I distinguish between the necessary function of finance—accounting, payment systems, and the recycling of savings—and the mode of accumulation pursued by contemporary finance capital. While the former is essential to any complex economy, the latter operates as a constraint on productive growth - something I aim to expose. I also wish to briefly run over this peroid we call the neoliberal era, starting from roughly 1980 to today and why it is qualitatively distinct from the era preceding it (the post-war/ baby boomer peroid)

I FINANCIAL CANNIBALISM OF INDUSTRY

A direct and antagonistic contradiction between finance and industry is as follows. In an idealized world and economic models and textbooks, banks, investors and holders of capital would lend this capital or purchase equity in a company to expand its production and to recover their spent capital via profit revenues and dividend/ equity.

However, what we have seen rise since about the 1970 is a phenomenon called corporate raiding. A corporate raider is an investor who seeks to (or threatens) to purchase a large share of equity in a firm and use that equity for purposes that don’t benefit the business.

A corporate raider frequently uses the newly acquired equity to force the company to push up dividend payouts by taking on debt or selling off assets. This is called asset stripping, and the sale of assets generates short term revenue the firm can use to push up dividends and buy back its own stock, increasing its price. This operation recovers the raiders investment, and he can either then sell his equity at a new high and pocket the difference, or wait for the dividend stream to dry up and move onto the next company. The raider can also push for reduction of staff and burning up of company reserves and inventories. All of these have very negative impacts on the long-term sustainability of the business, but the plan is not to generate money through sustainable production but to earn more money by cannibalizing the firm. This is moreless what Sam Zell did to the Tribune company

In an article Profits without prosperity we see the following:

>The allocation of corporate profits to stock buybacks deserves much of the blame. Consider the 449 companies in the S&P 500 index that were publicly listed from 2003 through 2012. During that period those companies used 54% of their earnings—a total of $2.4 trillion—to buy back their own stock, almost all through purchases on the open market. Dividends absorbed an additional 37% of their earnings. That left very little for investments in productive capabilities or higher incomes for employees.

Financial times reported

>According to GMO, the asset manager, profits and overall net investment in the US tracked each other closely until the late 1980s, with both about 9 per cent of gross domestic product. Then the relationship began to break down. After the recession, from 2009, it went haywire. Pre-tax corporate profits are now at record highs – more than 12 per cent of GDP – while net investment is barely 4 per cent of output. The pattern is similar, although less stark, when looking at corporate investment specifically.

These changes in the investment structure in the economy follow a sort of revolution in the corporate world, with debt leveraged buy out and short term investment as outlined above. Publicly traded companies fall prey to corporate raiders or recently to shareholder activism which often leverage their shares to push short sighted policy that leaves the company insolvent or uncompetitive.

The idea behind debt leveraging is to borrow money at a low rate to buy shares that pay a higher return or dividend to replace debt with equity. For example, borrowing at 3% to buy shares which pay out 8%. This drives up debt/equity ratios and is why stock buybacks have soared in recent decades

Both Apple and IBM may be used as good examples here, from Killing the Host (ch8):

In August 2013, Apple was the highest-valued company in the US with about $170b in sales and with some $137 billion mound of cash. It was here that shareholder activist Carl Icahn bought over $1.5 billion of Apple shares and exerted pressure on Apple to take on debt to push the stock price up. Icahn demanded apple spend $150b in buying back its own shares, and Apple promised to buy back some $40b of its own shares in a year and pay out $100b in dividends. This excessive dividend payout and stock manipulation diverted huge amount of money reserves and burdened Apple with debt that was unnecessary for the production or research of new technologies and products.

IBM is an even starker example of this financial takeover of the company. NYTimes reports

>The company’s revenue hasn’t grown in years. Indeed, IBM’s revenue is about the same as it was in 2008. But all along, IBM has been buying up its own shares as if they were a hot item. Since 2000, IBM spent some $108 billion on its own shares, according to its most recent annual report. It also paid out $30 billion in dividends. To help finance this share-buying spree, IBM loaded up on debt. While the company spent $138 billion on its shares and dividend payments, it spent just $59 billion on its own business through capital expenditures and $32 billion on acquisitions

IBM has long ceased to expand its business and is just being consumed by shareholders. The aim is to squeeze out of IBM more than was initially put in, recover the investment and move onto another company, leaving IBM debt ridden and insolvent.

All this is to say, the financialisation of industry has led to the consumption of the productive assets needed by the company to expand and innovate, shareholders are put above growth which has very negative impacts on the company’s ability to be sustainable. Here as well, outsourcing has been a good way from a company to cut costs to spend even more money on stock buybacks and dividends, two prongs by which de-industrialsiation has progressed.

Jack Welch has pushed stock value from $14b to $400b by outsourcing jobs from America. It is not trade unions but financial predators that have de-industrialised America and Britain

II FINANCIAL TAKEOVER OF THE STATE

From the book Killing the host by Michael Hudson:

>National policy in today’s world is planned mainly by financial loyalists to serve financial interests. Central bank and U.S. Treasury officials are on loan from Wall Street, above all from Goldman and Citigroup. Goldman Sachs’s roster of CEOs in public service is hallmarked by Treasury Secretaries Robert Rubin (1995-99, at Goldman 1966-92) and Hank Paulson (2006-09, at Goldman from 1974 to 2006). At Treasury, Paulson was aided by Chief of Staff Mark Patterson (Goldman lobbyist 2003-08), Neel Kashkari (Goldman Vice President 2002-06), Under-Secretary Robert K. Steel (Vice Chairman at Goldman, where he worked from 1976 to 2004), and advisors Kendrick Wilson (at Goldman from 1998-2008) and Edward C. Forst (former Global Head of Goldman’s Investment Management Division). Goldman Sachs kept Paulson’s successor Tim Geithner, a protégé of Robert Rubin, close by with the usual reward tactic of paying lucrative speaking fees. Federal Reserve Bank of New York Chairman Stephen Friedman (2008-09) was former Co-Chairman at Goldman Sachs, where he had worked since 1966. Its president after 2009 was William Dudley (at Goldman from 1986 until 2007). Former New York Fed President Gerald Corrigan (1985-93) “descended from heaven” to work at Goldman Sachs, as did former Treasury Secretary Henry Fowler. Other Goldman Sachs alumni implanted in high positions include White House chief of staff Joshua B. Bolten

Here a necessary interjection needs to be made. The specific interplay between the "public" institutions and the private sector particularly in the US do not obey a strict separation, as we have seen. In reality the key state institutions form a type of chimera with the financial elite to form a public-private chimera. Arguably the establishment of the Federal reserve was aimed at exactly this type of chimera. From The History of the Fed:

>In 1908, Aldrich sponsored a bill with Republican representative Edward Vreeland that, among other things, created the National Monetary Commission to study reforms to the financial system. Aldrich quickly hired several advisers to the commission, including Henry Davison, a partner at J.P. Morgan, and A. Piatt Andrew, an economics professor at Harvard University.

...

>A member of the exclusive Jekyll Island Club, most likely J.P. Morgan, arranged for the group to use the club's facilities. Founded in 1886, the club's membership boasted elites such as Morgan, Marshall Field, and William Kissam Vanderbilt I, whose mansion-sized "cottages" dotted the island. Munsey's Magazine described it in 1904 as "the richest, the most exclusive, the most inaccessible" club in the world.

>Aldrich and Davison chose the attendees for their expertise, but Aldrich knew their ties to Wall Street could arouse suspicion about their motives and threaten the bill's political passage. So he went to great lengths to keep the meeting secret, adopting the ruse of a duck hunting trip and instructing the men to come one at a time to a train terminal in New Jersey, where they could board his private train car. Once aboard, the men used only first names—Nelson, Harry, Frank, Paul, Piatt, and Arthur—to prevent the staff from learning their identities. For decades after, the group referred to themselves as the "First Name Club."

The specific mechanism by which the Federal reserve prints money would be out of scope. But the key point here is that the Federal Reserve was never designed as a public institution, it was designed in a way to empower the private banking sector through the form of a nominally public institution. It is thus not surprising that there is such a revolving door between the private sector and the nominally public central bank.

The US has spent $970 billion on payments on its national debt in the financial year 2025 (which actually runs from October 1 to September 30, projected to surpass $1.22T in the FY 2026. This crowds out other spending, widening the budget deficit and thus creating stronger pressure for more debt. Here it is also necessary to point out again, Michael Hudson calculated that the US deficits, which ran continuously from 1950 originate in military spending during the Korean War, and more strikingly, it is US military spending that is driving the deficit - the private sector being moreless in net balance. Most of this debt is owed to financial institutions, hedge funds, banks etc. The "private sector". If you ever heard the expression "national debt is money we owe to ourselves", "ourselves" here refers to the private sector. Thus in the same way we can say your mortgage is money we owe to ourselves. So why not just write it off? Do I keep account of what my left hand owes to my right? Of course this type of language is meant to hide the ugly fact that the future income streams of the whole economy, and all the obligations the state has to its citizens, are handed over to a handful of institutions (LLCs, legally "persons"). If the government defaults, consider who would receive the few remaining state assets & who the state will renege on obligations to.

>Despite criticism of these trends a generation ago, corporate raiders gained enough political power to block regulation and tax penalties for their debt leveraging. It took until March 2013, thirty years after the trend gained momentum, for the Federal Reserve and the Office of the Comptroller of the Currency (OCC) to announce guidelines for leveraged buyouts, advising banks to “avoid financing takeover deals that would put debt on a company of more than six times its earnings before interest, taxes, depreciation and amortization, or Ebitda.” Their suggestion did not prove effective. “So far in 2014, 30% of new U.S. leveraged buyouts have been financed at a debt-to-Ebitda ratio of more than six times ... The most recent peak was in 2007, when the percentage reached 52%.”

Rising imputed rents and financial penalties on credit cards are considered part of the domestic product or GDP, so GDP growth often times works as smoke and mirrors hiding what is really happening - the looting of businesses, soaring debt and financial penalties on consumers and rising cost of business.

#III CONCLUSIONS AND SUMMARY

Finance nominally serves and important role in allocating credit, in accounting and in investment, and for better or for worse, we are stuck with it. However, when analysed as a separate interest group, finance capital behaves and acts in a predatory manner on the productive economy. The high symbiosis between high finance and government has allowed financial experts and lobbyists to effectively hijack the state to pursue their short-term financial gains, beginning roughly in the late 1970s and 1980s. Here it is necessary to point of Three key dates in the development of this stage of financialisation

1. 1971 Nixon closes the gold window "temporarily"

As mentioned previously, US military spending was the key driver of budget deficits in the post-war peroid. The US still had a very strong industrial economy, and so for the 50s and most of 60s was able to carry that weight. However, the Vietnam War pushed US spending way above what it was capable of handling. The US was unable to keep the dollar and gold exchangeable at $35/oz. The closing of convertibility has straddled most of the Western world (where most production was also taking place) with no real asset backing its local currencies except the dollars they already owned, thus ironically it strenghtened the US goverment's ability to print dollars to cover its deficit. It took a little while for the state to understand this, but when it did, it underwent a massive expansion of military spending in an arms race with the USSR in order to bankrupt it. An enterprise that ultimately, worked.

2. Oil Shocks of '73 and '79

Quadrupling the price of energy in the 70s, it made energy intensive heavy industry struggle to operate without short-term loans. It had the effect of lowering the profit rates across industries. The full explanation of stagflation is again, out of scope, but the key point here is this is when finance became much more lucrative than industry. This is also why its in the 70s that financialisation, corporate raiding and other anti-industrial practises by finance began.

3. Volcker Shock of 1980-1982

In 1980, Volcker decided its necessary to curb inflation. Interest rates were raised to above 10%, even surpassing 20% briefly. The effect of this was world-changing to say the least.

For one, domestically - the cheap credits available in the early 70s became more necessary for industry to operate smoothly. US steel industry for example by then depended on short term loans to finance its operations. A 2 year spike in interest rate to an unheard of 20% tripled existing debt burdens. This further pushed the needle away from industrial to financial capital, who at this very time was raking in huge sums.

Internationally, the late 60s and 70s also corresponded to Western countries offering loans to developing countries - Peru, Brazil, Mexico, Chile, Argentina, Romania, Yugoslavia, Poland etc. Many of these were used to purchase western technology and capital goods (like precision machinery, tools etc). When interest rates spiked, many of these projects were unable to continue, were halted, cancelled or scaled down. The interest rate spike led to several international bankrupcies - Poland, Mexico, Yugoslavia, Peru all went into arrears. Many of these countries lost 2 decades of growth as a result - even countries that managed to hold on were forced to implement austerity which further slowed economic growth. In countries like Yugoslavia and Poland this led to a crisis and civil unrest, which undermined the political systems there.

Reagan and Thatcher, who were the most shameless supporters and vectors of acceleration of this financialisation tendency in both US and UK became the iconic faces of this time peroid. Reagan received credit for dismantling the Soviet system and demonstrating the superiority and, crucially, exclusivity of this "capitalist" system. While the US and UK were scoring wins internationally by devastating Latin America and dismantling the USSR and Warsaw Pact, irreversible damage was dealt to domestic heavy industry which throughout the 80s was systematically cut back and dismantled. Here, the system of free trade became part and parcel of this process, since many industries had to relocate abroad to lower wage countries to maintain operational profit, pay out dividends or pay back the loans.

Rising debt burdens, falling ratios of productivity:wages, rising ratio of home prices:income all follow from the same root cause: finance capital's quest to find and expand its assets. Each asset has a corresponding liability, a dollar spent is also a dollar saved, debtors' burden is creditors' assets. This circular flow is the basics of economics. As the production of real wealth is slowed down and burdened with debt and with predatory shareholders, the surpluses of production are siphoned off from the producers to the financial giants under the guise of quid-pro quo goods for services. Yet as I and some classical economists would argue, interest charges, rents and monopoly charges are not creating wealth but merely redistributing/taking from the already created wealth. Futurists of the early 20th century would be shocked that despite all this productivity people still have to take on two jobs to pay bills. As the economies seem to be squeezed for revenues and forced into austerity, productivity seems to be lost somewhere. Everyone except the fortunate few seem to be short of money and spare funds - governments, firms, individuals. The numbers and statistics do not seem to reflect the reality millions are living in every day, its as if the numbers are forged or there's an embezzlement taking place

From this, it follows that the idealised Keynesian model, wherein loose monetary policy injects credit into the economy assumes wrongly what the credit will be used for. Hypothetically it's supposed to supply cheap loans to new businesses, business expansion or operation to kickstart the economy out of a glut. But what if instead that credit is used for more hostile takeovers, or to prop up the asset values? Low interest rates provide easier credit for raiders to attack companies, or simply for mergers and acquisitions and debt/equity leveraging. Once we understand how money is made today and how since the 1980s wealth creation is defined, we can see and explain how and why it is that the "trickle down" Reaganomics do not work and structurally, never will.

If finance and credit were to be a public utility, much like how it is in China and how it was in the Soviet system, it would easily be limited to the useful function it serves in accounting and allocation. However, as with much under a capitalistic logic, the tool becomes the method of domination over the labourer when it rises to a social function. The fundamental problem much of western world faces is, in order to win the Cold war, it had to wield a double edged sword. Having borrowed its way into winning the cold war, the bill is now coming due. Debt burden is crowding out social spending, tanking aggregate demand, inflating the costs of living which also inflate the cost of business. Reindustrialisation on a scale is seemingly not possible under the current economic system - for one it would either require huge state investment (which the state is neither interested in nor has the spare financial resources, with it being crowded out by interest on debt and necessary social spending) or large private capital (which is structurally inclined to prefer speculation and finance to production at this stage)

#IV FURTHER TOPICS

1. I left aside the issue of speculation for the time, limiting to the direct impacts of financialisation of industry and the conversion of productive assets into rent generating assets, but an investigation of speculation and the derivatives market would be a a more complete picture of the financial economy and its effects on production

2. I also left aside the section on Labour theory of Value and how it fits, what it says or predicts in the context financialisation for the time being for simple brevity’s sake.

3. A more through research into the specifics of de-industrialisation that was rapidly accelerating in the US and UK in the 80s would also augment this post