Finance Capital, Hilferding 1910


The capitalist monopolies and the banks.
The transformation of capital into finance capital

The development of capitalist industry produces concentration of banking, and this concentrated banking system is itself an important force in attaining the highest stage of capitalist concentration in cartels and trusts. How do the latter then react upon the banking system? The cartel or trust is an enterprise of very great financial capacity. In the relations of mutual dependence between capitalist enterprises it is the amount of capital that principally decides which enterprise shall become dependent upon the other. From the outset the effect of advanced cartelization is that the banks also amalgamate and expand in order not to become dependent upon the cartel or trust. In this way cartelization itself requires the amalgamation of the banks, and, conversely, amalgamation of the banks requires cartelization. For example, a number of banks have an interest in the amalgamation of steel concerns, and they work together to bring about this amalgamation even against the will of individual manufacturers.

Conversely, a consortium established in the first place by manufacturers can have the consequence that two previously competing banks develop common interests and proceed to act in concert in a particular sphere. In a similar fashion, industrial combinations may influence the expansion of the industrial activities of a bank, which was perhaps previously concerned only with the raw materials sector of an industry, and is now obliged to extend its activities to the processing sector as well.

The cartel itself presupposes a large bank which is in a position to provide, on a regular basis, the vast credits needed for current payments and productive investment in a whole industrial sector. But the cartel also brings about a still closer relationship between banking and industry. When competition in an industry is eliminated there is, first of all, an increase in the rate of profit, which plays an important role. When the elimination of competition is achieved by a merger, a new undertaking is created which can count upon higher profits, and these profits can be capitalized and constitute promoter's profit.[1] With the development of trusts this process becomes important in two respects. First, its realization constitutes a very important motive for the banks to encourage monopolization; and second, a part of the promoter's profits can be used to induce reluctant but significant producers to sell their factories, by offering a higher purchase price, thus facilitating the establishment of the cartel. This can perhaps be expressed in the following way: the cartel exerts a demand on the enterprises in a particular branch of industry; this demand increases to a certain degree the price of the enterprises[2] and this higher price is then paid in part out of the promoter's profit.

Cartelization also means greater security and uniformity in the earnings of the cartelized enterprises. The dangers of competition, which often threatened the existence of the individual enterprise, are eliminated and this leads to an increase in the share prices of these enterprises, which involves further promoter's profit when new shares are issued. Furthermore, the security of the capital invested in these enterprises is significantly increased. This permits a further expansion of industrial credit by the banks, which can then acquire a larger share in industrial profits. As a result of cartelization, therefore, the relations between the banks and industry become still closer, and at the same time the banks acquire an increasing control over the capital invested in industry.

We have seen that in the early stages of capitalist production, the money available to the banks is derived from two sources: on one side, from the resources of the non-productive classes, and on the other side, from the capital reserves of industrial and commercial capitalists. We have also seen how credit develops in such a way as to place at the disposal of industry not only the whole capital reserves of the capitalist class but also the major part of the funds of the non-productive classes. In other words, present-day industry is carried on with an amount of capital far exceeding that which is owned by the industrial capitalists. With the development of capitalism there is also a continual increase in the amount of money which the non-productive classes place at the disposal of the banks, who in turn convey it to the industrialists. The control of these funds which are indispensable to industry rests with the banks, and consequently, with the development of capitalism and of the machinery of credit, the dependence of industry upon the banks increases. On the other side, the banks can only attract the funds of the non-productive classes, and retain their continually growing capital over the long term, by paying interest on them. They could do this in the past, so long as the volume of money was not too great, by employing it in the form of credit for speculation and circulation. With the increase in the available funds on one side, and the diminishing importance of speculation and trade on the other, they were bound to be transformed more and more into industrial capital. Without the continuous expansion of credit for production, the availability of funds for deposit would have declined long ago, as would the rate of interest on bank deposits. In fact, this is to some extent the case in England, where the deposit banks only furnish credit for commerce, and consequently the rate of interest on deposits is minimal. Hence deposits are continually withdrawn for investment in industry by the purchase of shares, and in this case the public does directly what is done by the bank where industrial and deposit banks are closely linked. For the public the result is the same, because in neither case does it receive any of the promoter's profits from the merger, but so far as industry is concerned it involves less dependence on bank capital in England as compared with Germany.

The dependence of industry on the banks is therefore a consequence of property relationships. An ever-increasing part of the capital of industry does not belong to the industrialists who use it. They are able to dispose over capital only through the banks, which represent the owners. On the other side, the banks have to invest an ever-increasing part of their capital in industry and in this way they become to a greater and greater extent industrial capitalists. I call bank capital, that is, capital in money form which is actually transformed in this way into industrial capital, finance capital. So far as its owners are concerned, it always retains the money form; it is invested by them in the form of money capital, interest-bearing capital, and can always be withdrawn by them as money capital. But in reality the greater part of the capital so invested with the banks is transformed into industrial, productive capital (means of production and labour power) and is invested in the productive process. An ever-increasing proportion of the capital used in industry is finance capital, capital at the disposition of the banks which is used by the industrialists.

Finance capital develops with the development of the joint-stock company and reaches its peak with the monopolization of industry. Industrial earnings acquire a more secure and regular character, and so the possibilities for investing bank capital in industry are extended. But the bank disposes of bank capital, and the owners of the majority of the shares in the bank dominate the bank. It is clear that with the increasing concentration of property, the owners of the fictitious capital which gives power over the banks, and the owners of the capital which gives power over industry, become increasingly the same people. As we have seen, this is all the more so as the large banks increasingly acquire the power to dispose over fictitious capital.

We have seen how industry becomes increasingly dependent upon bank capital, but this does not mean that the magnates of industry also become dependent on banking magnates. As capital itself at the highest stage of its development becomes finance capital, so the magnate of capital, the finance capitalist, increasingly concentrates his control over the whole national capital by means of his domination of bank capital. Personal connections also play an important role here.

With cartelization and trustification finance capital attains its greatest power while merchant capital experiences its deepest degradation. A cycle in the development of capitalism is completed. At the outset of capitalist production money capital, in the form of usurers' and merchants' capital, plays a significant role in the accumulation of capital as well as in the transformation of handicraft production into capitalism. But there then arises a resistance of 'productive' capital, i.e. of the profit-earning capitalists - that is, of commerce and industry - against the interest-earning capitalists.[3] Usurer's capital becomes subordinated to industrial capital. As money-dealing capital it performs the functions of money which industry and commerce would otherwise have had to carry out themselves in the process of transformation of their commodities. As bank capital it arranges credit operations among the productive capitalists. The mobilization of capital and the continual expansion of credit gradually brings about a complete change in the position of the money capitalists. The power of the banks increases and they become founders and eventually rulers of industry, whose profits they seize for themselves as finance capital, just as formerly the old usurer seized, in the form of 'interest', the produce of the peasants and the ground rent of the lord of the manor. The Hegelians spoke of the negation of the negation: bank capital was the negation of usurer's capital and is itself negated by finance capital. The latter is the synthesis of usurer's and bank capital, and it appropriates to itself the fruits of social production at an infinitely higher stage of economic development.

The development of commercial capital, however, is quite different. The development of industry gradually excluded it from the ruling position over production which it had occupied during the period of manufacture. This decline is definitive, and the development of finance capital reduces the significance of trade both absolutely and relatively, transforming the once proud merchant into a mere agent of industry which is monopolized by finance capital.


[1]The American Sugar Trust was formed in 1887 by Havemeyer through the amalgamation of fifteen small companies which reported their total capital as being 6.5 million dollars. The share capital of the Trust was fixed at 50 million dollars. The Trust immediately raised the price of refined sugar and reduced the price of unrefined sugar. An investigation conducted in 1888 revealed that the Trust earned about $14 on a ton of refined sugar, which allowed it to pay a dividend of 10 per cent on the share capital, equivalent to approximately 70 per cent on the actual capital paid in when the company was formed. In addition, the Trust was able to pay extra dividends from time to time, and to accumulate enormous reserves. Today the Trust has 90 million dollars of share capital, of which one half comprises preference shares entitled to a 7 per cent cumulative dividend, the other half being ordinary shares which at present also bring in 7 per cent (Berliner Tageblatt, 1 July 1909). There are numerous other examples in the Reports of the Industrial Commission on Trusts and Industrial Combinations.

[2]2 We are concerned here with the 'price of capital', which is equivalent to the capitalized profit.

[3]3 In fact 'the usurer was the principal agent for the accumulation of capital since he took a share of the rents of landowners. But industrial and commercial capital more or less joined forces with landowners against this outmoded form of capital.' Marx, Theories of Surplus Value, vol. I, p. 19.