State of Mankind

A New Way Of Thinking

Financial Capitalism

Continuing with our study of economic changes, we will look at the next stage–Financial Capitalsim.  Quigley describes this system:

“The third period we might call financial capitalism.  It began about 1850, reached its peak about 1914, and ended about 1932.  Its typical forms of economic organization were the limited-liability corporation and the holding company.  It was a period of financial or banker management rather than one of owner management as in the earlier period of industrial capitalism.” (Page 38)

As with industrial capitalism, financial capitalism was a development under the laissez-faire system or automatic economic control.  It occured as industry grew and bankers gained capital.  Capital was in greater need to fund larger industry, and therefore bankers gained more control.  Now a look at the good and bad of this system:

“By 1900 social developments took a direction so different from that expected by Marx that his analysis became almost worthless, and his system had to be imposed by force in a most backward industrial country (Russia) instead of occurring naturally in the most advanced industrial country as he had expected.

“The social developments which made Marx’s theories obsolete were the result of technological and economic developments which Marx had not foreseen.  The energy for production was derived more and more from inanimate sources of power and less and less from human labor.  As a result, mass production required less labor.  But mass production required mass consumption so that the products of the new technology had to be distributed to the working groups as well as to others so that rising standards of living for the masses made the proletariat fewer and fewer and richer and richer.  At the same time, the need for managerial and white-collar workers of the middle levels of the economic system raised the proletariat into the middle class in large numbers.  The spread of the corporate form of industrial enterprise allowed control to be separated from ownership and allowed the latter  to be dispersed over a much wider group, so that, in effect, owners became more and more numerous and poorer and poorer.  And, finally, control shifted from owners to managers.  The result was that the polarized two-class society envisaged by Marx was, after 1900, increasingly replaced by a middle-class society, with fewer poor and, if not fewer rich, at least a more numerous group of rich who were relatively less rich than in an earlier period.  This process of leveling up the poor and leveling down the rich originated in economic forces but was speeded up and extended by governmental policies in regard to taxation and social welfare, especially after 1945.” (Page 41)

Now, a look at the darker side that came to full power under financial capitalism.  Again from Tragedy & Hope:

“The merchant bankers of London had already at hand in 1810-1850 the Stock Exchange, the Bank of England, and the London money market when the needs of advancing industrialism called all of these into the industrial world which they had hitherto ignored.  In time they brought into their financial network the provincial banking centers, organized as commercial banks and savings banks, as well as insurance companies, to form all of these into a single financial system on an international scale which manipulated the quantity and flow of money so that they were able to influence, if not control, governments on one side and industries on the other.” (Page 51)

“…the powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole.  This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences.  The apex of the system was to be the Bank for International Settlements in Basle, Switzerland, a private bank owned and controlled by the world’s central banks which were themselves private corporations.” (Page 324)

Financial capitalism, and the goals of the International Bankers created the issues that brought about the change from financial capitalism to monopoly capitalism.  Once again, from Quigley:

“The growth of financial capitalism made possible a centralization of world economic control and a use of this power for the direct benefit of financiers and the indirect injury of all other economic groups.  This concentration of power, however, could be achieved only by using methods which planted the seeds which grew into monopoly capitalism….The economic system was deflationary because power production and modern technology gave a great increase in the supply of real wealth.  This meant that in the long run the control by banks was doomed by the progress of technology.  The financial system was also deflationary because of the bankers insistence on the gold standard, with all that this implies.

“To escape from this dilemma, the financial capitalists acted upon two fronts.  On the business side, they sought to sever control from ownership of securities, believing they could hold the former and relinquish the latter.  On the industrial side, they sought to advance monopoly and restrict production, thus keeping prices up and their security holdings liquid….

“While financial capitalism was thus weaving the intricate pattern of modern corporation law and practice on one side, it was establishing monopolies and cartels on the other.  Both helped to dig the grave of financial capitalism.” (Page 337)

To sum up, the “powers of financial capitalism” pushed for the laws and practices that established monopoly capitalism in order to boost their own power.  The move to monopoly capitalism simply put the most power in fewer hands, that of the industrialists (like the Rockefellers).  Quigley sums it up:

“…As early as 1909, Walter Rathenau, who was in a position to know (since he had inherited from his father control of the German General Electric Company and held scores of directorships himself), said, “Three hundred men, all of whom know one another, direct the economic destiny of Europe and choose their successors from among themselves.”” (Page 61)

Finally, to ask some questions about financial capitalism.  Did anything good come from this, or should it be tossed altogether?  Like most aspects of life, there are seemingly good and bad aspects to this economic organization.  The middle class thrived.  1920’s America was heavily middle class.  Technology thrived in the 1920’s as well.  The automobile was mass produced.  Refrigeration (also called air conditioning) was invented.  The airplane went from a stunt machine to something useful.  The life of the common man was much better than it had been.  On the flip side, the elitist powers hit their apex of power and control.  This historically ignored problem called pride entered in, causing poor decisions which led to the Great Depression, or was the Depression a result of the poor control of the elitist powers?  What can we learn from this era?  If nothing else, I propose that for Laissez-Faire capitalism to work, it must have a people righteous enough to avoid starting combinations and seeking ultimate power.  Was not government intervention the best solution to this problem?  We will answer that as we look at Monopoly Capitalism and the Pluralist Economy.

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