Reading Capital in the Age of Finance

Jayati Ghosh

IT is a big, unwieldy book in three fat volumes, with parts of it evidently incomplete. It was written nearly one and a half centuries ago, in a context that seems very different from our own.

So why read Karl Marx’s Capital today? What insights can such a book provide to understanding current reality, in the form of a much more complex world that has become so much more globally integrated and technologically developed, of societies and economies that appear to be quite different from those of nineteenth-century England? Some would argue that that there is no point in ploughing through these massive tomes, that they are no longer really relevant or helpful to our understanding. But in fact, what is remarkable is the extent to which this massive work does still provide insights at so many different levels. More fundamentally, it continues to provide a useful framework for understanding the essential features of capitalism, no matter how varied its contemporary manifestations.

Consider only a few of these insights, which are particularly important in what can now be called the age of finance.


The central point about capital for Marx is that it is not just a resource in itself, a simple factor of production analogous to land and labour. Rather, it is an expression of very specific social relations of production, in particular historical contexts. This means that all means of production need not be capital. For example, a loom that is required to weave cloth is capital if it is used in a factory by a worker employed to produce cloth to be sold for profit, but it is not capital if it is used in a peasant household to create cloth to be used by the members of the household. The means of production become capital through the social relations that underlie the production process.

This is the social relation between employer and worker, which is what enables capitalist production to take place at all. This requires workers to be ‘free’ in a double sense. First, they must be ‘free’ to sell their own labour power, that is, not bound by other socio-economic ties and constraints that could prevent them working for wages and not be tied to any particular employer. Second, they must also necessarily be ‘free’ of any ownership of the means of production, so that they have no choice but to make themselves available for paid work for their own material survival. This makes labour power also a commodity, sold in the market for a value which is determined by social subsistence norms. The peculiar nature of this commodity is that those who sell it may appear to be (and in some respects are) free, but they live only as long as they find work, and they find work only as long as their labour serves capital.

Marx saw other forms of capital, such as usurer’s capital and merchant capital, as ‘antediluvian’ forms of capital, which have existed as long as the history of money in many different types of society. They did not have the power to transform socio-economic relations, until they became fused with industrial capital. Marx himself did not treat finance capital separately, though later Marxists have explored the implications of the emergence of finance capital for the transformation of capitalism itself, through its association with the monopoly phase of capitalism and the strength of the financial oligarchy. But this does mean that using the term to encompass other forms – such as social capital, cultural capital and human capital – distorts Marx’s notion, since this implicitly treats capital as a pure resource (however it is created) and assumes away the underlying social relations.


The concentration of ownership of the means of production in a few hands is effectively what enables capital to play its role in production. But how does this concentration occur in the first place? It must obviously be based on the expropriation of the means of production from those who previously possessed it, such as peasants and small artisans who could have produced on their own. ‘Free labourers, in the double sense that neither they themselves form part and parcel of the means of production, as in the case of slaves, bondsmen, &c., nor do the means of production belong to them, as in the case of peasant-proprietors; they are, therefore, free from, unencumbered by, any means of production of their own’ (Capital, I, p. 668).

Marx points out that historically such expropriation (the primitive accumulation of capital) has been a violent process, emphasising the forcible creation of the ‘double freedom’ of labour. ‘The historical movement which changes the producers into wage-workers, appears, on the one hand, as their emancipation from serfdom and from the fetters of the guilds, and this side alone exists for our bourgeois historians. But, on the other hand, these new freedmen became sellers of themselves only after they had been robbed of all their own means of production, and of all the guarantees of existence afforded by the old feudal arrangements. . . . The history of this, their expropriation, is written in the annals of mankind in letters of blood and fire’ (Capital, I, p. 669). Capitalist production and capitalist private property ‘have for their fundamental condition the annihilation of self-earned private property; in other words, the expropriation of the labourer’ (Capital, I, p. 724).

Because of uneven development, primitive accumulation is not simply a historical fact but a continuing reality, which is constantly being experienced especially in the developing world today.


Unlike feudal extraction of surplus, capital operates on a purely contractual economic basis, through the voluntary market exchange of goods and commodities. But even this, while it seems as the outcome of rational choices of individuals, actually relies on a widespread social illusion. Marx calls this ‘commodity fetishism’ – the situation in which relations between people become mediated by relations between things, commodities and money.

Commodities are not simply things or objects, because they contain two very specific and different features, that is they possess both use value (meeting human needs or wants) and exchange value (as a thing that can be traded in return for something else). The two features may bear no relation to one another, and the process of exchange and the determination of exchange value are determined not by features intrinsic to the commodity but external to it. However, the contradictory nature of commodities gives rise to the possibility – indeed likelihood – that its varying features are confused and conflated. Commodity fetishism occurs when value is seen as intrinsic to commodities rather than being the result of labour, and the exchange of commodities and market-based interaction are seen as the ‘natural’ way of dealing with all objects, rather than as a historically specific set of social relations.  

More broadly, commodity fetishism is the illusion emerging from the centrality of private property in capitalism, which then determines not only how people work and interact, but even how they perceive reality and understand social change. The urge to acquisition, the obsession with material gratification of wants and the ordering of human well-being in terms of their ability to command different commodities, could all be described as forms of commodity fetishism. So too could socio-economic analyses that mistake the commodity illusion for genuine material and human conditions.


The nature of capital is constantly to transform itself and the society in which it operates. As Marx put it in the Communist Manifesto: ‘The bourgeoisie cannot exist without constantly revolutionising the instruments of production, and thereby the relations of production, and with them the whole relations of society. . . . Constant revolutionising of production, uninterrupted disturbance of all social conditions, everlasting uncertainty and agitation distinguish the bourgeois epoch from all earlier ones. All fixed, fast frozen relations, with their train of ancient and venerable prejudices and opinions, are swept away, all new-formed ones become antiquated before they can ossify. All that is solid melts into air . . . .'

This dynamism of capital has many unprecedented and positive results: a cosmopolitan character of production, which is particularly evident in the current phase of globalisation; rapid improvements in technology and the creation of ‘colossal’ productive forces; immensely facilitated means of communication; the agglomeration of populations into cities; much greater interaction and interdependence of nations not only in economic terms but also in intellectual and creative life. Capital generates new types of production organisation and economic institutions: not just the factory system but more recent arrangements, financial institutions and structures, legal systems. This constant revolutionising of production processes and institutions is evident even today, especially in the emergence of finance capital.

Marx identified three ‘cardinal facts’ of capitalist production: (i) Concentration of means of production in a few hands, whereby they cease to appear as the property of the immediate labourers and turn into social production capacities; (ii) The organisation of labour into social labour: through co-operation, division of labour and the uniting of labour with the natural sciences; and (iii) the creation of the world market. This third feature is the natural result of the tendency of the system to spread and aggrandise itself, to destroy and incorporate earlier forms of production, and to transform technology and institutions constantly. Yet the globalisation also occurs in the form of uneven development, which is then expressed spatially and regionally as well as within particular areas. Further, this creation of a world market in turn creates its own problems, as Marxists like Rosa Luxemburg and Prabhat Patnaik have identified: it progressively reduces the ability of capitalism to prey upon pre-capitalist or non-capitalist systems, which underlies the ability of the system to expand.


When Marx was writing, finance was mainly confined to banking, to the provision of credit by banks that were newly emerging as ‘modern’ banks. The incredible proliferation and sophistication of financial markets, that allow risk to be disguised in various ways and prevent attempts at public control, had not yet emerged. Even so, Marx perceptively noted the implications of the provision of credit both in developing capitalism’s productive capacity and in making it more prone to crises. Thus he agued: ‘The credit system appears as the main lever of over-production and over-speculation in commerce solely because the reproduction process, which is elastic by nature, is here forced to its extreme limits, and is so forced because a large part of the social capital is employed by people who do not own it and who consequently tackle things quite differently than the owner, who anxiously weighs the limitations of his private capital in so far as he handles it himself. . . . Hence, the credit system accelerates the material development of the productive forces and the development of the world market. . . . At the same time credit accelerates the violent eruptions of this contradiction – crises – and thereby the elements of disintegration of the old mode of production of the old mode of production’ (Capital, III, p. 441).

Marx also noted the role of ‘fictitious capital’, which he saw as the inevitable result of interest-bearing capital. This he described as the paper claim to the ownership of capital that exists in a form that is independent of the actual material capital, and can be traded in financial markets. While the growth of such fictitious capital can additionally help to mobilise resources for real capital accumulation, because of the possibility of its autonomous expansion, it can also trigger and amplify crises. Such an argument can be extended to understand the boom-and-bust tendencies of credit and financial markets that have been elaborated by Charles Kindleberger, Hyman Minsky and Jan Kregel.

This perception also allowed Marx to note how financial fraud becomes an integral part of the system, and in turn allows for the continued economic differentiation upon which the entire system rests. ‘The two characteristics of the credit system are, on the one hand, to develop the incentive of capitalist production, enrichment through the exploitation of the labour of others, to the purest and most colossal form of gambling and swindling, and to reduce more and more the number of the few who exploit the social wealth; and on the other hand, to constitute the form of transition to a new mode of production. It is this ambiguous nature which endows the principal spokesmen of credit . . . with the pleasant character mixture of swindler and prophet’ (Capital, III, p. 441).


The accumulation of capital generates higher productivity and transforms systems, but it is also associated with uneven development. A central feature is the centralisation of capital, which expresses the inherent antagonism between capitals: ‘Accumulation, therefore, presents itself as increasing concentration of the means of production, and of the command over labour; on the other, as repulsion of many individual capitals from one another. . . . It is concentration of capitals already formed, destruction of their individual independence, expropriation of capitalist by capitalist, transformation of many small into few large capitals. . . . Capital grows in one place to a huge mass in a single hand, because it has in another place been lost by many’ (Capital, I, p. 586).

Marx saw capitalism as being in a state of continuous disequilibrium, because of the tendency of uneven development. This is not confined to a single arena, but rather characterises all of the social and economic relations that develop under capitalism. Thus, there is an inherent tendency for the expansion of the productive forces and the ability of the economic system to generate sufficient demand for the goods that are produced, which can give rise to ‘realisation crises’. There is disproportionality between the expansion of fixed and variable capital, which generates the rising organic composition of capital that for Marx makes it more difficult to generate profits. There is the disproportionality between sectors that emerges in the process of accumulation. There is the geographical aspect of uneven development, which emerges from the tendency of capital to concentrate and creates at once both ‘developed’ and ‘underdeveloped’ areas. And of course, there is the lack of congruence between money as a medium of exchange and money as a measure of value, which tends to be amplified by the development of credit and the expansion of the financial system, which in turn creates a tendency to crisis.


Obviously, Marx saw capitalism as having an inherent and continuous tendency to experience crises. But there are many levels of conflict and contradiction that occur because of the system, and only some of them culminate in periodic crises that mark capitalist expansion. Since the basic dynamics of capital is simultaneously to aggrandise itself and impoverish other classes such as workers and peasants, within and across nations, it obviously generates class conflicts. Marx saw these as essential and continuous elements of social and material life under capitalism. But the system also generates intra-class conflict, pitting individual capital against other capitals and the individual worker against other workers. There is a Darwinian struggle for survival constantly at work, so individualism, conflict and competition become the driving forces of the system.

At the same time, individualism and competition between capitals also create what Marx calls the anarchy of the market and the inevitable tendency towards crises. Overproduction in terms of the market (even when human needs of all the people in the society need not be satisfied) is a characteristic feature simply because of the way individual capitals operate in the drive to generate more profit. As a result, the process of accumulation is never smooth. Rather, it is uneven and punctuated by crises. Partly, this is the result of the very success of capitalism in delivering more economic growth and technological advance. ‘The stupendous productivity developing under the capitalist mode of production relative to population, and the increase (not just of their material substance) which grows much more rapidly than the population, contradict the basis, which constantly narrows in relation to the existing wealth, and for which all this immense productiveness works. They also contradict the conditions under which this swelling capital augments its value. Hence the crisis’ (Capital, III, p. 266).

These periodic crises are a way of resolving the contradictions inherent in the dynamics of capitalism, albeit in a sharp and possibly violent way. Because the underlying imbalance is typically one of overproduction (relative to demand, not need) such crises usually involve the destruction of a significant proportion of existing products and productive forces. Marx described the workings of one particular form of crisis, resulting from price deflation, as follows: ‘definite presupposed price relations govern the process of reproduction, so that the latter is halted and thrown into confusion by a general drop in prices. This confusion and stagnation paralyzes the function of money as a medium of payment, whose development is geared to the development of capital and is based on those presupposed price relations. The chain of payment obligations due at specific dates is broken in a hundred places. The confusion is augmented by the attendant collapse of the credit system, which develops simultaneously with capital, and leads to violent and acute crises, sudden forcible depreciations to the actual stagnation and disruption of the process of reproduction, and thus to a real falling off in reproduction’ (Capital, III, p. 254).

It is important to note that for Marx, crises under capitalism are never purely ‘financial’ or ‘monetary’ – rather they reflect the real imbalances, disproportionalities and uneven development that are fundamental features of capitalist accumulation. So what is actually the result of the uneven development of the forces of production appears as a crisis of exchange or (in contemporary terms) finance.


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