Development and Underdevelopment in the History of Economic Thought

The centrality of banks in Marx theory of crisis : financial instability and disproportionality

De Grandi Anthony, Université Paris 1 PHARE

Karl Marx dedicated a substantial part of his writings to the understanding of the monetary and financial aspects of capitalism. This paper argues that his theory of crises can only be understood through the interaction of ‘real’ and ‘financial’ phenomena, and that banks are the link between financial instability and the reproduction process. Marx did not propose a complete banking theory. However, the writings in Book III of Capital contain detailed description of the relationship between the accumulation of ‘moneyed capital’ and ‘real capital’. My developments will also rely on the different volumes of Capital, the Grundrisse, and the Theories of Surplus-Values. These resources will be complemented by a relatively unexploited source, Marx's journalistic writings published in the New York Daily-Tribune. The first section of the paper is devoted to the endogenous development of banks which leads them to become the representatives of the financial capitalists in front of the industrial capitalists. The development of the balance of power between these two sub-fractions of the capitalist class proceeds in parallel with the understanding of the capitalist category of interest. I will advocate that Marx develops a double banking theory of interest according to the phases of the cycle. Section 2 argues that a clarification of Marx financial concepts (moneyed capital, money-dealing capital, interest-bearing capital, banking capital and fictitious capital) is necessary to understand the crucial role of banks in the circuit of capital. The last section will focus on the mechanisms of extension of bank credit during the expansion phase, facilitating ‘displacements’ between sections, as well as the explanation of the sudden credit crunch that triggers the liquidity crisis. Hence banks will make the link between two kinds of disproportionality: the disproportionality between sectors of Book II and the disproportionality between ‘moneyed capital’ and real capital of book III.

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Keywords: Bank, Liquidity crises, reproduction crises, Marxian theory of crises, financial instability