It is becoming increasingly clear that the financial meltdown of 2008 and the subsequent economic contraction that continues to this day represent more than just another recessionary cycle. More importantly, they represent a structural change, a new phase, the phase of the dominance of "finance capital," as the late Austro-German political economist Rudolf Hilferding put it.
Although the current domination of our economy by finance capital seems new, it is in fact a throwback or "retrogression" (as financial expert Michael Hudson puts it) to the capitalism of the late 19th and early 20th centuries, that is, the capitalism of monopolistic big business and gigantic financial institutions. The rising economic and political influence of powerful financial interests in the early 20th century led a number of political economists (such as John Hobson, Rudolf Hilferding and Vladimir Lenin) to write passionately on the ominous trends of those developments--developments that significantly contributed to the eruption of the two World Wars and precipitated the devastating Great Depression of the 1930s, by creating an unsustainable asset price bubble in the form of overblown stock prices.
The harrowing experience of the Great Depression, followed by the devastating years of World War II, generated momentous social upheavals and extensive working class struggles worldwide. The ensuing "threat of revolution," as F.D.R. put it, and the "menacing" pressure from below prompted reform from above--hence, the New Deal reforms in the US and socialist/Social-Democratic reforms in Europe. Combined, these historic developments significantly curtailed the size and the influence of big business and powerful financial interests--alas, only for a while.
As those reforms saved Western capitalism from more radical social changes, they also provided grounds for its regeneration and expansion. By the 1970s, finance capital, headed by major US banks, had risen, once again, to its pre-Depression levels of concentration, of controlling the major bulk of national resources, and of shaping economic policy. Since then, big banks have created a number of financial instabilities and economic crises--usually through predatory, sub-prime loan pushing or unsustainable debt bubbles. These include the "Third World debt crisis" of the 1980s and 1990s, the 1997-98 financial crises in Southeast Asia and Russia, the tech or dot.com bubble of the 1990s in the U.S. and other major market economies, and the latest, housing/real estate bubble that burst in 2008.
A number of characteristics distinguish the stage of the dominance of finance capital from lower phases of capitalist development. Under liberal capitalism of the competitive industrial era, a long cycle of economic contraction would usually wipe out not only jobs and production, but also the debt burdens that were accumulated during the long cycle of expansion that preceded the cycle of contraction. In the stage of finance capital, however, debt overhead is propped up through its monetization, or socialization, even during a most severe financial meltdown such as that which occurred in 2008. Indeed, due to the influence of the powerful financial interests, national or taxpayers' debt burden is further exacerbated by the government's generous bailout plans of the bankrupt financial giants, that is, by simply transferring or converting private to public debt.
In The Class Struggle in France, Karl Marx wrote, "Public credit rests on confidence that the state will allow itself to be exploited by the wolves of finance." Today we see more clearly how the "wolves of finance" are hollowing out national treasuries and subjecting governments to unsustainable debt burdens. This explains the near bankruptcy not only of the US Government but also of many of the European states, especially those of Greece, Ireland, Spain, Portugal and a number of East European countries. Proposed government "solution" in all these cases is to have the general public pay for the gambler's debt--in the form of extensive cuts in essential social programs and drastic reductions in living standards.
A major hallmark of the age of finance capital is domination of the State and/or political process by the financial oligarchy. Bank- or finance-friendly policies of the government have been facilitated largely through generous pouring of money into the election of "favorite" policy makers. Extensive deregulations that led to the 2008 financial crisis, the scandalous bank bailout in response to the crisis, and the failure to impose effective restraints on Wall Street after the crisis can all be traced to Wall Street's political power. Wall Street spent more than $5 billion on federal campaign contributions and lobbying from 1998 to 2008, and its fervent spending on the purchase of politicians continues unabated.
Michael Hudson, Distinguished Research Professor at University of Missouri (Kansas City), aptly calls this ominous process of the buying out of policy-makers by major contributors to their election "privatization of the political process." Paul Craig Roberts, Assistant Secretary of the Treasury in the Reagan administration, likewise argues that the political system "is monopolized by a few powerful interest groups that"have exercised their power to monopolize the economy for the benefit of themselves."
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