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Theories of

Finance and

Uneven Development






Antonio Gramsci (1978, 177-178) once explained the task of historical materialism: “In studying a structure, it is necessary to distinguish organic movements (relatively permanent) from movements which may be termed `conjunctural’ (and which appear as occasional, immediate, almost accidental).” For Gramsci, organic movements are of “farreaching historical significance” and thus provide opportunity for “socio-historical criticism.” Decades-long organic crises, for example, mean that “incurable structural contradictions have revealed themselves (reached maturity).” In contrast, conjunctural analysis is “of a minor, day-to-day character.” If we seek to understand movements of historical significance, as opposed to simply cataloguing those conjunctures which marked Zimbabwe’s evolution as one of the most unequal countries in the world, it may be helpful to focus our attention on one set of organic, relatively permanent processes of uneven capitalist development. I have chosen to write primarily about the accentuation of uneven development during times of heightened financial activity which accompany capitalist crises. Of course, this is not a story reducible to a simple, monochromatic account, because each of our primary conceptual categories crisis, rising finance, uneven development is multifaceted and contradictory.

This first chapter is dedicated to exploring at a theoretical level the salient characteristics and contradictions of finance and uneven development. Further chapters tackle uneven development and the rise of finance in Zimbabwe in the same spirit. The goal is to build into the theory various layers of analysis that allow us to both draw new insights about complex socio-economic realities and to enrich our understanding of how capital flows across space and through time in ways that, at surface-level, often seem illogical, unstructured and self-destructive.

After all, the world economy has suffered intense disfiguring due to financial bubbles and depressions the last few years, and Zimbabwe has not been immune. This we can glean from daily newspaper accounts of stock market crashes, unpredictable currency fluctuations, the ups and downs of speculative property markets, huge bankruptcies and unrepaid debts, unending financial innovations, or the ebb and flow of power over so many facets of life held by banks and institutional investors. Is there any discernable logic to all of this? Can the rise and fall of finance help explain the development and the underdevelopment ofparticular global regions, nation-states, local economies, firms, households?


Very few theorists have been so ambitious as to try sketching a systematic relationship of finance to uneven development, and most who have done so worked from within the Marxist tradition of political economy, which is also broadly (though not exclusively) within which the following pages lie. We begin by very briefly considering the traditional roles of money in capitalist production and circulation. But we try to promptly place these in the context of capitalist crisis, in which the accumulation of capital relies increasingly on financial, speculative activity. Speculative profits are often a good indication of ascendant finance and declining productive capital.

But and this is ironic financial power is far more vulnerable to system “breakdown” than many Marxists have foreseen, and it is worth taking a critical detour through some of the debates on “finance capital,” particularly because the theorists Rudolf Hilferding and Henryk Grossmann (and others) have made sweeping statements about financial power, control and crisis that bear close consideration. None of these are entirely satisfactory, however, due to their tendency to a singular monocentric logic.

Instead, it is through far more subtle processes by which capitalist crises are displaced essentially through time and through space that I think we can draw out the prominence of finance. There is no singular logic, but on the basis of this theoretical exercise we can hypothesize that during such times of financial ascendance, uneven development is indeed most powerfully generated, across various sectors, spaces and scales.

The roles of finance in capitalism: Accommodation, control, speculation

What is it that we will focus our attention on, precisely? “Finance” is here considered to encompass external sources of funding beyond the normal revenue streams that generally consist of company profits, state tax receipts, the wages and salaries of households, and the revenues of other institutions. It thus includes myriad forms of debt, as well as corporate equity (“shares”) issued on stock markets. Financial capital refers to the totality of financial institutions and instruments which advance money (and credit and other financial paper) for the purpose of gaining a return (interest, dividends, increases in value, etc.). But like capital itself, financial capital is not a mere thing per se, but encompasses social processes as well. As Simon Clarke (1988, 5) puts it, “The power of money is not the power of banks and financial institutions, although it is the latter who wield the power of money, it is the power of capital in its most


form.” So it is to the basic relations between capital, money and credit that we must first turn.

Why is finance integral to the dynamics of capitalism? In abstract terms, money plays well-known roles as medium of exchange and payment, measure of value, and store of wealth. But more to the point, Marx outlines ways in which credit “interest-bearing money capital” lubricates (or “accommodates”) capitalist production and commerce.

First, the smooth operation of markets depends on firms moving resources to where profits can be found, which has the effect of equalising the rate of profit between firms. A well-functioning credit system is critical here, both because credit is an extremely fluid means of allocating capital to where it is most highly rewarded, and because new investments (which add to competition and hence profit equalisation) normally occur through borrowing.

Second, credit allows more efficient forms of money (such as bills of exchange) to replace physical money handling. Hence, as Marx (1967, V.III, ch27, pa6) put it, “credit


accelerates the velocity of the metamorphosis of commodities, and with this the velocity of monetary circulation.” In the process, the turnover time of capital is shortened and profits are realised more rapidly. In the Grundrisse, Marx (1973, 359) goes so far as to argue that “the necessary tendency of capital is therefore circulation without circulation time, and this tendency is the fundamental determinant of credit and of capital’s credit contrivances.” Third, credit also allows for greater centralisation of capital, and this is a precondition for large firms to become publicly traded on the stock market and hence to raise further investment funds easily. Moreover, with credit the individual capitalist acquires “disposal over social capital, rather than his own, that gives him command over social labour. The actual capital that someone possesses, or is taken to possess by public opinion, now becomes simply the basis for a superstructure of credit” (Marx, 1967, V.III,ch27,pa16).

But all of these accommodating characteristics of finance providing lubrication to the payments system, speeding the velocity of capitalist production and centralisation, and centralising funds for investment or hiring large numbers of workers are not the only ones to consider. With the “organic movement” of capital into more concentrated and centralised form, there also emerge controlling characteristics of finance. As conceptualised by Hilferding in his book Finance Capital, financial, industrial and commercial capital supposedly merge under the guiding hand of the banks. Then there arise, as well, speculative characteristics of finance, which increase in importance as capitalist crises appear and intensify. It is here that investment funds are drawn into financial assets which become increasingly autonomous from the productive assets they are meant to represent (as securities, shares of stock, real estate titles and the like).

The effect, in sum, is that as money and credit emerged from their most basic roles in the hoarding of wealth and early commerce to develop more fully as “financial capital” (money extended for the purpose of making more money), they also evolved from simply lubricating early capitalist relations to exhibiting controlling and speculative characteristics. But as we consider next, the ultimate determinant over which of these characteristics emerges and dominates at any given point in time and space, is the capital accumulation process, which gives meaning to the discrete acts of production and commerce which money and credit were ostensibly developed under capitalism to serve.

Capital accumulation, the tendency towards overaccumulation and the rise of finance Let us again deliberate basic definitions. Capital accumulation refers to the generation of wealth in the form of “capital.” It is capital because it is employed by capitalists not to produce with specific social uses in mind, but instead to produce commodities for the purpose of exchange, for profit, and hence for the self-expansion of capital. Such an emphasis by individual capitalists on continually expanding the “exchange-value” of output, with secondary concern for the social and physical limits of expansion (size of the market, environmental, political and labour problems, etc.), gives rise to enormous contradictions. These are built into the very laws of motion of the system. It is worth covering these tendencies in some detail, and then assessing how they are borne out through a review of historical evidence.

Perhaps the most serious of capitalist self-contradictions, most thoroughly


embedded within the capital accumulation process, is the general tendency towards an increased capital-labour ratio in production more machines in relation to workers which is fuelled by the combination of technological change and intercapitalist competition, and made possible by the concentration and centralisation of capital.1 Individual capitalists cannot afford to fall behind the industry norm, technologically, without risking their price or quality competitiveness such that their products are not sold. This situation creates a continual drive in capitalist firms towards the introduction of state-of-the-art production processes, especially labour-saving machinery.

With intensified automation, the rate of profit tends to fall, and the reasons for this are worth reviewing. Profit correlates to “surplus value” which is only actually generated through the exploitation of labour in production. Why is labour only paid a certain proportion of the value produced, with a surplus going to capital? Since capitalists cannot “cheat in exchange” buy other inputs, especially machines that make other machines, from each other at a cost less than their value the increases in value that are the prerequisite for production and exchange of commodities must emanate from workers.

This simply means, in class terms, that capitalists do not and cannot systematically exploit other capitalists but they can systematically exploit workers. Here arises the central contradiction: with automation, the labour input becomes an ever-smaller component of the total inputs into production. And as the labour content diminishes, so too do the opportunities for exploitation, for surplus value extraction and for profits.

This situation exacerbates what becomes a self-perpetuating vicious spiral.

Intercapitalist competition intensifies within increasingly tight markets, as fewer workers can buy the results of their increased production. In turn this results in a still greater need for individual capitalists to cut costs. A given firm’s excess profits are but only temporarily achieved through the productivity gains which automation typically provides, since every capitalist in a particular industry or branch of production is compelled to adopt state-of-the-art technologies just to maintain competitiveness. This leads to growth in productive capacity far beyond an expansion in what consumer markets can bear. (It is true that there are countervailing tendencies to this process, such as an increase in the turnover time of capital, automation, and work speed-up, as well as expansion of the credit system. But these rarely overwhelm the underlying dynamic for long.) The inexorable consequence, a continuously worsening problem under capitalism, is termed the overaccumulation of capital.

Overaccumulation refers, simply, to a situation in which excessive investment has occurred and hence goods cannot be brought to market profitably, leaving capital to pile up in sectoral bottlenecks or speculative outlets without being put back into new productive investment. Other symptoms include unused plant and equipment; huge gluts of unsold commodities; an unusually large number of unemployed workers; and, as discussed below, the inordinate rise of financial markets. When an economy reaches a decisive stage of overaccumulation, then it becomes difficult to bring together all these resources in a profitable way to meet social needs.

How does the system respond? There are many ways to move an

1. There are other Marxist approaches to crisis theory which rely upon “underconsumption” and classstruggle “profit squeeze” explanations, but these are generally not utilised in the pages that follow and for simplification purposes can be omitted here.


overaccumulation crisis around through time and space, as discussed throughout this book. But the only real “solution” to overaccumulation the only response to the crisis capable of reestablishing the conditions for a new round of accumulation is widespread devaluation. Devaluation entails the scrapping of the economic deadwood, which takes forms as diverse as depressions, banking crashes, inflation, plant shutdowns, and, as Schumpeter called it, the sometimes “creative destruction” of physical and human capital (though sometimes the uncreative solution of war). The process of devaluation happens continuously, as outmoded machines and superfluous workers are made redundant, as waste (including state expenditure on armaments) becomes an acceptable form of mopping up overaccumulation, and as inflation eats away at buying power. This continual, incremental devaluation does not, however, mean capitalism has learned to equilibrate, thus avoiding more serious, system-threatening crises. Devaluation of a fully cathartic nature (of which the last Great Depression and World War are spectacular examples) is periodically required to destroy sufficient economic deadwood to permit a new process of accumulation to begin.

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