Is the Financialization Hypothesis a Theoretical Blind Alley?

Abstract

The Financialization Hypothesis is a popular argument in contemporary heterodox and also mainstream economics. It maintains that capitalism has undergone a radical transformation over at least the past three decades. The financial system, through a series of innovative mechanisms, has conquered the commanding heights of capitalism and has changed the whole system according to its own prerogatives. Concomitantly, the global capitalist crisis of 2008 is considered to have been a financialization crisis. This article disputes the Financialization Hypothesis and argues that instead of casting light on the actual workings of modern capitalism, it misconstrues them and leads into an explanatory blind alley. The spectacular ballooning of the financial system during the recent decades of weak profitability and accumulation does not constitute a new epoch, let alone a new capitalism. Instead, it represents a familiar capitalist response to periods of weak profitability. This does not preclude the proliferation of new financial instruments, which lend specific new forms to a well-known capitalist process. The Marxist theory of crisis and fictitious capital offers an analytically and empirically superior understanding of this process.

Financialization and Fictitious Capital: The Rise of Financial Securities as a Form of Private Property

“…Not surprisingly, the notion of fictitious capital is often mentioned in the context of the mortgage-backed securities that were at the center of the crisis (e.g., Blackburn 2009; Ivanova 2011; Chesnais 2016). It is also deployed to examine the massive growth of financial derivatives in general (e.g., Norfield 2012; Sotiropoulos, Mēlios, and Lapatsioras 2013), the role of the US dollar as “world money” (e.g., Vasudevan 2009; Ivanova 2013), and more broadly to assess various developments associated with financialization (e.g., Chesnais 2016; Durand 2017; Mavroudeas and Papadatos 2018). These studies identify some of the key aspects of fictitious capital and discuss their implications.…”

Capital of the 21st Century: From the Proletariat and Bourgeoisie to the Precariat and the Oligarchic-Bureaucratic Nomenklatura?

“…This is the part of the bourgeoisie that concentrates in its hands the main rights over property (using the categories of the new institutionalism; Coase, 1960), not so much in the form of shareholding as of control over finances and information, and the ability to make key decisions. It is important to note that as a result of financialisation (Fine, 2013; Krippner, 2005; Mavroudeas, 2019; Sifakis-Kapetanakis, 2019), the oligarchy is becoming more and more tightly connected to financial capital. This process was already under way in the 20th century, when Marxists (including Soviet scholars) revealed the main features of financial oligarchy (Inozemtsev, 1971).…”

Predicting post-war US recessions: A probit modelling approach

“…According to Mavroudeas and Papadatos (2018), the financialization hypothesis is indeed a popular thesis amidst heterodox and mainstream economics, however it leads into a 'blind valley'. They argue that "the spectacular ballooning of the financial system during the recent decades of weak profitability and accumulation does not constitute a new epoch, let alone a new capitalism.…”