Mechanisms of Growth and Financialization

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Louis Scuderi
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Mechanisms of Growth and Financialization

    In order to connect and extend the processes outlined in previous posts to the rise of finance capital in the United States, some of the mechanisms at work must be outlined. By tracing the processes that deepened and expanded opacity, (the transference of economic knowledge - information about where peoples’ funds invested in banks and other financial assets - from citizens to financial institutions) we may be able to understand what led to certain key events in the history of financialization . Again, the idea of “giving up” both money and the knowledge and how such money is being utilized will be an important theme throughout this blog and in illustrating our current economic issues.

    The first mechanism is the capital accumulation process, which has driven all of the developments mentioned so far in this blog and those which will be explored in the future. It is the need for ‘economy to grow.’ According to deeply ingrained Western ideology, economic growth should be prioritized over political, social, and other issues like ecology - growth supposedly increases ‘quality of life’ because it both causes and is caused by innovation. The ‘economy’ expands due to competition for surplus-value (profit) between capitalists/entrepreneurs driving innovation and technological change. Growth is therefore one of the ‘laws of motion’ of capitalism - our economy and society cannot exist without it.

    With the laws of motion in mind, we can examine the connection between neoliberal policy enactment, financial institution consolidation, and deepening opacity. Technological change should also be thrown into the mix of processes that we examine: it reveals how certain developments in policy and society gain the capacity to occur. I mentioned in a previous post how the shift in emphasis from an economy based on automotive production to an ‘information economy’ was particularly important in the rise of finance capital. To a large extent, banks and financial institutions’ ability to manage rapidly expanding amounts of information/knowledge was facilitated by advances in information and computer technology. This expanding knowledge-bearing ability allowed for institutions with certain legal privileges greater capacity for expanding their assets and reserves via credit instruments and speculation (turning money into more money without the need for ‘real’ production: M-M’) than others.

Capital Accumulation/Economic Growth <---> Technological Change


    The relationship between the capital accumulation process and technological change is particularly important in understanding financialization.

Thus a demand was created to homogenize the privileges that each financial institution has: if certain classes of financial institutions could expand at massive rates because of archaic rules on what they could and couldn’t do with their reserves, why should others be held back? This homogenizing of financial institutions - known as ‘deregulation’ - began in the late 1970s and coincided with the introduction of neoliberal state apparatuses. It culminated in 1999 with repeal of the Glass-Stegall Act. Combining the two mechanisms outlined above with other historical processes, we can attempt to excavate the forces behind the events that led to the creation and eventual collapse of the US’ homogenized financial apparatus.

 

But was there a specific ‘event’ that began the homogenization of financial institutions and proliferation of finance capital? It would be difficult to pinpoint, but, by examining the interaction of the the processes outlined above (capital accumulation and technological change) we can attempt to examine what was at stake that led to the proliferation of finance capital. I have already demonstrated some of the issues facing the United States economy from 1970-on in prior posts, but in subsequent posts will attempt to connect the processes at work to the events themselves.