Re: [OPE-L] The Financialization of Capitalism

From: Allin Cottrell (cottrell@WFU.EDU)
Date: Tue May 15 2007 - 23:45:33 EDT

On Tue, 15 May 2007, Rakesh Bhandari quoted:

> From John Bellamy Foster...

> For the owners of capital the dilemma is what to do with the immense
> surpluses at their disposal in the face of a dearth of investment
> opportunities. Their main solution from the 1970s on was to expand
> their demand for financial products as a means of maintaining and
> expanding their money capital. On the supply side of this process,
> financial institutions stepped forward with a vast array of new
> financial instruments: futures, options, derivatives, hedge funds,
> etc. The result was skyrocketing financial speculation that has
> persisted now for decades.

Where did the people who write this sort of thing learn their
macroeconomics?  It's the ABC of Keynesian/Kaleckian theory that
financial investment is not a sink for income, in the sense of an
alternative to consumption or the purchase of capital goods.  For
every financial asset purchased, a financial asset is sold by
somebody; so it does not in the least solve the "problem" of
disposing of an excessive surplus.

It is possible for the capitalist class of a particular nation to
"solve" this sort of "problem" by net acquisition of financial
claims against the capitalists of another nation (which means
running a trade surplus).  But that is far from the case in the
USA, which has been running an increasing trade deficit.  Both
private consumption and private investment have been increasing as
shares of US GNP of late, matched by a decline in government
expenditure and a rising trade deficit.

Yes, we've seen an increased "layering" of financial transactions,
but these are not in any real sense an alternative to good old
fashioned consumption and investment; they are a complement, with
certain (malign) redistributive effects.

Allin Cottrell

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