 Well, as was mentioned, today's lecture is titled Revisiting Capital in the Age of Finance. What I intend to do today is that we know that since its inception, and especially over the last 150 years since the publication of the first volume of Das Kapital, capitalism has not merely experienced many crises, but has been through a number of phases in terms of transition or restructuring, partly as a result of the sort of changes which were precipitated by the kind of impact which crisis had, and partly because of just the evolution in time and the transition which occurred within capitalism. So we normally speak of phases of one particular kind. We speak of things like the mercantilist phase of capitalism, the monopoly phase of capitalism and so on. But if we take these 150 years, there have been two crises in particular which have had a major transformative effect on the kind of capitalism we have or we had. The first of course was the Great Depression of the 1930s, which resulted in a situation where what was put in place as a result of the kind of transformation which was state led, which came as part of the New Deal, that what was put in place was a kind of capitalism which reigned in the first instance finance through the Glass-Steagall Act and many other such McFadden-Pepa Act, etc. But it also resulted in a kind of capitalism in which the state is part of the New Deal initially, and then after coming out of the crisis as a result of the Second World War, as a result of the influence of Cajunism and so on, we had a state which as a result of significant volumes of public expenditure, as I mentioned in an earlier lecture, was in a position to be able to sustain substantial growth, push the system to a situation of near full employment, put in place to a certain extent a kind of a welfare state and as I said all of this was in a context in which finance capital had been reined in and therefore we had the golden age, which was a period in which we had this unusual coincidence in the history of capitalism of low inflation, relatively high rates of growth and extremely low unemployment, unemployment or a near full employment situation. But as I mentioned in the last lecture, given the antagonistic nature of capitalism, we did we quickly realized in the period after the late 1960s and the early 1970s, we realized that this was not sustainable, that this was in fact an exceptional phase in the history of capitalism, an exceptional phase taking almost three centuries of history and that we had a kind of restructuring which resulted in the emergence of a period of time for kind of capitalism, which not merely limited because of the inflation which occurred, the sort of tendency to sustain a high level of public expenditure which served as the principle stimulus of growth, but also began to deregulate the sort of controls which had been put on finance, both in terms of the ability of finance to grow and expand as well as diversify and proliferate into new areas outside of banking, which even in the 1950s and early 1960s in the United States dominated financial activity. Now if we look at that the process essentially what we had was a major element of the attempt to try and reign in finance in the period after the 1930s, the banking crisis of 1930 to 32, a major part of it was to try and actually reduce competition within the financial sector, in particular at that point of time of course, competition between banks and this required in which it was argued essentially putting significant controls on interest rates, because if you didn't have controls on interest rates, banks would tend to compete with each other by raising interest rates to attract deposits because a large part of the activity of the banking system is essentially based on the money you get from depositors which banks being the first port of call of the nation's savings. So you actually have a system in which you try and control interest rates such that there is no competition and that this results over a period of time in inability also because of the Glass-Steagall Act and the restrictions it put on banks for banks to finance activities in the non-bank financing sector, because banks were prevented from diversifying into securities markets into insurance and so on. And the result of this of course, was that you had not too diversified financial sector, but a financial sector which essentially was extremely stable in the period after the Second World War and going up to the late 1960s. The problem which occurred is that because of the inability to sustain that exceptional phase of capitalist growth, the golden age, you ended up with a situation where in the late 1960s the ability to be able to sustain high levels of public expenditure without the system experiencing inflation got undermined. Inflation doubled in the late 1960s. It went even higher in the 70s pushed in part by the oil price shocks across the in the in the oil exporting countries. Oil price is going up 150 percent. So when you have this significant increase in prices and you have interest rates which are capped because of the fact that you don't want to have competition between banks, what you really had at that point of time was the crisis in banking because those who were putting their money their savings into the banking system were finding that the rate of inflation exceeded the rate of interest which was being paid. And therefore the net return or the real return you got got after adjusting to inflation which turned out to be negative so that there was people started pulling out of their savings from the banking system and attempting to invest it elsewhere. So the whole process of deregulation really began because of the inability of in this case American capitalism to be able to sustain the kind of unusual coincidence of low rates of inflation, reasonable rates of growth and relatively low levels of unemployment. When inflation came in the government had to respond not merely by trying to pull back its expenditures but also in terms of beginning to deregulate finance so that the banking crisis could be addressed by the banks trying to find new areas into which they can diversify. Now this triggered off a whole host of changes which i'm not going to go into in that detail but essentially what you had is that when you have interest rate competition banks obviously tend to now move out of areas which earlier give them a reasonable but not too higher rate of return. If you're pushing up interest rates you're paying depositors in order to attract capital into the banking system the cost of capital for the banks goes up. If the cost of capital for the banks goes up they have to invest or lend to areas where they get higher returns. These areas tend to be areas which are more risky. If they tend to be more risky they also normally tend to be more volatile so you ended up with a situation where you had an increase in fragility in the financial structure and a diversification into more volatile areas. If you went into volatile areas then obviously you need to do something to deal with risk and one of the things which happened was that banks decided that they are not going to carry all of the credit assets they create on their books. They decided to try and transfer a part of the risk to others and this set off a process in which credit assets debt was really bundled together derivative assets or securities were created and these securities were sold on to investors. Investors in the insurance business and mutual funds and so on and so forth. Now obviously investing in areas which gives you a higher rate of return obviously means that the diversification which occurs in the direction of a set of activities which offer higher returns and these normally tend to be activities like the stock market, the real estate market and so on and you tend to find therefore the emergence of new kinds of instruments which allows the system to try and deal with the volatility, to deal with the higher level of risk and you see a whole set of relatively new markets very many new institutions and of course a range of new instruments which come into play and therefore you begin to see a sharp increase in the extent of financial activity and the share of financial assets and total assets in the system. Now the point is this this kind of transition which occurred meant that with the expansion and diversification of financial activity there were multiple sources through which financial players now started earning incomes. In the earlier world or in the in the world of of Glass-Steagall and after the principal form of return of course within the financial sector was the net interest margin. The difference between what banks paid their depositors and what they earned by actually lending out or making investments but now you began to see new kinds of sources of income, income which essentially came from fee and commissions incomes because of the fact that you were creating these financial products, the securities which could be traded. You began to see a certain degree of capital gains, the appreciation of financial assets which were which which are now being generated. So, you actually you had you had a situation where it was almost like factories generating financial products the value of which we are appreciating over the period of time and rates of return or earnings in the form of fees, commissions, capital gains etc began to become more important than the old ways of earning income within the financial sector. Now if we look at this form of restructuring which has happened and the transformation which has occurred therefore because of what was a crisis of the late 60s and the 1970s the inability of capitalism to be able to because of its antagonistic nature to be able to sustain the golden age that what we had therefore is a kind of restructuring which transformed capitalism hugely relative to the way it looked and functioned in Marxist time. Marxist capital was after all written in the age of industry. Today we can say that we live or people do say that we live in the age of finance. Now I mentioned last time that if you look at it in terms of on the first lecture that if you look at it in terms of the share of financial activity and in total national income it's in the range of about 20 percent in countries like the the US and Germany. If you look at the share of financial profits in total corporate profits there's been a significant increase from about seven percent to 28 percent over the period of time. So you actually have a situation in which finance to a certain extent has come to occupy an extremely important role but most significantly what you have and which is going to be one of the principal concerns which I'm going to address today is that you begin to observe first a much faster rate of accumulation of financial assets as opposed to real wealth and this essentially means that over a period of time the ratio of financial wealth to real wealth the ratio of financial assets to GDP any such set of indices actually points to a situation in which it appears that there is a process of accumulation which is operating outside of the real economy which results in an accelerated accumulation of financial wealth and financial assets relative to real wealth. Now this does create a problem as to how we apply Marx's understanding of the sources of profits in the manner of its extraction. Marx was very clear that under capitalism surplus value was essentially extracted through the productive consumption of labour power in combination with whatever constant capital was necessary for the activity being undertaken. This was because of the fact that surplus value in his analysis and understanding was the difference between the used value of labour power to the capitalist or its application for a full and of course what could be an elastic labour day and the exchange value of that labour power which is the wage the difference between the two or the wage needed to reproduce that labour power the difference between the two was surplus value and it was sourced in production. Now whatever role money capital and financial intermediaries had the returns they've received could only be in that kind of a perspective a share of that surplus which is generated from production. Much of Marx's discussion was really geared to the different roles money capital assumed and the way in which it managed to extract a return from its activities in terms of a share in the surplus value which is generated in production as a result of a set of this excess or the difference between the value contributed by labour and the wage of labour or the cost of reproducing labour. But in the course of that analysis it appears particularly in volume three but elsewhere as well that they developed various tensions in the analysis in response to which Marx appears to have extended the frontiers of his understanding. When elaborating his core arguments Marx was at pains to show that money exchange and circulation distract attention from the real source of surplus value. So to quote him in the analysis of the primary form of capital the form in which it determines the economic organization of modern society he entirely left out of consideration and those are his words what he described as its well-known and so to speak anti-delivian forms merchants capital and users capital. That is as discussed in my first lecture besides locating their operations as subordinate functions in the realm of circulation where surplus value was only realized he attempted to relegate them to the primitive phases of capitalism itself. But since merchants and money lenders must after all profit to exist and the money they withdraw from withdraw as a result of their activity from the market must exceed what they advanced in the first place the means to that profit needed to be identified. In Marx's view the only way in which that profit can emerge is if they manage to extract a surplus from their transactions in the sphere of circulation in the case of merchants capital this occurs either because it offers a set of value services needed for the valorization of capital such as storage transportation etc which are required in part for the for the for the extraction and realization of surplus value or because of the ability of merchant capital to ensure I mean to a to a to ensure an equal exchange. Merchant's capital in its pure form according to Marx appears to be an impossibility as long as equivalents are exchanged. So buying in order to sell or more accurately buying in order to sell Deira the MCM prime circuit seems admittedly according to Marx to be a form peculiar to one kind of capital alone merchant capital. Matters are even more deviant once we begin to examine user's capital in the case of merchant's capital money is at the two extremes but is at least mediated to circulation there's the money commodity money circuit which is involved but in the case of user's capital you actually don't have this process of intermediation what you have is the form the form MCM prime is reduced to unmediated extremes M M prime money which is exchanged for more money and therefore inexplicable from the standpoint of the exchange of commodities Marx's understanding of user's capital was that it was a primitive form based essentially on the extraction of absolute surplus value thus he argued and i quote him a bit extensively the distinctive character of the formal subsumption of labor under capital appears at its sharpest if we compare it to situations in which capital is to be found in certain specific subordinate functions but where it has not emerged as the direct purchaser of labor and as the immediate owner of the process of production and where in consequence it has not yet succeeded in becoming the dominant force capable of determining the form of society as a whole as you mentioned earlier in India for example he argued the capital of the user advances raw materials or tools or even both to the immediate producer in the form of money the exorbitant interest which it attracts the interest which is respective of its magnitude it extorts from the primary producer is just another name for surplus value it transforms its money into capital by extorting unpaid labor surplus labor from the immediate producer but it does not intervene in the process of production itself which proceeds in its traditional fashion as it as it always had done there are two aspects to this argument which need noting the first is recognition that money capital can manage to extract surplus value outside the sphere of production and this can be in the form of absolute surplus value when capital subordinates production as is and does not transform it which is what the formal assumption of labor to capital is second there is the view that this happens only in the stage when capitalism is still emergent and has not seized the process of production but when performing this parasitic role it does pave the way for such sheath up this form of extraction of surplus value very often leads to the expropriation of peasants and petty producers because they often forced to sell their meager assets to the user to service their debt leaving the producer bereft of the means of production and with no commodity to commodity to sell other than his or her labor part this too was for Marx a part of the process of primitive accumulation i've mentioned this earlier too as i discuss earlier when we go beyond the classic ground of capitalism in england the evidence suggests that these practices and tendencies continue to prevail in different forms through the history of world capitalism and even today this implies that when necessary and if possible finance can extract its share of surplus by using means that do not require the mediation of production the source of constantly enhanced value must be production but the appropriation of that surplus can be both through production and outside it this is all the more possible if profits accruing to money capital take the many forms i had referred to at the beginning of this lecture of course Marx did not end his discussion of money and finance with this reference to the anti-derivial forms that is of merchants and your users capital rather that discussion features in Marx's analysis of capitalism at different levels to start with he recognized that the development of circulation under capitalism with the development of circulation under capitalism borrowing and lending and debtors and creditors emerge as money takes on the form of means of payment besides its functions of course as means of value i mean measure of value and and means of circulation with credit being a widespread feature in the process of circulation settlement systems emerge that cancel out implicitly reciprocal payments and require actual circulation of the means of payments only to balance the rest nobody carries bags of money to make payments in markets a lot of them are settled through through other kinds of instruments and most of these are settled by balancing out the pluses and minuses and the only exchange which takes place in terms of the means of circulation is really what is left in order to be balanced the greater the concentration of amounts that can be settled in one place the lower would be the amount of the means of payment in circulation the proliferation of debt now pays the way for the emergence of credit money since certificates of debt soon circulate by transferring the debts of others to others as a substitute for money credit becomes tradeable we should we should remember that when we talk about securitization in the world of today's finance this is a classic case of debt becoming tradable because what you do is but you bundle together different kinds of credit assets creative derivative asset which is then traded so you you essentially have a situation where there's a large increase in the volume of debt that is traded besides facilitating transactions that are separated in time and space such as for example the purchase of cotton production for cloth and the production and realising realisation of the value of cloth say with the long through the long trade with India as was happening at that point of time this role for credit money soon results in a chain of debt in Marx's words by and large money now functions as a mean only as a means of payment that is commodities are not sold for money but for a written promise to pay at a certain date for the sake of brevity we can refer to all these promises to pay as bills of exchange until they expire and are due for payment these bills themselves circulate as means of payment and they form the actual commercial money to the extent that they ultimately cancel each other out by the balancing of debts and claims they function absolutely as money even though there is no final transformation into money proper so what we actually have here is a situation where as we move into an you know as circulation expands we move into a situation where we have debtors and creditors we have instruments then which then become tradable instruments and become means of payment rather than merely being IOUs then you enter into a world in which actually you begin to see an accumulation of debt which serves multiple purposes which requires of course the emergence of certain kinds of financial intermediaries as these instruments proliferate intermediaries in the in the form of banks for example take over the credit system aggregating capital that allows for provision of cheaper credit on the larger scale demanded by a flourishing capitalist system and mediating the flow of credit money this build-up of finance in marx's view is amplified by the fact that it is inevitably associated with speculation that results in credit creation far in excess of that needed for facilitating circulation I quote it is the object of banking to give facilities to trade and whatever gives facilities to trade gives facilities to speculation trade and speculation are in some cases so nearly allied that it is impossible to say at what precise point trade ends and speculation begins wherever there are banks capitalism is more readily obtained at a cheaper rate the cheapness of capital gives facilities to speculation just in the same way as the cheap cheapness of beef and of beer gives facilities to gluttony and drunkenness marx holds that operate money operating in this manner in the sphere of circulation give gives rise to what he called fictitious capital because in the words of one contemporary observer whom he quotes it is impossible to decide what part arises out of real bona fide transactions such as actual bargain and sale or what part is fictitious and more mere accommodation paper that is where one bill of exchange is drawn to take up another running in order to raise a fictitious capital by creating so much currency now this capital is fictitious also because of the fact that it confuses money and capital the banker has grown as has as marx said so grown so accustomed to the view that as and when he lends he's in some sense creating new capital or at least facilitating the creation of new capital this of course is not necessarily true if it so happens that somebody is provided a loan without any collateral without any security being provided and can use it for the purpose of acquiring commodities including acquiring commodities and labor power for undertaking undertaking accumulation then of course we happen to be in a world in which it could be argued that this is additional capital which is being in some sense created or facilitated capital investment is being facilitated by the provision of credit but supposing if the advance is made against securities or some other such collateral which have to be deposited with the bank it is in advance in the sense that money is paid to the borrower under conditions of its repayment but is not in advance of capital for these securities also represent capital that is the securities which are given as collateral and more moreover they have to be a higher amount in the advance since the margin is obviously taken into account and providing loans against collateral the recipient thus less receives less capital value than he deposits and this is no way an acquisition of extra capital for him so there is in some sense this confusion of this mixing up of the idea of money and capital when we actually allow the operation of these of these intermediaries particularly banks to appear as if as and when they provide loans that this essentially facilitates additional accumulation and the creation of new capital if money capital perading but not supporting real transactions or providing additional capital for accumulation is termed as fictitious then much of modern-day finance will qualify as fictitious especially capital invested in asset backed securities and derivatives of other kinds modern economies seem to be flooded with even if not dominated by assets that would qualify as fictitious capital in Marxist terms the role of many new investment in instruments in modern-day finance is really to facilitate the trading of risk and not the debt from which risk is detached whether this makes these assets all representatives of fictitious capital is an issue I return to meanwhile in Marx this sheer expansion of circulation leads to the separation of money or we can say finance money capital or finance that facilitates monetary circulation from that used to gain command over commodities and higher labor power to generate surplus value in its modern incarnation one independent role for finance appears as that of money dealing capital which acquires autonomy while performing specific operations involving movements outside the sphere of production in that role it appears as a now independent part of the industrial capital in the in the process of reproduction money dealing in its pure form payments and settlements exchange bin business etc is separate from the credit system and facilitates monetary circulation needed for and associated with commodity circulation this capital therefore represents in marxist words on a diminished scale the additional capital which the merchants and industrial capitalists would otherwise have to advance for this purpose themselves so the mass of money capital which the money dealers operate with is circulating money capital of the merchants and industrialists and their profit is simply a deduction from surplus value since they are only dealing with the values already realized so we are still in the realm where the circuit of this kind of capital which is another form which marx refers to is one which actually appropriates some surplus which is generated through production which is generated through the mediation of production however marx distinguishes between these money dealers of pure financial players of that time and the payments made to them an interest bearing capital lending to earn interest under capitalism in the hands of the money capitalist the money in means of payment is potential capital and in the hands of the capitalist engaged in production it is functioning capital the former capital of course there's interest the latter generates profit which is partly paid out to interest bearing capital and the balance retained as the profit of enterprise the growing role for money capital as an independent form in the hands of independently functioning financial intermediaries soon affects the capital destined to finance production the borrowing and lending of money becomes the special business of some money lenders they appear as middlemen between the actual lenders of money capital and the borrowers this concentrates loan capital with a few financial intermediaries mainly banks who are the ones who deal with the borrowers overall and now i quote marx again money taken here as the independent expression of a sum of value whether this exists actually as commodity in money or commodities can be transformed into capital and through the transformation it has turned from a given fixed value into a self-valorizing value capable of increasing itself it produces profit that it that is it enables the capitalist to extract and appropriate for himself a certain quantity of unpaid labor surplus product and surplus value in this way the money receives besides the use value which it possesses as money an additional use value namely the ability to function as capital its use value here consists precisely in the profit it produces when transformed into capital in this capacity of potential capital as a means to the production of profit it becomes a commodity of a special kind or what comes to the same thing capital becomes a commodity so if a proprietor pays a lender a portion of the profit thus produced what he pays for with this is the use value of its capital function the part of the profit paid in this way is interest which is nothing but a particular name a special title for a part of the profit which the functioning capitalist has to pay to the capitalist capital's proprietor instead of pocketing it himself. Thus Marx sees here the restoration of the link between the independent money capitalist and production through the division of surplus into profit and interest yet there is much that is being concealed here profit of enterprise as a category appears as the payment to the entrepreneur for the work done that's from Marx for the work done as a functioning capitalist and interest is earned as a property as a property stemming from the ownership of capital this separation of capital as property bearing interest against as against capital as function earning profits results in the profit of enterprise standing in Marx's words as antithesis to wages or capital as function not primarily seen as standing in opposition to and exploiting labor but a profit forming an antithesis to interest this is an illusion Marx is still clear that surplus value whether it takes the form of profits of enterprise or interest must be mediated by capitalist production in his words it is utter nonsense to suggest that all capital could be transformed into money capital without the presence of people to buy and valorize the means of production that is the form in which the entire capital exists apart from the relatively small part existing in money concealed in this idea more ever moreover is still greater nonsense that capital could yield interest on the basis of the of the capitalist mode of production without functioning as productive capital that is without creating surplus value of which interest is simply one part if an inappropriately large number of capitalists sought to transform their capital into money capital the result would be a tremendous devaluation of money capital and a tremendous fall in the rate of interest many people would immediately find themselves in the position of being unable to live on their interest and thus compelled to turn themselves back into industrial capitalists there are however here again two issues that bear separation one is the recognition that money capital assumes many autonomous forms and has taken you through those forms and finds ways of appropriating even if not generating surplus value while engaging in activities that involve no mediation of production the second is the notion that the illusion that money can beget money that the expansion of finance creates is merely a form of fetishism in volume three marks notes that in the form of interest bearing capital capital appears immediately in this form unmediated by the production and circulation processes capital is capital appears as a mysterious and self-creating source of interest of its own increase the thing money commodity value is now already capital simply as a thing the result of the overall production process appears as a property devolving on the thing itself this according to Marx also creates the illusion that accumulation has no limits the identity of surplus value and surplus labor sets a qualitative limit to the accumulation of capital this comes from the total working day the or the length of the total working day the present that the extent of development of productive forces the size of the population all of which limit the number of working days that can be simultaneously exploited but if surplus value is conceived in the irrational form of interest the only limit is quantitative so it is not just that quantitative in the sense that you have a certain amount of money and depending upon the amount of money you have given a certain rate of interest it will accumulate itself to some larger value m prime so it is not just that surplus value is generated in production it is also that the proliferation of credit money and other forms of speculative finance is in part fictitious and conceals the real antagonism inherent in capitalist production the focus on these extremely important features of money capital meant that Marx spent little time addressing the tension in capital itself between the recognition of the rapid pace of expansion and proliferation of finance and the notion that this is in substantial is not central to the generation of surplus value as and in some senses is an illusion in the form of fetishism that this tension in Marx's analysis is reflected in the fact that while he gave primacy to extraction of surplus value in production he had to recognize the then just emerging complexities in the world of money and finance which result in the appropriation of various functions in the circuit of industrial capital by independent forms of money capital this makes money capital crucial to the process of production and appropriation of surplus value to the unity of production and circulation as he called it and can vastly increase the share of the aggregate profits accruing to money capital the problem is that as Marx himself saw it so long as financial assets are liquid that if they can be traded or can be sold in functioning markets for forms of immediate purchasing power and the value of money is stable they can be used to purchase commodities including labor part of an equivalent value and those commodities can be put to use to generate surplus value so their value is not at all an illusion to treat that capital as fictitious then is to ignore the role it can play in accumulation if it chooses to these possibilities are amplified in the age of finance if the development or evolution of capitalism involves handlers of money capital assuming multiple roles as money dealers credit intermediaries money capitalists and banks more recent transitions that generate a whole world of financial dealers engaged in handling money capital invested in financial assets to not exploit not just interest and fee income but also capital gains where investments appreciate and wealth begets more wealth without the intervention of commodities and or circulation can be seen as an intensification of the trend that Marx himself had observed however instead of independent money capital retaining a link with production as happens in the case of interest bearing capital and capital in as functioning capital instead of independent money capital retaining a link with production it appears to feed on itself the divergence between real and financial accumulation seems to widen one issue is whether the surpluses earned by finance capital are being generated in the financial sector other than being appropriate appropriated through it given the understanding of the sources surplus value it cannot be argued that this surplus originates in the financial sphere or in circulation but it is possible that the surplus is appropriate appropriated outside of it which Marx himself recognized and without the mediation of production as was true of users capital capital and often in the form of surplus value an extreme example of this in the present day world is the case of and the fascination with inclusive finance it is in the nature of modern finance that it seeks to subordinate all realms of economic activity to it so as to extract some surplus from them either as interest or in the form of foreclosed assets so private finance in a neoliberal world does not walk away from the bottom of the pyramid even in rural areas but finds new ways of subordinating its constituents to reach small enterprises marginal farmers and poor borrowers innovations of various kinds have been experimented with some are obvious such as the use of business correspondence and banking facilitators as conduits for credit indications where it does not make sense to establish brick and mortar banking facilities being local these agents are better informed about their clients and more capable of gathering the information needed for viable lending these agents deliver loans to primary borrowers and are in turn supported with lines of credit from the banks which reach to credit credit to small borrowers in the process loans are not only for productive purposes but are used to finance some consumption expenditures or special needs such as emergency health expenditures but rates often compare with those charged by you serious money lenders what is being extracted here is absolute surplus value by squeezing out a share of meager earnings of those who choose to smoothen their consumption using access to these financial services the the other approach to these do these borrowers is through the reliance on microfinance companies in that world group lending or the joint liability mechanism provides an implicit loan guarantee and promises high recovery in addition peer pressure driven by the fact that individuals defaults affect the credibility as a look of the group as a whole ensure high rates of recovery these institutional innovations have in turn been backed up with pure financial innovation such as a securitization drawn from the world of macro finance this helps enlarge the volume of credit then can be profitably delivered to those who need to be financially included the logic of this system is often hard to understand loans of this kind to small and poor borrowers often remotely located are more prone to default given the economic conditions of many of these micro borrowers and the evidence that borrowers take on loans from multiple sources or use loans from one to pay off dues to the other the only way this trend can be explained is that lenders expect that in case of default the probability of which is high there are assets available that can be seized in the in the case of of large-scale default a form of primitive accumulation that transforms financial wealth into real wealth the much faster relative expansion of the size of finance relative to real wealth in contemporary capitalism also gives the former far more autonomy than marx envisaged this makes it far more difficult to explain marx recognized that the expansion of interest bearing capital results in a degree of independence of money capital he recognized that money capital gives command over labor but does not extend this to a full analysis of the relationship between financial and real accumulation as i mentioned so long as the market for financial assets is liquid he himself maintained and the value of money is stable illusory gains do give command over real assets in his time marx sought a resolution to this problem this problem of the fact that you're observing this divergence between real and financial wealth which of course had occurred only to a certain extent in his time which was the age of industry mark marks out a resolution to the problem of the observed diversion divergence between real and financial asset accumulation in the role he attributes to crises that are inevitable when this rise of finance reaches unsustainable levels crisis result in an unwinding of unsustainable credit and a collapse in the value of financial assets these crises of overproduction while occurring because of the antagonistic nature of capitalist production are partly the result of the growth of finance of credit driving the system to its limits this is because this is because marx argues credit offers the individual capitalist or the person who can pass as a capitalist an absolute command over the capital and property of others within certain limits and this over and through this the command over other people's labor it is disposable over social capital rather than his own that gives him command over social labor the actual capital that someone possesses or is taken to possess by public opinion now becomes simply the basis for a superstructure of credit the argument is that the credit system by allowing those other than the owners of capital control over social capital to apply it to production speculation stretches the process of expanded production to its limits these investors are therefore willing to proceed quite unlike owners who when they function themselves anxiously weigh the limits of their private capital this only goes to show how the valorization of capital founded on the antithetical character of capitalist production permits actual free development only up to a certain point which is constantly broken through on the other hand through the credit system where people get control over social capital but this also means that credit precipitates the violent crisis by stretching the system to its limits the violent crisis implicit in this contradictory social formation and to the extent that crisis results in the collapse of asset values which are particularly financial assets which are traded you end up with a situation where there's implicitly some balance being restored between real capital accumulation and financial capital accumulation in contemporary capitalism however even if accumulation of financial capital leads to crisis it does not necessarily wipe out all past capital gains one reason for this is that a financial crisis threatens to freeze the payments and settlement system and close the credit pipe both of which are crucial for the circuit of capital and the functioning of capitalism these externalities of financial crisis are too significant for the state to ignore in the event in all major crises involving a crisis of the financial system governments and central banks intervene to restore stability and profits in the financial system by injecting taxpayers money or in essence by socializing losses in fact across crises the rising flow set to the set to the value of wealth accumulated in the financial sector raises the share of financial assets to real wealth substantially as the evident shows thus financial speculation of this kind delivered substantial profits and constituted therefore another mode of capital accumulation for individual capitalists because you don't have the full adjustment of the divergence between real and financial wealth because of the intervention of the state to socialization losses often by just the creation of money or by the use of taxpayers money at least a part of this wealth was paper wealth and illusionary of course when bubbles burst some of this capital just vanished but that value is quickly rebuilt with the aid of the state and the resulting financial overhang appropriated and redistributed in favor of financial capital through multiple means i mean overhang appropriates and redistributes in favor of financial capital through multiple means a range of surpluses generated elsewhere in the economy that is in production but this divergence between real wealth which can be commanded by finance and financial wealth generated through multiple means cannot remain unbridged for an order that finance can command real wealth such wealth of equivalent value must exist if the production of financial wealth occurs faster than that of real wealth available to be traded in the market then new sources of real wealth must be found one source is of course the privatization of public sector assets which makes available wealth accumulated through the investment of the social surplus to private capital the second is to privatize common property resources and make them means for the self expansion of value land water forest spectrum and perhaps the ocean here that are treated outside the domain of private ownership are converted into assets that can be privately owned and traded enhancing the quantum of real wealth that can be commanded finally the operations of finance can be used as a means to expropriate assets then can then be commanded by financial capital as we saw with the case with the so-called inclusive finance of today what this suggests is that the divergence in the rates of growth of financial and real assets can remain large and even continue rising so long as the state presents itself as a site for primitive accumulation means of appropriation in the form of surplus value can be found by capital standing outside production and real assets are continuously appropriated and release back the financial wealth which is only partly eroded in the course of capitalism's periodic crisis in this sense not all of capital is fictitious so long as this process can continue it only is the claim on real wealth that must be unearthed or expropriated the process will continue so long as finance capital dominates since capitalism does not collapse the process can continue till either another crisis restructures capitalism in ways that undermines finance as the new deal did or political developments lead to the transcendence of capitalism what i would do in the next lecture is really try and look at the crisis of 2007-08 as an example of possibilities if at all of this kind of restructuring