Marxian and Non-Marxian Foundations of ’s Finance ＊

Jan Greitens

Abstract: Finance Capital, written in 1910 by Rudolf Hilferding, is normally understood to be a Marxian work about financial systems, and banks in particular. Because Hilferding was a close friend of his mentor, , it is seen as a contribution to the Re- visionist Debate within the German at the beginning of the 20th century. But this view does not do justice to Hilferding’s approach to and objec- tives for Finance Capital. Hilferding took up many ideas from Marxian and Non- Marxian authors like Parvus, Otto Bauer, John A. Hobson, Ferdinand Tönnies, and authors of the emerging corporate finance literature. It is this broad influence that dif- ferentiates Hilferding’s work from other socialist writings at that time. JEL Classifications: B 14, B 19, B 31.

as shown in his money, credit, and bank the- I The Theory of Finance Capital ories. The second tendency is the increased In 1910, Rudolf Hilferding published his ma- concentration taking place in the economy, jor work, Finance Capital. With this text, for which Hilferding’s theory offers an Hilferding succeeded in creating an inspiring explanation. He completes his theoretical book that initiated much debate about the foundation by bringing together these move- power of banks. Hilferding sought to analyze ments in his theory of “finance capital”; he ’s development during his time and then applies the results to the business cycle, to integrate his findings into Marxist theory. , and contemporary political Finance Capital presents a cohesive the- questions. ory in which the topics covered are built up The text is framed by Hilferding’s idea of one upon another. He begins by describing society’s transformation from capitalist anar- the trend of an increased importance being chy to with an organized economy. put on the financial sphere, especially banks, Hilferding’s idea of Finance Capital is based

＊ Most of the findings presented here have also been published in the German language in: Greitens, J. 2012. Finanzkapital und Finanzsysteme. Marburg: Metropolis. The History of Economic Thought, Vol. 55, No. 1, 2013. Ⓒ The Japanese Society for the History of Eco- nomic Thought. Greitens: Marxian and Non-Marxian Foundations of Rudolf Hilferding’s Finance Capital 19 on a stage model in which capitalism first ticle and the Close of His System, supersedes the previous economic order. in which he criticized the theories of Marx This early competitive capitalism is analyzed and pointed out the , and explained by Marx. But before the so- since the solution proposed in the third vol- cialism phase can begin, capitalism must ex- ume of Capital（ 1894） did not provide a perience a second phase in which it modifies sufficient explanation. No later than 1902, itself. Hilferding wrote his anti-critique, Böhm- Bawerk’s Marx Criticism, and sent it to Karl II The Creation of Finance Capital Kautsky on April 23, 1902, asking for it to be Rudolf Hilferding was born on August 11, published; however the request was denied. 1877, in . In 1893 he joined the Kautsky said this was due to the essay’s “Sozialistischer Studentenbund” （Socialist length. Nevertheless, Kautsky encouraged Student Organization）, where he became ac- Hilferding to continue his Marxist studies quainted with , and （IISG, Karl Kautsky Papers, K D XII 580）. Otto Bauer. Here Hilferding was exposed to From this time on, a long and close rela- the theories of Karl Marx and Immanuel tionship developed between Hilferding and Kant. In 1899 he was enrolled at the Univer- his mentor, Kautsky. Kautsky encouraged sity of Vienna to study medicine. This gave him to write regularly for （ The him the opportunity to learn about Carl New Times）, of which he was the publisher. Menger’s new teachings on , In 1903, Hilferding wrote his first articles for to learn from Eugen von Philippovich about this journal on the subject of Marx’s theory the Deutsche Historische Schule （German of value and-in the same year-on the Historical School）, and to study Marx’s doc- change in function of the protective duty. trines of labor value（ Kurata 1978, 26）. This was a contribution to the current discus- In the winter semester of 1894/95, Hilfer- sions between revisionists and orthodox ding attended Professor Isidor Singer’s “so- members of the German Social Democratic cialstatistische Übung” （social statistics Party（ SPD）. course） and, the following summer semester, The rejection of his essay in Die Neue the economics course led by Professor Zeit encouraged Hilferding to create the Philippovich. He also attended lectures by Marx-Studien（ Marx Studies） series, togeth- Carl Grünberg and Friedrich von Wieser, al- er with Max Adler, in 1904. These were de- beit without being officially enrolled（ Kura- signed to provide space for medium-length ta 1978, 27ff）. essays with the goal of developing . In 1903 Hilferding wrote his first article Hilferding’s article Böhm-Bawerk’s Marx about protective duties and using the Criticism was the first to appear in Marx- example of the sugar industry. He criticized Studien. the positive attitude of the revisionist posi- Böhm-Bawerk’s private seminar in the tion toward colonialist expansion（ Hilferd- summer semester of 1905 attracted many ing 1903）. prominent participants, including Hilferding, In 1896, Böhm-Bawerk published his ar- whose names are still remembered today: 20 経済学史研究 55 巻 1 号

Joseph Schumpeter, Otto Bauer, Emil Leder- We only have to point to the evidence for er, Ludwig von Mises, Felix Somary, Karl the historical necessity of capitalism, to Pribram, and Otto Neurath. The seminar al- envisage the final goal automatically lowed for an open and intensive exchange of emerging unaided from the rapid develop- views on economics at that time, Hilferding ment of , and to show that being one of those representing the Marxist the deliberate waging of class warfare view（ Haberler 1950）. would be a disruptive factor.（ quoted in In October or November 1906, Hilferd- Kurata 1981, 68f-translated from German ing started as one of the two permanent original） teachers at the newly founded party school of the SPD in Berlin. Hilferding was head of In 1902, Hilferding used the term “state capi- the “Wirtschaftsgeschichte und National- talism” instead of “finance capital” to de- ökonomie”（ and national scribe the overall development he diagnosed. economics） section, where, apart from study- By 1905, Hilferding had at last finished ing Marx’s Capital, he focused on teaching his preparations and started work on Finance economic socialism. Even though the Prus- Capital, having already decided on the name. sian police tried to expel Hilferding from Thus, he wrote to Kautsky on May 27, 1905: Berlin because of his teaching activities, Hilferding did not go back to Vienna. Instead I am finally going to make a start on my he continued to work for Die Neue Zeit and, Finance Capital, although as yet all I have in addition, worked as an editor for the for- is the title.（ IISG, Karl Kautsky Papers, K eign policy section of Vorwärts, the party D XII 590-translated from German origi- newspaper of the SPD. Hilferding rose rap- nal） idly within the office and was later promoted to chief editor（ Smaldone 1998, 39f）. Then, on December 18, 1905: After 1907, Hilferding published various articles in Die Neue Zeit about foreign af- I also have my Finance Capital, which is fairs. In them, he denied the existence of im- growing at a slow enough pace, far more perialism in in 1907, but in 1909 slowly than it ought.（ IISG, Karl Kautsky he realized that there was an increasing dan- Papers, K D XII 598-translated from ger of due to imperialism （Stephan German original） 1982, 25f）. The arguments he employed could later be found in Finance Capital. Afterwards, on March 10, 1906, he wrote: Finance Capital was published in 1910. Hilferding had worked on it for a considera- In essence I have now completed Chapter ble time-the initial work can be dated back I, on money, and will now move on to to 1902. In a letter to Kautsky in 1902, Chapter II, the role of money in the cycli- Hilferding wrote about what he hoped to cal process of capital; from this I must achieve with Finance Capital: then develop the rise and necessity of credit. The tedious thing is that much of Greitens: Marxian and Non-Marxian Foundations of Rudolf Hilferding’s Finance Capital 21

the chapter has to be devoted to restating ）, which was published in the contents of the second and third vol- 1899（ English translation: Evolutionary So- umes of and such repetitive cialism: A Criticism and Affirmation, 1911）. work I find wearisome and uninteresting. Finance Capital is a contribution to the （quoted in Kurata 2009, 12-translated dispute over , putting Kautsky’s from German original） side of the argument against his opponents within the party. Accordingly, Kautsky’s ar- During his time at the party school and as an gumentation in the Revisionist Debate pro- editor in Berlin, Hilferding’s access to litera- vides the “guidelines” for Hilferding’s Fi- ture-combined with what he learned from nance Capital: The cartels are not allowed to his editorial work-allowed him to continue prevent crises; the joint stock companies as his studies. In the foreword to Finance Capi- well as banks are institutions to collect small tal, Hilferding wrote that its main features sums of capital; finance tycoons rule every- had already been finished by 1906（ Hilferd- thing; protective duties lead to cheap ex- ing 1910, 24）. This is evident from the ports; and the carry out political sources he used, since all sources published revolution（ Kautsky 1899）. In Finance Cap- after 1906 and used in Finance Capital are ital, Hilferding followed these statements used only for additional or illustrative pur- precisely. poses. Therefore, the main period of time in According to Kurata, Hilferding was es- which Finance Capital was written has to be pecially keen to use Finance Capital to re- from 1905 to 1906. fute the revisionism of Bernstein, something which he had already started to do with his III Finance Capital as an Attack on critique of Böhm-Bawerk, from whose mar- Revisionism ginal utility theory Bernstein borrowed some In 1891, after the abolition of the anti-social- ideas. Kurata noted that Finance Capital fol- ist law, the newly founded SPD published its lowed the structure of Bernstein’s Die Vor- new program; it was based on the ideas of aussetzungen des Sozialismus und die Aufga- Karl Kautsky-his interpretation of Marxism ben der Sozialdemokratie. Thus sections was used as a guideline by the SPD. It was II-V of Finance Capital are directly compa- argued that socialism was naturally neces- rable to Bernstein’s subchapters “2b The Dis- sary and inevitable. The party was therefore tribution of Wealth in the Modern Commu- revolutionary, but did not enforce revolution. nity”（ especially the meaning of joint stock From 1896 onward, companies）, “2c The Classes of Establish- published various articles in Die Neue Zeit in ments in the Production and Distribution of which he criticized the Marxist foundations Wealth”（ especially the question of concen- of the party. With the encouragement of his tration in the economy and the meaning of friend Kautsky, he summarized these in his the middle class）, “2d Crises and Possibili- book Die Voraussetzungen des Sozialismus ties of Adjustment in Modern Economy,” und die Aufgaben der Sozialdemokratie（ The and “3d The Most Pressing Problems of So- Preconditions of Socialism and the Tasks of cial Democracy” （especially colonial poli- 22 経済学史研究 55 巻 1 号

tics）（ Kurata 1981, 89f）. Increasingly, the entire economic life is Kurata’s thesis has validity but does not concentrated in the hands of the state; the tell the whole story. Of course, the Revision- state is more and more becoming the final ist Debate is reflected in Finance Capital court of appeal in the anarchy of the capi- and Hilferding takes an unequivocal stand, talist global market. The state and finance but the comparison of thematically similar are accelerating and facilitating the transi- chapters has the effect of underestimating tion from the capitalist the significance and the concerns of Hilferd- to the socialist mode. （Kapelusz 1896, ing’s Finance Capital. It is more important to 468-translated from German original） emphasize how much Kautsky’s statements in his anti-critique of Bernstein limit the The emergence of Austromarxism, in which scope of the argument of Finance Capital, Hilferding played an important part-coin- which engaged with many other Marxian ciding with the publication of Marx-Studien and non-Marxian influences beyond the revi- by Max Adler and Hilferding and the found- sionism issue. ing of the periodical Der Kampf in October 1907 by Otto Bauer, Adolf Braun and Karl IV Other Socialist Authors Renner-while he was writing his Finance In 1896, Theodor Kapelusz published a se- Capital, can be seen in this book, and cross- ries of articles in Die Neue Zeit headed “In- links with other Austromarxist writers can dustrie und Finanz”（ Industry and Finance）, also be found. This is clearest in the case of which cover almost all the aspects that Otto Bauer. His 1907 study Die Nationali- Hilferding would later discuss in Finance tätenfrage und die Sozialdemokratie （The Capital. The articles are organized in a cur- Nationality Question and Social Democra- sory and primarily political manner, but they cy）, which was published by Hilferding as can be assumed to have had an influence on the second volume of the Marx-Studien, is Hilferding. In a letter of July 1910, Hilferd- quoted on a number of occasions by Hilferd- ing states that Kapelusz wanted to receive an ing in Finance Capital （Hilferding 1910, issue of Finance Capital. He explains that he 311, 335, 344）. At the same time he refers to knows Kapelusz from his visit to the “Freie lengthy sections of the book and to Bauer’s Vereinigung sozialistischer Studenten” concept of Kapitalshörigkeit“ （“enslave- ” （Bundesarchiv SAPMO-SgY 1 / MS 70 / ment to capital”）, which is a fundamental 8）. idea in his thinking（ Bauer 1907, 216, 292, Furthermore, influences can not only be 316f）. Hilferding describes the advantages seen in the use of the term “finance capital,” of large markets, which enable greater spe- but also in the discussion of protective duties cialization and the achievement of returns to and capital exports, the importance of mo- scale, referring to Bauer and recommending nopolies, amalgamation with the state and him for further reading on this topic（ Hilfer- the importance of high finance. Kapelusz ding 1910, 311 refers to Bauer 1907, 148ff）. concludes: The same applies to the subject of colonial policy, on which Hilferding refers his readers Greitens: Marxian and Non-Marxian Foundations of Rudolf Hilferding’s Finance Capital 23

to one of Bauer’s articles in Die Neue Zeit if Parvus’s Die Handelskrise und die Gewerk- they wish to learn more（ Hilferding 1910, schaften（ The Trade Crisis and the Labor 320 refers to Bauer 1908）. Unions） of 1901 and Die Kolonialpolitik This demonstrates that Hilferding regards und der Zusammenbruch （Colonial Policy Finance Capital as his contribution to a total and the Collapse） of 1907. Hilferding also view of Austromarxism. As he sees it, Bauer reviewed the latter work in Die Neue Zeit. In is looking at one aspect of a consistent total his review, Hilferding praises the combina- theory that he himself is taking in a different tion of imperialism, protective duties, and the direction. For his part, Bauer has been using cartels（ Hilferding 1907 a）. the term “finance capital” since 1907（ Bauer These two writings by Parvus comple- 1907, 392）,1） a term which he owes to ment each other very well. While the first Hilferding, who informed him of his project, writing of 1901 exhibits a theoretical deriva- including the title, before 1910 （Kurata tion and focuses on the relationship with the 1981, 75）. labor unions, the second is much more em- The influence on Hilferding of Bauer’s pirically organized and focuses on colonial , published in Die Neue Zeit in policy. Hilferding quotes from both of them. 1904, is also evident. In this article Bauer He used the second publication to comment proceeds in a similar fashion to Hilferding in on the situation in southern Africa, and used his later analysis in Finance Capital: Taking the first in relation to Parvus’s principal theo- the separation of production and consump- retical concern: capital’s “Sturm und Drang” tion in capitalism as his starting point（ Bauer （storm and stress） phase. This idea is picked 1904, 134f）, he then, building on the second up by Hilferding in Finance Capital（ Hilfer- volume of Das Kapital, moves on to a de- ding 1910, 318, 320）. tailed cyclical analysis（ Bauer 1904, 136ff） All developments in capitalism lead Par- and focuses on disproportionality （Bauer vus back to the business cycle. Here, he as- 1904, 165）. From Bauer Hilferding also sumes an overproduction crisis-a dispro- adopts the idea that the falling rate of profits, portion between production and consump- as a consequence of increasing organic com- tion-which does not cause a breakdown of position, is responsible for the sudden transi- capitalism, but prevents stable production. tion from prosperity to crisis（ Bauer 1904, 166f）. At first, Bauer draws attention to the The smaller and medium-sized banks credit system, but he does not enlarge on it fold-and the big banking institutions （Bauer 1904, 136, 168f）. Hilferding saw an seize control at their expense. The existing opening here to flesh out Bauer’s outline capitalist giants expand at the expense of with his theory of credit in Finance Capital. the collapsed joint stock companies. . . . In Already before 1910, Hilferding was in short, the trade crisis leads to a massive personal contact with Alexander Helphand concentration of capital. （Parvus 1901, （IISG, Rudolf Hilferding Papers）, who pub- 44f-translated from German original） lished under the pseudonym Parvus. Furthermore, Hilferding quoted from The concentration of money capital in the 24 経済学史研究 55 巻 1 号

banks leads to concentration of the banks. the joint stock companies: Industrial concentration resulted from technical development and capitalist com- The banks, where presently so much of the petition, but it was significantly boosted by entire credit is concentrated, have no the concentration of money capital-in the choice but to raise the interest rate and the banks and in the possession of individuals. discount rate. They have to pay their credi- （Parvus 1907, 105-translated from Ger- tors more, as otherwise the money men man original） would prefer to invest their capital directly in industrial enterprises instead of deposit- The surpluses have to be invested. This leads ing it in the bank. . . . The joint stock com- to the export of capital: pany, although itself fed by the banks, is at the same time a competitor of the bank There are times when the development in when it turns directly to the possessors of all areas of the capitalist economy . . . has money and promises them the entire profit reached the stage where a significant ex- from the production. （Parvus 1901, pansion of the global market inevitably 20-translated from German original） takes place, and the entire global produc- tion is raised to a new and much more Both competitions for money capital and re- comprehensive level. This is the point at duction of the money capital reserves in in- which capital enters a period of Sturm und dustry are dealt with in Hilferding’s book. Drang. This does not put an end to the pe- For Parvus, there is no longer any separa- riodic alternation of boom and crisis（. Par- tion between the banks and industry; instead vus 1901, 26-translated from German there is a combined class of capitalists: original） The barrier between pure money capital Since 1895, according to Parvus, such a and industrial capital has come down: the phase of “storm and stress” has begun again: banks are in possession of the shares and imperialism. the liabilities of the industrial enterprises, With the policy of protective duties, the which themselves own shares in the banks markets are restricted. The states therefore and are represented on their supervisory try to expand in the open colonial areas and boards. The whole thing is dominated by integrate them into the protective duties sys- the industrial cartels and the bank consor- tem. Moreover, the state supports the econo- tia. The trio is completed by the capitalist my with export subsidies. state.（ Parvus 1907, 105-translated from Parvus also analyses the situation of the German original） banks: The manufacturers and merchants bring their money to the banks or invest it in Parvus goes further and, using the term the stock market, thereby reducing their cash Schwindelgründung“ （fraud foundation）, ” holdings to a minimum. This leads to a com- offers a practical explanation of exactly how petitive relationship between the banks and the process of a higher valuation of the stock Greitens: Marxian and Non-Marxian Foundations of Rudolf Hilferding’s Finance Capital 25

for the appropriation of the promoters’ prof- Nevertheless, Hobson is a major influ- it-as later described by Hilferding-works: ence on Hilferding. Otto Jeidels, who is an important witness for Hilferding’s descrip- Even before the factory buildings are fin- tion of the relation between industry and fi- ished, before even the smallest quantity of nance, begins his book Das Verhältnis der goods have been produced, on the basis of deutschen Grossbanken zur Industrie（ The pure speculation it will fix the future prof- Relation of the German Big Banks to Indus- itability of the enterprise in advance and try） in 1905 with a quotation from Hobson’s force up the price accordingly . . . it［ the book The Evolution of Modern Capitalism, joint stock company］ must extract this in which he calls for the industrial movement kind of profitability in order to cover the to be regarded from a financial point of view. high share price. . . . In this way the stock Jeidels comments: market drives the new enterprise beyond its original base. （Parvus 1901, 22f- The tendency toward concentration as a translated from German original） characteristic of modern industrial devel- opment is a fact that is now beyond dis- V John A. Hobson pute. （Jeidels 1905, 1-translated from Hilferding is often associated with John A. German original） Hobson. It is said that Hilferding copied part of the contents of Hobson’s Imperialism, If Hilferding did not know of Hobson’s writ- which was published in 1902. This was never ing by then, this would have prompted him proved but is usually said to be true of a to read Hobson. In fact, an edition of The Ev- number of socialist theories of imperial- olution of Modern Capitalism from 1894 can ism-e.g. by Lenin in 1917 with Imperial- be found in Hilferding’s library. Since more ism, the highest stage of capitalism, who ad- editions were published up until 1910, it is mitted owing some aspects to Hobson. very likely that Hilferding knew of Hobson’s Did Hilferding take credit for Hobson’s writing before 1910. Furthermore, Eduard studies without admitting it? There is not one Bernstein reviewed the edition of 1894 in quotation or single source that appears in Die Neue Zeit that year（ Bernstein 1894）. It both writings. No issue of Hobson’s Imperi- is most probable that Hilferding was already alism can be found in Hilferding’s library a reader of Die Neue Zeit by that time. In his （Hilferding 1957）. The first German transla- review, Bernstein introduces Hobson as a so- tion was only available in 1968. Also, there cialist. are differences concerning the content. In Hobson defines his concerns as follows: Hobson’s writing, it is not Finance Capital that creates imperialism. Beside economic Since every industrial act in a modern reasons-especially income distribution- community has its monetary counterpart, political ambition, excessive patriotism, and and its importance is commonly estimated a certain amount of philanthropy are also in terms of money, it will be evident that significant. the growth of capitalism might be studied 26 経済学史研究 55 巻 1 号

with great advantage in its monetary as- circulation process alone. The effects of pect. Corresponding to the changes in pro- the production process and improved tech- ductive methods under mechanical ma- niques have undoubtedly had a powerful chinery we should find the rapid growth of effect, but it would be doing Hilferding an a complex monetary system reflecting in injustice to accuse him of overlooking its international and national character, in these factors. It was simply not part of the its elaborate structure of credit, the leading plan of this work to deal with them in characteristics which we find in modern depth. （Kautsky 1911, 767-translated productive and distributive industry. The from German original） whole industrial movement might be re- garded from the financial or monetary Hobson requested others to expand his re- point of view. But though such a study search on the financial side, while Kautsky would be capable of throwing a flood of asserted that Hilferding wanted to investigate light upon the movements of concrete in- the financial side only. Hilferding therefore dustrial factors at many points, the intel- organized his Finance Capital to be comple- lectual difficulties involved in simultane- mentary to Hobson’s text. ously following the double study, in con- Hilferding’s deliberate dependence on stantly passing from the more concrete to Hobson’s text is shown in the choice of the the more abstract contemplation of indus- subtitle. While Hobson talks about “A Study trial phenomena, would tax the mental of Machine Production,” Hilferding calls his agility of students too severely, and would work “A Study of the Latest Phase of Capi- greatly diminish the chance of a substan- talist Development.” tially accurate understanding of either as- On April 3, 1905, Hilferding wrote to pect of modern industry. We shall there- Kautsky: fore in this study confine our attention to the concrete aspect of capitalism, merely The adoption of technical and economic indicating by passing references some of institutions in their most complete and fin- the direct effects upon industrial methods, ished state is very important for the vari- especially in the expansion and complexity ous forms of economic and political devel- of markets, of the elaborate monetary sys- opment in different countries. Thus Ger- tem of modern exchange.（ Hobson 1894, many’s late［ start?］ in its capitalist devel- 7） opment explains why the development and organization of its banking system is dif- The following is what Kautsky says about ferent from that of England.（ IISG, Karl Hilferding’s Finance Capital: Kautsky Papers, K D XII 589-translated from German original） Of course, the circulation process and the production process are in a constant recip- The topic of Hobson’s work is the conse- rocal relationship, and the development quences of technical changes, whereas described above is not produced by the Hilferding focuses on the financial side of Greitens: Marxian and Non-Marxian Foundations of Rudolf Hilferding’s Finance Capital 27 the capitalist development based on conse- characteristics as monetary capital, and quences of technical changes. therefore compete with the price of free Hobson’s point of view is echoed in money capital, which is the interest. Hilferding’s article on imperialism for Die Hilferding calls the reduction of the divi- Neue Zeit in 1907: dend at the level of the interest rate-which is a precondition for his explanation of pro- Change . . . only comes about with the rap- moters’ profit-a “historical development,” id development of industrial capitalism which works alongside the development of following the introduction of modern ma- stocks and the stock exchange（ Hilferding chinery. . . . Industrial capital increasingly 1910, 109）. Therefore, the starting point is dominates commercial capital and interest- the increase of potentially invested financial bearing capital, which now assumes the assets and the increase of free marketability. form of bank capital. Both forms are com- While Hilferding does not elaborate any fur- ing more and more under the sway of in- ther on this historical process, the initial dustrial capital. . . . Profits from trade with thoughts underlying Hilferding’s reasoning ［the colonies］ have now been surpassed can be found in Hobson: by industrial profit from the exploitation of native .（ Hilferding 1907 b, At first sight it might appear that Consols 31-translated from German original） and first-class railway and other stocks were open, and that the folly of the inves- Also, much of the content is very similar. tors in bogus companies consisted in not Thus, Hobson says about his methodical un- preferring a safe 2 1/2 per cent, to a risky 5 derstanding: or 10 per cent. But this argument is once more a return to the unsound individualis- Science is ever becoming more and more tic view. It was doubtless open to any indi- historical in the sense that it becomes more vidual investor of new savings to purchase studiously anxious to show that the laws sound securities at 2 1/2 per cent., but, or principles with whose exposition it is since the aggregate of such soundly-placed concerned not merely are rightly derived capital would not be increased, this would from observation of phenomena but cover simply mean the displacement of an equal the whole range of these phenomena in the quantity of someone else’s capital. A could explanation they afford（. Hobson 1894, 1） not buy Consols unless B sold, therefore the community to which A and B belong This corresponds with Hilferding’s under- could not invest any fresh savings in standing of the national economy as histori- Consols. Any widespread attempt on the cal science（ Hilferding 1904 b, 53）. part of those who plunged into bogus com- Some of Hilferding’s statements can also panies to try first-class investments would be complemented and clarified by Hobson. obviously have only had the effect of fur- Thus, Hilferding talks about the promoters’ ther reducing the real interest of these in- profits and says that stocks have the same vestments far below 2 1/2 per cent（. Hob- 28 経済学史研究 55 巻 1 号

son 1894, 204f） Hilferding’s motive when defining Finance Capital: Hilferding considers this argumentation re- garding stocks: An increase of liquid mone- I call bank capital, that is, capital in money tary capital-and with that, an increasing de- form which is actually transformed . . . into mand for investment opportunities-meets a industrial capital, Finance Capital. . . . An steady supply of solid investments following ever increasing proportion of the capital the disappearance of fraudulent companies used in industry is Finance Capital, capital in 1873. This leads to a falling rate of return. at the disposition of the banks which is Since Hilferding considers this only for used by the industrialists. （Hilferding stocks（ and not for consols）, it implies a de- 1910, 225） crease in the dividend. Unlike that of Hob- son, Hilferding’s lower limit is given-in ac- Hilferding also uses the term “reflection”: cordance with Marx-in terms of the interest rate. The distinctive movement of Finance Also, Hobson explains the connection Capital, which seems to be independent, between liquid bank capital and productively though in reality it is a reflection（. Hilfer- invested capital: ding 1910, 21）

Capital appears to have this fluidity when Further thoughts of Hilferding can be found it is regarded from the abstract financial in Hobson’s work: point of view. A man who has ‘saved’ ap- pears to hold his ‘savings’ in the form of The growing quantity and complexity of bank credit, or other money which he is machinery applied to purposes of manu- able to invest in any way he chooses. But, facture and conveyance, and to the extrac- as we have seen, the real ‘savings,’ which tive industries, is the great special fact in represent his productive effort plus his ab- the narrative of the expansion of modern stinence, are of necessity embodied in industry（. Hobson 1894, 6） some material forms, and are therefore de- void of that fluidity which appears to at- This gives the banks the financial processing tach to them when reflected in bank mon- opportunities of complex structures. ey（. Hobson 1894, 205f） Moreover, the concentration of the econ- omy prevents it from ruinous competition: Therefore, capital is only liquid in an abstract form and this is how it appears in bank capi- One well-informed writer ［Jeremiah W. tal. Behind that, there are physical invest- Jenks, who can also be found in Hilferd- ments, which are not liquid. This is precisely ing’s library, although with a different the issue that is the focus of Hilferding’s ar- work than the one cited here］ upon the gumentation about the power of the banks subject holds that this is the normal origin against the companies. This seems to be of the Trust. “With the exception of the Greitens: Marxian and Non-Marxian Foundations of Rudolf Hilferding’s Finance Capital 29

Standard Oil Trust, and perhaps one or two velopment from an anarchistic to an organ- others that rose somewhat earlier, it may ized economy） based on Tönnies’ Gemein- be fairly said, I think, that not merely com- schaft und Gesellschaft? petition, but competition that was proving Tönnies separated the natural and organ- ruinous to many establishments, was the ic connection between humans in a Gemein- cause of the combinations.” This condition schaft and the ideal and mechanical connec- of ruinous competition must be recognized tion in a Gesellschaft （Tönnies 1887, 17, as the normal condition of all highly-or- 233）. ganised businesses where modern machin- ery is applied, and which are not sheltered The theory of Gemeinschaft is based on by some private economy in the shape of the idea that in the original or natural state special facilities in producing or in dispos- there is a complete unity of human wills. ing of their goods（. Hobson 1894, 137） （Tönnies 1887, 22）

Branches with a big share of machines are The theory of Gesellschaft takes as its more likely to be subjects of cartels. starting point a group of people who, as in Also, concentration in one sector leads to Gemeinschaft, live peacefully alongside another vertical concentration: one another, but in this case without being essentially united-indeed, on the contrary, The power possessed by a monopoly they are here essentially detached. . . . placed in the transport stage, or in one of Nothing happens in Gesellschaft that is the manufacturing or merchant stages, to more important for the individual’s wider ‘squeeze’ the earlier or less organized pro- group than it is for himself. On the contra- ducers（. Hobson 1894, 143） ry, everyone is out for himself alone and living in a state of tension against every- VI Ferdinand Tönnies one. . . . Nobody wants to do anything for Hilferding quoted Tönnies’ definition of the anyone else, nobody wants to yield or give term “Gesellschaft”（ society） from his first anything unless he gets something in re- edition of Gemeinschaft und Gesellschaft turn that he regards as at least an equal （community and society） from 1887 for one trade off.（ Tönnies 1887, 52; these sen- of his articles in Die Neue Zeit（ Hilferding tences are quoted in Hilferding 1904 a, 1904 a, 106）. In this article, Hilferding talks 106） about the economic theory of Marx. The terms Gemeinschaft（ community） and Ges- As the relationship of exchange becomes a ellschaft, which was also referred to-in an paradigm of society, Tönnies connects this economic sense-by Tönnies, can be found idea to a value theory based on work（ Tön- throughout Hilferding’s article. This raises nies 1887, 54ff）. the question: To what extent is Hilferding’s Tönnies directly refers to Marx at only Marxist understanding（ specifically the ba- three points, but the whole “theory of socie- sic idea of Finance Capital-namely, the de- ty” is a specific interpretation of Marx（ Ru- 30 経済学史研究 55 巻 1 号

dolph 1991, 310f）. In the foreword, Tönnies by society”（ gesellschaftliche Garantie）-it calls Marx a “profound social philosopher” is apparent that by this he understands, fol- （Tönnies 1887, 12）, for whom “the natural, lowing Tönnies, a legal guarantee and en- underlying constitution of civilisation（ thou- forceability（ Hilferding 1910, 62）. gh now lost to us） is communistic”（ Tönnies Hilferding favors this interpretation of 1887, 13）. In another paragraph, Tönnies ex- Marx, the emphasis on exchange, developed plicitly refers to Marx when he characterizes by Tönnies-and is later accused of a misin- bourgeois society as a society in which eve- terpretation of Marx and an over-emphasis rybody needs “encyclopaedic knowledge of on the sphere of circulation（ e.g. Grossmann commodities”（ Tönnies 1887, 68） and “any 1929, 574）. seller who offers the products of his own la- Behind Tönnies’ construction lies a dia- bour for sale can be thought of as a trader” lectical line of argument, in which the era of （Tönnies 1887, 67）. Tönnies follows Marx community is followed by an era of society. with the idea that an abstract relationship of Tönnies’ projected end of society is not fol- exchange, profit, and good “work” are the lowed by barbarism, but instead by a “new foundations of capitalism. community,” with a labor movement as its Furthermore, Tönnies matches the devel- driving force（ Rudolph 1991, 309）. In 1919, opment stages named by Marx（ households, Tönnies states that the goal of this labor feudalism, capitalism, etc.） to his terms of movement is the restoration of the communi- Gesellschaft and Gemeinschaft. This causes ty（ Rudolph 1991, 309）. For Tönnies, com- them to represent specific forms of culture in munism means common property; in contrast a community or society and also makes ex- socialism means for him that the state owns change a decisive element. the property. is community- Tönnies’ definition of Gemeinschaft is based, while socialism is a kind of society the basis for Hilferding’s idea of a deliber- （Kozyr-Kowalski 1991, 329）. Hilferding’s ately organized production community, idea of a socialist society is defined by Tön- while the definition of Gesellschaft is used nies as follows: for his anarchistic capitalism. From Gesell- schaft, which is defined by the exchange of In a more perfect version of Gesellschaft goods, Tönnies moves to the topic of “mon- every would be produced in ey.” For him, a bill of exchange is only valid, the correct amounts and sold at its proper value by one single unified capitalistic if the receiver is sure of being able either concern which had complete foreknowl- to pass it on, or of giving it back to the edge of normal demand.（ Tönnies 1887, giver（ or issuer）. . . . It is private money, 79） which Society guarantees by enforcing the VII Contemporary Bank Practice liability of the debtor or his “guarantors.” （Tönnies 1887, 61） England had intensively observed the Ger- man bank system before 1914. Because of Hilferding adopts the motif of a “guarantee this, its respect for the German financial sys- Greitens: Marxian and Non-Marxian Foundations of Rudolf Hilferding’s Finance Capital 31

tem, with its universal banks, increased con- glo-American textbooks about corporate fi- siderably. In particular, England kept a close nance. In his book Modern Business Corpo- eye on the size and financial power of the rations, 1906, in the chapter “Promoters’ banks and the qualifications of the personnel Profits,” William Wood wrote: （Kennedy 1995, 115ff）. This corresponds with Hilferding’s judgments when comparing The promoter has to create value to entitle the two financial systems（ Hilferding 1910, him to profit. He provides a new or origi- 225, 293）. nal means of making money, and makes But how did Hilferding, who had studied the means productive through the develop- medicine, come to this understanding of the ment of a ‘going’ concern for the utilization practice in German banks? As far as his li- of that means. His profit, though large, is brary is concerned, Hilferding was initially legitimate profit. It is arrived at usually as self-taught, using textbooks. Particularly follows. From the figures of the technical noteworthy is the work he read by Bruno expert on the proposition, the promoter ar- Buchwald, Die Technik des Bankbetriebes rives at a conclusion as to the total net （The Technique of Banking） 1904. profits of the business when it has been Aside from many technical and detailed developed. If he is a conservative man, he descriptions of processes in the banks, capitalizes his business on the basis of its Buchwald also discussed views on invest- average earning capacity with only enough ment banking, which in his opinion was the ‘water’ to provide for increased earnings. If major business of banks. the proposition was one worth his efforts, it was a proposition which could be capi- The view that security trading should not talized at a figure greatly in excess of what be classified as credit business, even in re- he paid for it in its undeveloped condition, spect of business, is rightly opposed by an- and also in excess of this cost price and the other view, which does classify security development cost combined. The differ- trading as credit business, because the ence between these costs and the sum bank has no wish to remain a shareholder which he receives for the stock represents indefinitely, but wishes to grant the com- his profit. If options have been paid for be- pany, through the purchase of shares, a fore the property has been bought, their credit to run its business; by the resale of cost usually comes out of the promoter’s the shares the credit relationship is given profit. As a rule, the earning capacity of his up and transferred to someone else. proposition is such that the promoter can （Buchwald 1904, 15-translated from capitalize so as to provide sufficient work- German original） ing capital and sell the common stock at from fifty to seventy-five cents on the dol- This ambivalence can also be found in lar, which is desirable to facilitate the sale, Hilferding’s Finance Capital. and still have for himself a margin of prof- Aside from this German banking text- it of from fifteen to thirty per cent of the book, Hilferding’s library also contained An- capital stock. . . . The association of indi- 32 経済学史研究 55 巻 1 号

viduals in the promoter’s corporation is not （Hilferding 1910, 197）. fortuitous, but is the result of the work of a The first work was used by Hilferding to trained business agent, the promoter, who prove the whole argument concerning the is working for his own profit, and is earn- topic of protective duties and cartels. It can ing his profit by assembling the business be seen that there are hardly any differences proposition and by securing the incorpora- between the view of Liefmann and that of tors and other investors（. Wood 1906, 16） Hilferding on their importance and effective- ness. Liefmann also took the view that pro- Thomas L. Greene, who is also cited by tective duties have a beneficial effect on car- Hilferding in Finance Capital, wrote in the tels and lead to cheap foreign sales（ Lief- same year: mann 1903, 14ff）. Yet, for Hilferding, a different Liefmann The unwillingness of the average investor, text was of much greater interest. In Hilferd- individual or institutional, to put his money ing’s library were found two copies of Lief- at any business hazard, is one of the main mann’s Beteiligungs- und Finanzierungsge- causes for the continued fall in the average sellschaften（ Holding and Finance Compa- rate of interest. Capital competes with cap- nies-the editions of 1909 and 1913）. It is ital for safe investments. The demand for not clear whether the edition of 1909 was security in loans gives the business firm or available before the publication of Finance corporation its opportunity. If perfectly Capital. It is very likely that Hilferding did sound in condition and management, it can not read it until he was in the final phase of borrow its outside capital at a low rate, and his studies（ Liefmann’s foreword in Febru- so increase its own profits.（ Greene 1906, ary 1909; Hilferding’s foreword in Finance 3） Capital in December 1909）. In this case, it would have been too late for him to make Here, Hilferding’s line of argument concern- use of it. But on basic points, Liefmann’s text ing the promoter’s profit is set out in detail. matched Hilferding’s. Hilferding’s achievement consists in his abil- Liefmann developed a stage model of the ity to integrate this new corporate finance economy and named the current phase capi- literature into his Marxian theory. talism, in line with Werner Sombart, “Effek- tenkapitalismus” （securities capitalism）, VIII Robert Liefmann whose special character was that money it- The best known German-speaking contem- self turns into capital. This happens when porary economist to focus on cartels and money is invested, which means it is lent to trusts was Robert Liefmann, a former student others, who in return purchase goods for pro- of Max Weber. Hilferding quoted from Lief- duction purposes. With the development of mann’s writings about Schutzzoll und Kartell the banks and stock markets, the phase of （Protective Duties and Cartels） of 1903 and capitalism emerges in which capital takes the Kartelle und Trusts（ Cartels and Trusts） of form of securities. Furthermore, this leads to 1905, primarily in the context of definitions an impersonal capitalism in which real capi- Greitens: Marxian and Non-Marxian Foundations of Rudolf Hilferding’s Finance Capital 33 tal is mobilized by securities. An expanding 1998, 230ff）,2） we may assume that Lief- economy is embodied in securities. Liefmann mann thought that these phenomena-as in- emphasizes the promotion of the internation- terpreted by Hilferding-were possible in a al integration of the economy with the help market-based financial system as well, which of “Effektenkapitalismus.” indicates that Hilferding’s focus on the banks Thereafter, Liefmann talks about the is too narrow and makes Hilferding’s theory characteristics and functions of holding and applicable to other distinct financial systems. finance companies as instruments of “Effek- IX Conclusion tenkapitalismus.” They are especially impor- tant when banks are not able to sell the new Finance Capital is, first and foremost, a securities within a foreseeable period of Marxist work. It is shaped by the discussion time. The holding and finance companies, within the SPD in the years of its origin, the which Liefmann called “Kontrollgesellschaf- so-called Revisionist Debate. Hilferding was ten” （control agencies）, fit ideally into close to his mentor, Kautsky, and was sup- Hilferding’s idea of a concentrating and or- ported by him. Finance Capital adheres to ganized economy（ Liefmann 1909, 224ff）. Kautsky’s theoretical form. Nevertheless Furthermore, Liefmann made a clear distinc- Hilferding was at that time also an Austro- tion between holding and finance companies, marxist and his ideas were shaped by a com- on the one hand, and banks, on the other mon intellectual development in Vienna with hand, since banks were involved in the credit the other important writers of this Marxist business and the trading of monetary capital, school, especially Otto Bauer. Furthermore, while holding and finance companies traded less exposed socialist writers like Parvus and securities and not monetary capital（ bank- Theodor Kapelusz also influenced Hilferd- notes, exchange, checks, etc.） （Liefmann ing. This integrating role of Finance Capital 1909, 467ff）. However, this separation did inside the socialist movement also led to not exist for Hilferding. Instead, he deliber- some inconsistencies in Hilferding’s theory, ately mixed debt and equity as well as loans which he was unable to resolve completely and bonds. For Hilferding, the business of and which were the basis of subsequent cri- holding and finance companies was a part of tiques e.g. by Lenin or Max Adler（ Adler banking, and banks were shareholders of 1927）. those companies. Hilferding shows a great readiness to For Liefmann, it is banks that deal with take up ideas from totally different theoreti- short-term financing, while the long-term fi- cal backgrounds and to use them productive- nancing is done with securities. Yet at the ly. Familiarity with the ideas of John A. same time, Liefmann interprets the German Hobson or Ferdinand Tönnies on the devel- financial system of his times as being mar- opment of the capitalist system clarifies ket-based. In view of the similarities of the Hilferding’s ideas regarding banks and an or- description of the concentration and increas- ganized economy. Awareness of the influ- ing importance of the financial system, in- ence of Hobson and Tönnies on Hilferding cluding Corporate Governance （Knetsch provides the necessary background for a 34 経済学史研究 55 巻 1 号 deep understanding of Finance Capital to- O’Donnell. Minneapolis: Univ. of Minnesota day. Press. 2000. Hilferding utilized almost without modi- -. 1908. Proletarische Wanderungen. Die fication the new corporate finance and prac- Neue Zeit XXV（ 2）: 476-94. Bernstein, E. 1894. Review of John A. Hobson, tically-orientated bank literature in his de- The Evolution of Modern Capitalism. A scription of the emerging contemporary phe- Study of Machine Production. Die Neue Zeit nomena in the financial sphere und used his XII（ 2）: 504-07. Marxian theoretical framework to explain Buchwald, B. 1904. Die Technik des Bank- them. betriebes. Berlin: Julius Springer. A comparison of Finance Capital with Bundesarchiv. Stiftung Archiv der Parteien und the ideas of Robert Liefmann demonstrates Massenorganisationen der DDR im Bun des- the widespread perception among the con- archiv（ SAPMO）. temporary scientific community of the power Greene, T. L. 1906. Corporate Finance. 3rd ed. New York: G P Putnam s Sons of financial institutions and the level of or- . . ’ . Grossmann, Henryk. 1929. Das Akkumulations- ganization in the economy. und Zusammenbruchsgesetz des kapitali- It would therefore be a short-sighted ap- stischen Systems. Schriften des Instituts für proach to restrict the analysis of Finance Sozialforschung. Leipzig: Hirschfeld. Capital to the context of the Revisionist De- Haberler, G. 1950. Joseph Alois Schumpeter bate. It is precisely the openness of Hilferd- 1883-1950. Quarterly Journal of Economics ing to a wide range of influences that sets his LXIV（ 3）: 333-72. work apart from other socialist writings of Hilferding, R. 1903. Das Zuckerkontingent. this time. Deutsche Worte XXIII: 22-34. -. 1904 a. Zur Problemstellung der theo- Jan Greitens retischen Oekonomie bei Karl Marx. Die Neue Zeit XXIII（ 1）: 101-12. Notes -. 1904 b. Böhm-Bawerks Marx-Kritik. 1） In the translation, the footnote in the origi- Marx-Studien I, 1-64. nal was moved into the text and Hilferding’s -. 1907 a. Review of Parvus, Die Kolonial- term Finanzkapital“ was-inaccurately- politik und der Zusammenbruch. Die Neue ” translated as “.” Zeit XXV（ 2）: 687-88. 2） This was the subject of the Liefmann/Mer- -. 1907 b. Der deutsche Imperialismus und ton Controversy （Knetsch 1998, 234ff and die innere Politik. In C. Stephan: Zwischen Rieger 1992）. den Stühlen oder über die Unvereinbarkeit von Theorie und Praxis. Bonn: Verlag J. H. References W. Dietz Nachf.: 25-42. Adler, M. 1927. Über Marxistische Staatsauf- -. 1910. Finance Capital: A Study of the Lat- fassung. Klassenkampf 1（ 1）: 3-9. est Phase of Capitalist Development. Lon- Bauer, O. 1904. Marx’ Theorie der Wirtschafts- don: Routledge & Kegan Paul. krisen. Die Neue Zeit XXIII（ 1）: 133-38, -. 1957. Sammlung Dr. Hilferding. Directory 164-70. of Hilferding’s private library, Seminar für -. 1907. The Question of Nationalities and Politische Wissenschaften, University of Co- Social Democracy. Translated by Joseph logne. Greitens: Marxian and Non-Marxian Foundations of Rudolf Hilferding’s Finance Capital 35

Hobson, J. A. 1894. The Evolution of Modern No. 62: 65-99. Capitalism: A Study of Machine Production. -. 2009. Rudolf Hilferding und Das Finanz- ” London: Walter Scott. kapital.“ Wien: Koppanyi. IISG. Rudolf Hilferding Papers, International Liefmann, R. 1903. Schutzzoll und Kartell. Jena: Institute of Social History, Amsterdam. Gustav Fischer. -. Karl Kautsky Papers, International Insti- -. 1909. Beteiligungs- und Finanzierungs- tute of Social History, Amsterdam. gesellschaften. Jena: Gustav Fischer. Jeidels, O. 1905. Das Verhältnis der deutschen Parvus, A. 1901. Die Handelskrise und die Gew- Großbanken zur Industrie. Leipzig: Duncker erkschaften. München: M. Ernst. & Humblot. -. 1907. Die Kolonialpolitik und der Zusam- Kapelusz, T. 1896. Industrie und Finanz. Die menbruch. Leipzig: Leipziger Buchdruck- Neue Zeit XV: 324-31, 374-79, 405-13, erei. 460-68. Rieger, H. 1992. Die Liefmann/Merton-Kontro- Kautsky, K. 1899. Bernstein und das sozial- verse. Dokumente und Schriften aus dem demokratische Programm. Stuttgart: Dietz historischen Archiv der Metallgesellschaft Verlag. AG. Vorstand der Metallgesellschaft AG. -. 1911. Finanzkapital und die Krisen. Die Rudolph, G. 1991. Ferdinand Tönnies und die Neue Zeit XXIX（ 1）: 764-72, 797-04, 838- Lehren von Karl Marx. Annäherung und 46, 874-83. Vorbehalt. In Hundert Jahre Gemeinschaft ” Kennedy, W. P. 1995. Die Rezeption des deut- und Gesellschaft,“ edited by L. Clausen and schen Bankensystems in England. In Pionier C. Schlüter. Opladen: Leske + Budrich: 301- oder Nachzügler?, edited by H. Berghoff 20. and D. Ziegler. Bochum: Universitätsverlag Smaldone, W. 1998. Rudolf Hilferding: The Brockmeyer: 97-118. Tragedy of a German Social Democrat. Knetsch, S. 1998. Das konzerneigene Bankinsti- DeKalb: Northern Univ. Press. tut der Metallgesellschaft im Zeitraum von Stephan, C. 1982. Zwischen den Stühlen oder 1904 bis 1928. Stuttgart: Franz Steiner Ver- über die Unvereinbarkeit von Theorie und lag. Praxis. Bonn: Verlag J. H. W. Dietz Nachf. Kozyr-Kowalski, S. 1991. Ferdinand Tönnies Tönnies, F. 1887. Community and Civil Society. über den historischen Materialismus. In Translated by José Harris and Margaret Hol- Hundert Jahre Gemeinschaft und Gesell- lis. Cambridge: Cambridge Univ. Press, ” schaft,“ edited by L. Clausen and C. Schlüter. 2001. Opladen: Leske + Budrich: 321-35. Wood, W. 1906. Modern Business Corpora- Kurata, M. 1978. Rudolf Hilferding, Wiener tions, Including the Organization and Man- Zeit, Eine Biographie（ II）. In Economic Re- agement of Private Corporations with Fi- view, Otaru University, 29（ 2）: 25-35. nancial Principles and Practices. Indianapo- -. 1981. Die Entstehung von Hilferdings Fi- lis: Bobbs-Merril. nanzkapital. Liberal Arts, Otaru University,