Costas Lapavitsas’ analysis of the origin and nature of financialised capitalism in Profiting Without Producing leads to radical solutions, argues Orlando Hill

Costas Lapavitsas, Profiting without Producing: How Finance Exploits Us All (Verso 2013), xvii, 393pp.

Despite the term ‘financialization’ being increasingly used in popular and academic discourse there is no general definition or understanding of its influence in the economy and society. In this book, Costas Lapavitas attempts to build a theoretical framework to analyse financialised capitalism. He does so by relying on a rich source of texts. The bibliography in the back is 41 pages long.

The concepts he uses are derived from Marxist political economy. The capitalist economy is seen as a whole, but comprised of three different spheres of activity: production, circulation and distribution. Production is the dominant one where value is created by the exploitation of labour. He stresses that value is not created in circulation. Profit in the circulation sphere is derived mostly from the redistribution of surplus value. Finance is part of the circulation sphere, whose traded object is loanable money capital. Lapavitas emphasises that financialisation should not be treated as a parasitical, with a ‘purely pathological character’, form of capitalism, but a natural trend of monopoly capitalism with its overwhelming production of surplus value that cannot be easily absorbed. Finance should not be ‘treated as surface phenomena sitting atop the “real” economic activities of production and exchange’, but as an essential system to support capitalist accumulation (p.37).

Financialisation represents an epochal change in capitalism, but also the cyclical trajectory of particular hegemonic powers. The domestic productive sector loses its ability to accumulate and capital seeks out profit in the realm of finance. This historical path has been observed flowing through Genoa, the Netherlands, Britain and the US. The upsurging, dominant power emerges through the financial resources of the declining power. The crisis of 2007 and the rise of China can been seen in this light, with the difference that this time the hegemonic power is a net borrower of the heir. The decline of the US has coincided with substantial inflows of capital from poorer countries due to the dollar’s role as world money.

Lapavitsas takes the reader through a history of Marxist theories of money and credit. Having Marx’s Capital, Volumes Two and Three at hand is helpful. Fortunately, Verso has also recently published David Harvey, A Companion to Marx’s Capital: Volume 2. He then takes the reader on a discussion of various theories of imperialism from Hobson, Schumpeter, Lenin and Luxemburg. The strength of this book is its theoretical wealth. It fills a gap in the understanding of the stage of capitalism that we are living through. It accomplishes what it sets out to do and should be read by anyone who is interested in progressive transformation in our society.

The more impatient reader can go straight to the last chapter, ‘Controlling Finance’, where the author discusses what should be done. Going back to regulating the finance market is not easy under the conditions of financialisation, due to the deeply rooted transformation of contemporary capitalism. And besides capitalism’s intrinsic tendencies of accumulation, it naturally creates trade-credit relations and generates idle money capital available for lending.

The period following the demise of Bretton Woods (1971) has been characterised by the gradual lifting of financial controls, which has encouraged financial innovation. These transformations have become embedded in all aspects of our society. Household debt is one of the greatest problems caused by financialisation. Banks have lost their social function of collecting information and assessing risks. The main point of the book is that this is a natural tendency of mature capitalism and not a result of policies of deregulation; ‘it is not a tendency that could be dealt with through regulatory change alone,’ (p.323). Opposing this requires demands for the public provision of basic goods and services: education, housing, health and transport. In other words it requires an ideological challenge to neoliberalism.

Nationalisation of banks so far has been seen as a temporary solution. Banks are nationalised to avoid losses and prevent collapse, and then returned to the private sector once the conditions of profitability have been stabilized. According to Lapavitsas, nationalised banks should remain in public hands and adopt the social responsibility of operating as ‘levers for the re-strengthening of the social and the collective at the expense of the private and the individual across the economy’ (p.325). However, it must be stressed that confronting financialisation cannot simply involve the establishment of public financial institutions and the regulation of private financial practices. It must include the re-establishment of public provision of education, health and housing that constitute a real portion of the income of working people.

Austerity measures which have cut the provision of these goods and services have forced working people into private financial institutions, strengthening even further the process of financialisation. ‘Financialization cannot be confronted without re-establishing the ideological primacy of the collective over the individual, and of the public over the private,’ (p.327). Confronting financialisation ‘leads to anti-capitalist ideas, policies and practices, and for this reason it should be part of the struggle for socialism,’ (p.327).