Introduction to Chapter 8

 

While nationalization of commercial banks, as discussed in the previous chapter, could mitigate or do away with market turbulences that are due to financial bubbles and bursts, it will not preclude other systemic crises of capitalism. These include profitability crises that result from very high levels of capitalization (or high levels of the “organic composition of capital” a la Marx), from insufficient demand and/or under-consumption, from overcapacity and/or overproduction, or from disproportionality between various sectors of a market economy.

Historically, calls to nationalize the banks were made at a time (the first few decades of the 20th century) when industrial capital, especially in Germany and to a lesser extent elsewhere, “was controlled by the private banking system. A socialist government that could nationalize finance capital would have in one fell swoop also annexed large swathes of the productive apparatus of society” (Finger 2013). Furthermore, demands to nationalize the banks

 

[A]lso rested on the specific historic limitations of a means of circulation backed by tangible commodities (gold and silver). To nationalize the banks was to seize the national hoard of metal so that the socialist state could finance its economic operations and suppress other, alien, forms of accumulation and social activity, such as equipping and paying counterrevolutionary armies (Ibid.).

Neither of these two conditions is present today. For one thing, while finance capital restricts industrial capital and retards manufacturing by draining resources away from real investment, it does not directly control industrial capital or manufacturing enterprises. For another, the prevailing money today is, of course, fiat (paper) money, not commodity money (gold or silver). Furthermore, as long as capitalism and, along with it, the lopsided distribution of economic surplus prevails, financial instability cannot be uprooted by nationalizing the banks. For, while nationalization of traditional banks may temper financial fragility, other types of financial intermediaries and institutions are bound to arise in order to avoid regulation and/or nationalization, thereby precipitating financial instability. These include all kinds of shadow banks and speculative enterprises such as private equity firms, derivative markets, hedge funds, and more. To do away with the systemic crises of capitalism, therefore, requires more than nationalization of banks; it requires changing the capitalist system itself.

Regulation, the liberal–Keynesian prescription to fend off financial instability, would not be an effective solution to the recurring crises of financial bubble and bursts either; because, for one thing, due to the political influence of powerful financial interests, financial regulations would not be implemented, as evinced, for example, by policy responses to the 2008 financial implosion and the ensuing Great Recession. For another, even if regulations are somehow implemented (for example, under the pressure from the grassroots, like the widespread protest demonstrations and militant labor actions in response to the Great Depression), they would provide only a temporary relief; for, as long as there is no democratic control, regulations would be undermined by the influential financial interests that elect and control both policy-makers and, therefore, policy. The dramatic reversal of the extensive regulations of the 1930s and 1940s that were put in place in response to the Great Depression and World War II to today’s equally dramatic deregulations serves as a robust validation of this judgment. This shows, once again, that the need to end the recurring crises of the capitalist system requires more than financial regulation; it calls for changing the system itself, as pointed out above. Since the role of labor would be critical to such a systemic transformation, a brief analysis of trade unions and/or labor leaders’ response to the 2008 financial crash and the ensuing Great Recession would, therefore, be a logical first section of this chapter.

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