Rudolf Hilferding: excerpt from NEW PALGRAVE: MARXISM, 1990 pp. 201-202
Hilferding published his major work, Das Finanzkapital, in 1910; it was immediately hailed by such diverse figures as Kautsky (1911), Lenin (1916) and Bukharin (1917), as a path-breaking development of Marxist economic analysis.
Essentially, Hilferding argued that the concentration and centralization of capital had led to the domination of industry and commerce by the large banks, which were transformed into 'finance capital' (p. 225). The socialization of production effected by finance capital required a correspondingly increased economic role for the state. Society could therefore plan production by using the state to control the banking system.
"The socializing function of finance capital facilitates enormously the task of overcoming capitalism. Once finance capital has brought the most important branches of production under its control, it is enough for society, through its conscious executive organ - the state conquered by the working class - to seize finance capital in order to gain immediate control of these branches of production... Even today, taking possession of six large Berlin banks would mean taking possession of the most important spheres of large-scale industry" (ibid., pp. 367-8).
This chain of reasoning, however, tended to exaggerate not only the leverage of the banks over industry, but also the role of the state in the organization of production...
Karl Kautsky, review of Hilferding's book, 1911
For some time we Marxists were reproached with the unfruitfulness which is said to have obtained since the death of Engels. The reproach was not quite unfounded, but the connection of our "unfruitfulness" with the death of Engels was only caused by the fact that for many Marxists this death was the signal for turning away from Marxism; even, indeed, for eagerly combating it. Thus the ranks of the Marxist theorists were momentarily thinned, while the desertion of our former comrades from the camp of "orthodox" Marxism strengthened its opponents and forced us temporarily into the defensive. For years we had to use our best- time and strength in defending the already won results of Marxism against comrades who had themselves helped to obtain those results, and in refuting arguments which had a short time before been declared unsound by the very people who now used them.
But this crisis in Marxism hardly lasted a decade. Theoretical (nor, indeed, the practical) Revisionism is shelved; and we Marxists are again able to devote our whole time and strength, as far as we can turn these towards the theoretical side, to the great task of building up the edifice that the masters left unfinished and adapting it to modern times. And, in truth, during recent years no one can any longer complain of the unfruitfulness of Marxism.
Among the creations of Marxist literature-indeed among any of that literature-one of the most remarkable phenomena is the book written by Hilferding  on finance capital. In a sense it may be called a continuation of Marx's Capital.
Capital was left unfinished, and already on that account demands completion and continuation. Then, also, its more important parts were concluded in the sixties, so that it is half a century old. During this long period a great economic revolution has taken place. It has, indeed, not left Capital behind; on the contrary, it has only by the help of this work that it can be properly understood. But it has produced a number of new phenomena which were not dealt with in Capital, and which until the appearance of Hilferding's book had not been subjected to a detailed and sufficient examination on the basis of our theory.
The first volume of Capital is hardly touched upon in Hilferding's work. It is the second and third volumes from which it starts out and which it enlarges upon. And that is just where a continuation and further development was specially needed. First, because these volumes, in contradistinction to the first, only constitute fragments, and also because it is just on these planes that development has progressed with special rapidity, and the conditions show many more new phenomena than those dealt with in the first volume.
The latter treats of the process of the production of capital in the narrower sense of the word; its scene is laid in the factory; it shows us the foundations of the class antagonism between capital and labour. The second volume deals with the process of the circulation of capital; the buying and selling of the wares which have been produced. Its scene is laid on the market, where the class antagonisms between capital and labour are not directly noticeable, where there are only producers and consumers, and between them the negotiating traders.
The third volume then treats of the whole process; but here, also, the circulation of commodities is in the forefront. Here the chief part is played by the distribution of the surplus-value among the various classes of exploiters-industrial capitalists and land- owners-who draw the surplus-value in the form of industrial profit, interest or ground rent. The formation of the price, its deviations from the value, have a determining effect on the distribution of surplus-value. But these deviations are not arbitrary, but are subject to certain laws which can only he explained by the law of value.
It is easy to understand why the first volume of Capital became much more popular and had a much greater effect than either of the others. Not only because it was much more perfect in form, but also, and above all, because it dealt with the actual domain of the class struggle between capital and labour. Here the workers were at home; here they had lived through that which in the work of their pioneer was theoretically developed. Their class position and class instinct made them capable on this field of understanding, some things with mere ease than the bourgeois professors.
Not so the second and third volumes. Here, apparently, only the antagonisms of the exploiters among themselves were dealt with, fields which are far more strange to the worker than to bourgeois theorists. Here his experiences from his class position could not help him at all.
All the more would one have expected that these two volumes would have fructified bourgeois theory. For was it not a question of their own affairs-profit, interest, ground rent, of stock exchange and banks-planes in which the interest of the possessing class bade them make themselves at home and take a complete view of the whole.
But, strangely enough, the bourgeois economists showed no sign of using these Ariadne threads, with whose help they could have found their bearings in the labyrinth of capitalist business life. For they knew well that these Ariadne threads led with infallible certainty back to the starting point of the labyrinth, to the law of value by labour, they fought with hands and feet. Thus they were happy enough to manage to find nothing in these two volumes but the statement that the prices deviate from the values, and to deduce there from with great gusto the bankruptcy of the value theory.
Here, also, on their own special field, they left it to Social-Democrats to raise and make use of the treasures contained in the second and third volumes of Capital. Now, when Hilferding has done this, they will probably not fail to take possession, at any rate partially, of his results, but they will continue to abuse the starting-point and the method to which they owe these results.
Hilferding's book is, however, written least of all for these people. It will, above all, bring new strength and clearness to the proletarian class war, even though it is only a few pages at the end that are devoted to this struggle. It is only when one has completely grasped the total process of capital that one can clearly grasp the tendencies of its development, and therein the functions and goals of the Socialist movement. But the latter is unconditionally necessary if the proletariat would continually unfold the maximum of its strength and always use it to the point, avoiding false paths, which means wasting time and strength.
But there is also a narrower sense in which the knowledge of the circulatory process of capital is hardly less important for the militant proletariat than that of the process of production. The former does indeed show growing antagonism between wage-labour and capital; but the form of process of circulation determines how the capitalists are constituted with whom the worker has to do, a thing by no means without importance for the tactics of the struggle. And the forms which capital assumes change much quicker through the influence of the process of circulation than through that of production.
Profit is the driving force of the whole capitalistic mechanism; the foundation of the profits of the capitalist class is surplus-value, the amount of which depends upon the number of the workers employed by the total capital and the intensity of the exploitation. But the amount of profit pocketed by each individual capitalist does not depend on the amount of surplus-value on the exploitation of the workers employed. The capitalist cannot only gain at the expense of the workers, but also at the cost of his capital conferes; and if one understands how to do it, and possesses the necessary amount of capital and luck, one can get rich much quicker by plundering the big robbers than by merely plundering the plundered.
Hilferding examines the driving forces which underlie the different kinds of profit-gaining at the cost of the exploiters, the speculation profit, the foundation profit, the monopoly profit through the exclusion of competition, and shows how powerfully they influence the shaping of the capitalist class, and how, driven by them, the industrial concerns are coming to belong less and less to individual capitalists and passing over into the hands of joint-stock companies. He shows, further, how with these joint-stock companies, and through them, the power of the banks over industry is brought about; and, on the other hand, also the concentration of the concerns, partly by means of combination in mixed undertakings, one of which supplies the material to the other, partly by uniting several works of the same kind into a league, a cartel, or, finally, into a consolidated trust. He shows clearly how by this means the process of production is being more and more revolutionised, and large production coming more and more to the fore and assuming greater and greater powers of extension. All this is represented by Hilferding in the clearest and most exhaustive manner, in which he opens out to us a number of new points of view into the most complicated connections.
Of course the processes of circulation and of production stand in constant reciprocal action. The development just described is certainly not result of the circulation process alone. The effects of the production process, the improvements in technique, have without doubt played a most important part; but it is an injustice to Hilferding to reproach him with having overlooked these factors. It does not belong to the plan of his present work to deal with them in detail. He does not under-value them; but his primary object was to explore the factors arising the circulation process, which have hitherto been too little considered in the development in question and have never been systematically examined.
And, as already mentioned, the factors which are engendered by the circulation process prove themselves the more powerful for the formation of the relations of capital, and also those that change it the quickest.
The capitalist has always begun with being the merchant; the sphere of circulation is his element. But without a change in the process of production (in the narrower sense, for in the wider sense it is included in the process of circulation) an industrial undertaking may, through a mere change in the circulation, completely alter its character; may, for instance, change from a manufacture to a capitalistically exploited concern. Nothing in the workshop need be altered in the least; it suffices that the manufacturer should no longer buy the raw product himself, but that a merchant who desires to turn it to account should buy it and give it to him to be manufactured, so that the merchant, and no longer the manufacturer becomes, in exchange for a mere compensation for the work, the owner of the product which he sells. So, also it is not necessary for anything in the process of production to change in a factory while it goes through the transformation from the property of a single capitalist into that of a job-stocking company, the change from an independent individual enterprise into a member of a cartel, into a trust undertaking, or into the property of a bank.
It is thus quite permissible to trace this development without special reference to the process of production.
And the comprehension of this development is of the utmost importance for the proletarian who would consciously carry on his class struggle.
Among other things, it brings a new proof of the necessity of the intensification of the class antagonisms, which Hilferding shows up very well. His book shows once more what a mistake it is to expect that employers will come more and more to see that they will do well to be on good terms with their workers; that they will gain more and more "social political insight." The idea of "Scharfmachertum " is spoken of as a relic of past times; one likes to describe it as "backward," as a phenomenon which must disappear during the further progress of capitalist development. And we Marxists, who view in the "backward" conception of the "Scharfmacher" not a product of the past, but as something which has its strongest roots in the present and in the future as far as it belongs to capitalism, are of course looked upon as equally "backward."
In reality it is the smoothing over of class antagonisms which dates from the past-the past in England. It bases itself upon the supposition that it is still England that shows us our future, as was the case in Marx's time. This expectation is supported by the, not exactly new, fact that in England after the victory of Free Trade (1846) the relations between capitalists and workers became better and better for some decades. But this revisionism, which reproaches us with swearing by the letter of the master's words, fails to see how Marx's words about the value of England as an example have long ago been fulfilled by the facts, and also the observations, which they themselves made in England. During three decades England has more and more relapsed, economically, into the rear, and the class antagonisms are becoming intensified there, too; not, indeed, to the same extent as in Germany or the United States, because England is backward, because the individual capitalist ownership still predominates in industry, whose dependence on the banks, and the concentration of which into cartells and trusts, has not yet proceeded so far as in the two above-mentioned countries. This was already a known fact, but Hilferding has most admirably expounded some reasons, not hitherto known, for this phenomenon.
Not England, but the United States, is the country which shows us our social future in capitalism. The backward "Scharfmachertum" is nowhere more intensely developed than there.
It is to finance-capital that the capitalist future belongs. But this, both in the international struggle of competition and in the internal class struggle, means the most brutal and violent form of capital.
What Hilferding understands by finance-capital and its development can best be told in his own words. In one place he gives a short resume, which helps considerably in following the line of thought which runs through a great portion of his book. He says:-
"We have seen how in the beginning of capitalist production the money of the banks comes from two sources. First, from the money of the non-producing classes; secondly, from the reserve capital of the industrial and commercial capitalists. We have seen, further, how the development of credit tends to place at the disposal of industry not only the whole reserve capital of the capitalist class, but also the greatest part of the money of the unproductive classes. Present-day industry, in other words, is carried on by means of a capital far larger than the total capital in the possession of the industrial capitalists. With capitalist development the sum of money constantly grows which is placed by the non-producing class at the disposal of the banks, and by these latter at the disposal of industry. The disposal over these sums, so indispensable to industry, belongs to the banks. With the development of capitalism and its credit organisations there thus grows the dependence of industry upon the banks. On the other hand, the banks can only draw the moneys of the non-productive classes, and keep the ever-increasing foundation stock of the same at their permanent disposal by paying interest on these moneys. This they could do, as long as these sums were not too extensive, by making use of them for speculation credit and circulation credit. With the growth of these sums on the one hand, and, on the other, with the decreasing importance of speculation and commerce, it became necessary to convert them more and more into industrial capital. Without the steady extension of production credit the possibility of making use of the deposits, and therewith also the paying of interest on the bank deposits, would long ago have sunk much lower. This is partially the case in England, where the deposit banks only negotiate circulation credit, the interest on the deposit being therefore only minimal. Hence the continual departure of the deposits into spheres of industrial investment by the purchase of shares. Here the public does directly what, in the case the founder's profit does not come to them. But for industry, it means less dependence on bank-capital in england in comparison with Germany.
"The dependence of industry on the banks is thus the result of the conditions of property. An ever-increasing portion of the industrial does not belong to the industrials who use it. They only receive the disposal over it from the bank, which, as far as they are concerned, represents the owner. On the other hand, the bank has to fix an ever growing portion of its capital in industry. It therefore, becomes, in an ever-growing measure, an industrial capitalist. I call this bank-capital-that is, capital in money form-which in this way is converted in reality into industrial-capital, the finance capital. Towards the owners it always conserves its money-form, is invested by them in the form of money-capital, and can at any time be withdrawn by them in money form. But in reality the greater part of the capital thus invested in the banks is converted into industrial, productive capital (means of production and labour-power) and fixed in the process of production. An ever greater portion of the capital employed in industry is finance-capital, capital at the disposal of the banks, and being made use of by the industrials.
"The finance-capital develops with the development of the joint-stock companies and reaches its height with the monopolisation of industry. The industrial revenue becomes a steady and increasing one. Thus the power of the bank-capital to invest in industry gains ever further extension. But the bank-capital is at the disposal of the bank, and the bank is ruled by the owners of the majority of the bank shares. It is clear that with the increasing concentration of property the owners of the fictive capital, which gives power over the banks, and of that which gives power over industry, are becoming more and more identical. All the more, in that, as we have seen, the large banks are ever gaining more and more power of disposal over the fictive capital.
"Though we have seen how industry is becoming more and more dependent upon bank-capital, that by no means involves the industrial magnates. Just as, on the contrary, capital itself, on reaching its highest stage, becomes finance-capital, so the magnate of capital, the finance capitalist, comes more and more to unite the disposal over the total national capital by ruling over the bank-capital. Here, too, the personal union plays an important part.
"With cartellisation and trustification, finance-capital reaches the highest stage of its power, while the commercial capital experiences its deepest degradation."
One sees Hilferding is far from believing in the utopia of the democratising of capital through shares. With a light turn of the hand he puts aside this "petty-bourgeois theory." (Page 166; compare also 144.)
These quotations are already sufficient to show that Hilferding's book has not only academic importance. It is of the greatest weight also for practical workers in the Labour movement, and especially for its representatives in the Parliaments, who must not limit themselves to purely Labour questions.
But it is true that the principal importance of the book is on the theoretical plane. Starting out from the Marxist fundamental ideas, Hilferding unites a complete control of his methods with the control of a comprehensive material, and he develops in a compact representation, on the foundation of the theory of the nature of money, of credit, of the banks, of the shares system, of carttells, of crises. There is hardly one of the phenomena on these planes about which he has not something new to say, and which is not made clearer by the connection which he traces between it and the total process.
His book is a new brilliant confirmation of the fruitfulness of the Marxian method. That is not to say that Hilferding swears by the letter of the master's words. He knows how to use his method while preserving his own complete independence. This he shows best in the question of the founder's gains, which he explains as the difference between rate of profit and rate of interest, between the real value of the productive elements of an undertaking and the capitalised amount of its profit. If, for instance, the erection of a factory costs a million marks and bears 10 per cent. profit, then, given a rate of interest of 5 per cent., the mass of profit derived from the factory will constitute the interest on a capital of two millions. If the factory be converted into a joint-stock company, one can fix the share-capital at two millions. The surplus of one million over the value of the factory drops, as founder's gain, into the pockets of the founders without any deception.
This is a very important discovery. It opens out to us a deeper insight into the nature of the motive powers which extend the share system, render the individual capitalist superfluous, and deliver up industry to the dominion of the banks. Thanks to the founders' gain, this development proceeds much faster than if the struggle of competition had to effect it alone. Thereby, too, the extension of the workshops to gigantic undertakings and their union with other works in the most varied forms of monopolist conjunction is extraordinarily encouraged.
The founder's gain, proves itself to be one of the strong factors in the process of development which is bringing modern capitalism to a head, and converting capital into a quite impersonal force, but at the same time greatly increasing the class antagonisms. The discovery of this fateful force is due to Hilferding. To Marx it was still quite unknown.