become steadily less
willing to distribute dividends (Fame and French 2001).
12 “With derivatives, the ability to commensurate the value of capital assets within and between
companies at any point in time has been added as a measure of capital’s performance alongside and
perhaps above the capacity to produce surplus over time. […] Derivatives separate the capital of firms
into financial assets that can be priced and traded or “repackaged”, without having either to move them
physically, or even change their ownership” (Bryan and Rafferty 2006: 97).

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