Collapse of much of the US financial system, and by extension much of global finance, was avoided only through state intervention supplying banks with liquidity and capital, all drawn from public resources. Nonetheless, the world economy entered a sharp recession in 2008–2009, at the end of which conditions of rapid accumulation failed to be restored across developed countries. On the contrary, the tightness of public revenue due to recession, as well as the public expenditures required to rescue finance and forestall economic collapse, created large fiscal deficits in several countries.

The result was the emergence of a crisis of public debt after 2010, which assumed a particularly severe form in Europe. The crisis of public debt has had two implications, both pregnant with risks for capitalist accumulation across the world. First, it has menaced banks holding the public bonds of states that have had difficulties in meeting their obligations; hence, the crisis has threatened to return to the financial system whence it has emanated. Second, and far more dangerously, the crisis of public debt has directly affected the cohesion of the European Monetary Union. If the common currency created by the European Union collapsed, it is likely that there would be an unprecedented global disturbance.

The crisis of the 2000s will prove fertile ground for economic historians for decades to come with regard to both its causes and consequences. However, the crisis has already had one definite outcome: it has finally lifted the curtain on the transformation of mature and developing capitalist economies during the last three decades, confirming the pivotal role of finance, both domestically and internationally. Financial capital permeates economic activity, and interacts with financial markets in ways capable of generating enormous profits but also precipitating global crises. In terms that will be used throughout this book, contemporary capitalism is ‘financialized’ and the turmoil commencing in 2007 is a crisis of ‘financialization’.

The economic processes – and the social relations – characteristic of financialization represent a milestone in the development of capitalism. The catalyst of crisis in 2007 was speculative mortgage lending to the poorest workers in the US during the 2000s, the loans being subsequently traded in ‘securitized’ form in global financial markets. It is hard to exaggerate what an extraordinary fact this is. Under conditions of classical, nineteenth-century capitalism it would have been unthinkable for a global disruption of accumulation to materialize because of debts incurred by workers, including the poorest. But this is precisely what has happened under conditions of financialized capitalism, an economic and social system that is much more sophisticated than its nineteenth-century predecessor.

Financialization has emerged gradually during recent decades, and its content and implications are the focus of this book. To be sure, capitalist economies are continually restructured due to pressures of competition and to the underlying drive to maintain profitability. However, some transformations have a distinctive historical significance, and financialization is one of those. The change that has taken place in mature capitalist economies and societies since the late 1970s requires appropriate attention to be paid to finance. Consider the following features of financialization to substantiate this claim.

The transformation represented by financialization is of a similar order of importance. Since the 1970s, there have been profound changes in production methods deriving from information and telecommunications technologies. Transnational enterprises have become dominant over global production and international trade. The centre of gravity of global productive capacity has partly shifted from mature economies in the West toward rising economies in the East, primarily China. Meanwhile, the institutional framework of capitalist activity has been altered as deregulation has prevailed in important markets, above all, for labour and finance. Throughout this period, accumulation has lacked dynamism in mature countries, inequality was exacerbated, and crises have become sharper and more frequent.

The most striking feature of the period, however, has been the rise of finance, the start of which can be usefully placed in the late 1970s. The financial sector had become progressively larger in the 1950s and 1960s, while still operating within the regulatory framework characteristic of the long post-war boom. However, even by the late 1970s, the domestic and international importance of finance remained modest. The three decades that followed have witnessed unprecedented expansion of financial activities, rapid growth of financial profits, permeation of economy and society by financial relations, and domination of economic policy by the concerns of the financial sector. At the same time, the productive sector in mature countries has exhibited mediocre growth performance, profit rates have remained below the levels of the 1950s and 1960s, unemployment has generally risen and become persistent, and real wages have shown no tendency to rise in a sustained manner. An asymmetry has emerged between the sphere of production and the ballooning sphere of circulation.

The rise of finance has been predicated on a radical alteration of the monetary framework of capitalist accumulation, both internationally and domestically. International monetary conditions have been stamped by the collapse of the Bretton Woods Agreement in 1971–73. Bretton Woods had enforced the convertibility of the US dollar into gold at $35 to the ounce, thus fixing exchange rates during the long boom. Its collapse led to the gradual emergence of alternative international monetary arrangements based on the US dollar functioning as inconvertible quasi-world-money. The new arrangements have generated considerable instability of exchange and interest rates, thereby spurring the growth of international financial markets. Growth of international capital flows during the same period, partly in response to exchange and interest rate instability, has led to financialization in developing countries. Domestic monetary conditions, in contrast, have been marked by the steady accumulation of power by central banks as controllers of credit money backed by the state. Central banks have emerged as the dominant public institution of financialization, the defender of the interests of the financial sector.

The ascendancy of central banks is hardly surprising, since financialization in general would have been impossible without active and continuous intervention by the state. Financialization has depended on the state to deregulate the financial system with regard to prices, quantities, functions and cross-border flows of capital. Equally, financialization has depended on the state to regulate the adequacy of own capital, the management of risk, and the rules of competition among financial institutions. Even more decisively, financialization has depended on the state to intervene periodically to underwrite the solvency of banks, to provide extraordinary liquidity and to guarantee the deposits of the public with banks.

Ultimately, however, the rise of finance has resulted from changes deep within capitalist accumulation. Three characteristic tendencies of accumulation in mature countries have shaped financialization as a structural transformation of contemporary capitalism. First, non-financial enterprises have become increasingly involved in financial processes on an independent basis, often undertaking financial market transactions on own account. The financialization of industrial and commercial enterprises has affected their profitability, internal organization, and investment outlook. Non-financial enterprises have become relatively more remote from banks and other financial institutions. Second, banks have focused on transacting in open financial markets with the aim of making profits through financial trading rather than through outright borrowing and lending. At the same time banks have turned toward individual and household income as a source of profit, often combining trading in open markets with lending to households, or collecting household savings. Third, individuals and households have come increasingly to rely on the formal financial system to facilitate access to vital goods and services, including housing, education, health, and transport. The savings of households and individuals have also been increasingly mobilized by the formal financial system.

The transformation of the conduct of non-financial enterprises, banks and households constitutes the basis of financialization. Examining these relations theoretically and empirically, and thus establishing the deeper content of financialized capitalism, is the main task of this book. The concepts and methods deployed for the purpose derive from Marxist political economy. To summarize, the capitalist economy is treated as a structured whole that comprises different spheres of activity – namely production, circulation, and distribution – among which production is dominant. Both production and circulation possess their own internal logic, even though the two spheres are inextricably linked. Production creates value; its motive is profit (surplus value) deriving from the exploitation of labour; its aim is the accumulation of capital. Circulation does not create value; it results in profits, but these derive mostly – though not exclusively – from redistributing surplus value. Finance is a part of circulation, but also possesses mechanisms standing aside commodity trading and its corresponding flows of money. The traded object of finance is loanable money capital, the cornerstone of capitalist credit. Production, circulation and distribution give rise to class relations, pivoting on the ownership of the means of production, but also determined by the appropriation of profits.

Financialization reflects a growing asymmetry between production and circulation – particularly the financial component of the latter – during the last three decades. The asymmetry has arisen as the financial conduct of non-financial enterprises, banks and households has gradually changed, thus fostering a range of aggregate phenomena of financialization. A telling aspect of the transformation has been the rise of profits accruing through financial transactions, including new forms of profit that could even be unrelated to surplus value. This process is summed up as ‘financial expropriation’ in subsequent chapters. New social layers have emerged as financial profit has burgeoned.

To establish the importance of banks in the course of financialization consider some general features of the derivativ...