The history of capital since the Industrial Revolution shows that increasingly it is sucked into the realm of financial speculation. Ever since early manufacturing capitalists had to move beyond self-generation to a stage where they needed to raise more capital to be able to fund their expansion (via the creation of joint-stock companies or closer relationships with banks and financial organisations), then initiative and power started to slip away from manufacturers and was handed over to pre-eminent finance capital.
Finance capital began to view the rate of return of profit from the real industrial economy as both too low and too slow, seeking instead higher and quicker returns from speculative, non-industrial operations. More and more new financial instruments have been designed to absorb this capital. Over time, this flaw in the accumulation process of capitalism produces a baffling contrast: ‘a speculative bubble’ squatting on and suffocating ‘a sluggish real economy’, before eventually it concludes with a spectacular, speculative bust undermining and destroying much of the real economy. We have been subjected to this recently.
Financial instability is an inescapable, inherent part of aged capitalism. As the trend towards satisfying the speculative orgy of finance capital grows within the capital accumulation process, there is even a possibility that the rising mountain and mind-boggling obligation of debt develops so far that it is beyond the capacity of capitalist governments to intervene effectively as “lenders of last resort”. If such a financial avalanche occurs then it will be a catastrophe for capitalism, pulling everyone down with it. We have come close to this nightmare (eg Iceland and Ireland) and it still swirls around in the background but so far these have been absorbed.
The supremacy of finance capital is not a distortion of capitalism, merely an expression of its highest stage of development. When you consider what has happened in the current depression and in previous capitalist depressions, finance capital is now the ultimate fetter on production. Finance capital, which does not produce or contribute anything to society’s wealth creation or well-being, behaves like an unwelcome vampire sucking the life-blood out of the real economy. You cannot factor finance capital out of the equation of capitalism because it is now the controlling entity. So long as you stick with capitalism, then the processes of financial speculation will continue, likely on an ever-deepening scale. We don’t have to wait for the catastrophe to act.
We need to create a society where economic policy advances the real productive economy, where social wealth is generated. In socialist society, banks and financial institutions would exist to re-allocate wealth to industry and social infrastructure. Economic crises and financial instability would become distant, fading memories.