Rudolf Hilferding belongs to the leading marxist economists in the beginning of the twentieth century, and may be mentioned in the same breath with Karl Kautsky, Eduard Bernstein and Rosa Luxemburg. The book Das Finanzkapital is his most famous work, and for decades was leading in the social-democratic movement. The first publication of Das Finanzkapital dates from 1910. The version of your reviewer is a reprint, originating from the former GDR1. Hilferding wants to update the classical theory with his book, because she has fallen into neglect since the death of Karl Marx. Marx has put the crown on the construction of the classical theory. However, he has always interwoven his scientific discoveries with a political activism, and therefore they are banned from universities. Marxism is rejected. The analysis is left to social-democratic activists, who must do that in their leisure time2.
When reading Das Finanzkapital it is immediately obvious, that it is written in the same style as the illustrious trilogy Das Kapital by Engels and Marx. With 566 pages it has an enormous size, but this is mainly due to the many repetitions. The contents of Das Finanzkapital is not really new. The book describes the concentration in the German industries. That is in excellent agreement with the economic framework of Marx, who predicts an unbounded accumulation of capital. The theme of the economic increases of scale is even the core of the original social-democracy. However, Das Finanzkapital is mainly a study of German banking, because this is the driving force behind the national concentration. Although the industrial concentration also occurs in the Anglosaxon states, there the banks are of secondary importance. So the analysis of Hilfdering is not generally valid, but it limited to the German situation.
Das Finanzkapital is a scientific study. Unfortunately, history has cast a sinister shadow over the ideas of Hilferding and of the social-democrats. The reason is the unwise mixing of science and political propaganda, which is detrimental. Namely, Hilferding ends his book with a kind of pamphlet, which actually is hardly justified by his preceding considerations. In that final chapter he wrongly and dogmatically identifies the concentration with the rising nationalism and even with armament. The capitalist imperialism would have a particular violent character. According to Hilferding the conglomerate of industries and banking is the ultimate form of capitalism. The socialist revolution would be the only way to prevent worldwars.
In 1917 the capricious demagogue V.I. Ulianov (also called Lenin) used the unhappy pamphlet of Hilferding as a justification in his own book Het imperialisme als hoogste stadium van het kapitalisme. While Hilferding had set ajar the gates to hell, Ulianov opens them wide. He uses in his book various flowers of speech, which are meant to work up the hate of the masses against their government. The title of his eighth chapter is characteristic: "the parasitism and the rotting of capitalism"3. It is a paradox, that he intensifies his hate campaign at the moment, when the ruling regime changes and is open for compromises with the social-democracy. In the temporary chaos Ulianov seizes power in Russia, and thus has significantly increased the human misery during the twentieth century. Whereas since then the west decolonizes, the Soviet Union transforms into an imperialistic state. It is a tragedy.
After this short intermezzo your reviewer returns to Das Finanzkapital. What do its scientific discussions say? The book has five departments. The first one is an extensive elaboration of the role of money and credit. The department is needed, because since the appearance of Das Kapital many innovations have been introduced in the financial system. At the time the value of money is still couples to the Gold Standard, but thanks to credits the total quantity of money can be much larger than the gold stocks. The gold covers merely the minimally necessary quantity of money (liquidity). The circulating credit consists mainly of trade bills, although giro checks also emerge. Hilferding believes, just like Marx, that the profit rate has the tendency to fall. The department gives an interesting sketch of the development of the money theory. Now, a century later, she is evidently totall outdated and obsolete4.
The second department discusses the trade in shares. They are called fictitious capital by Marx, because their value is determined by the paid dividends. Thus a foundation profit can arise, namely when the profit is larger than is expected on the grounds of the really invested capital. At the time the shareholder society has already developed into the dominant form of the firm. In Germany notably the banks supply the capital for the investments, so that precisely they benefit significantly from the foundation profit. But this also leads to an interwoven productive industry and banking. It irritates Hilferding, that the large shareholders trade with fore-knowledge. Inexperienced speculators become the victim of this, because speculation is a zero-sum activity. Nonetheless, the banks try to eliminate their risks by stimulating the formation of cartels by the industries.
The third department elaborates on the formation of cartels and trusts. Hilferding calls them combinations. They can form due to a horizontal or vertical integration. A problem is that the start-up of enterprises often requires a huge investment. Subsequently that capital is fixed for many years, and kan not "move out". That stimulates the enterprises to make mutual agreements, with the aim of reducing competition. It often happens, that combinations also take care of the trade with the end user (for instance in coal). The capital is supplied by the banks, and is called the financial capital by Hilferding. Since combinations can dictate their own profit, they are attractive for credit suppliers. In the last resort one single national cartel could emerge. Following Marx, Hilferding believes that the concentrations is the start of a transformation towards socialism.
In the fourth department Hilferding gives an extensive description of the developments, which can occur during economic crises. According to Hilferding they principally always occur due to a failing demand, because money is hoarded. However, they can also be caused by overproduction, Disturbances can be created by an outdated industrial structure. During the baisse the notations drop sharply. Accompanying phenomena are crises in the exchange, banking, money and trade. Hilferding believes that the banks will learn to curb the crises, however without being able to completely eliminate the conjuncture. It is evident that Hilferding, just like Marx, does not succeed in developing a clear theory of crises or of the conjuncture. The result remains poor.
The fifth and final department discusses the economic policy of the financial capital. In this part it becomes clear, that political choices must be made. Thanks to the financial capital, banking integrates with the industry and commerce. Germany and the United States of America use a policy of trade protection, and thus stimulate the formation of combinations. The protection is not even abandoned, when the combinations have become competitive on the world market. Thanks to the export the combinations benefit from advantages of scale in the production. At the same time the export requires the formation of a colonial empire. Incidentally, Hiferding acknowledges, that sometimes international cartels are formed. Moreover, the capital flows between the various colonial empires increase. This all furthers the global growth, and results in the rise of a global system of law.
It is clear that Hilferding is truly aware of the many facets of globalization. Yet in the final chapters he concludes, that imperialism mainly leads to protection and hostility. It is a failure. In fact here the analysis of Hilferding becomes sociological. He argues that the formation of the French-Russian block and of the German-Austrian block has economic causes, and not political ones. Thus he even explains the German ideology of races by referring to economic developments. He also is convinced that the conflict between capital and labour grows. He yet admits, that the trade union movement becomes more powerful, among others due to the conclusion of collective agreements. However, Hilferding suspects, that finally the combinations will reject the collective agreements. Now his arguments become extremely speculative, and, as said, partly conflicting with the nuances in the model of the previous chapters. The socialist revolution is forthcoming, he believes. It is done5.
All in all Das Finanzkapital gives an interesting analysis of the then situation, especially in Germany. The contents of the book is more coherent than the third volume of Das Kapital. However, for modern readers the verbosity, among others resulting in endless repetitions, is irritating. When finally in the last tens of pages Hilferding reduces his story to an unfounded dogma, the social-democratic exertion of science shows its most ugly side. Certainly, he could not foresee that one of his disciples (so Ulianov) would use the dogma for establishing a terrorist dictature. But nevertheless the claptrap hurts his book, which is not brilliant anyway. Therefore your reviewer can not recommend reading Das Finanzkapital.