Marx on Financial Intermediation

Guilford Press
Marx on Financial Intermediation: Lessons from the French "Crédit Mobilier" in the "New
York Daily Tribune"
Author(s): JOSEPH RICCIARDI
Source: Science & Society, Vol. 79, No. 4 (OCTOBER 2015), pp. 497-526
Published by: Guilford Press
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Science & Society, Vol. 79, No. 4, October 2015, 497-526
o
Marx on Financial Intermediation:
Lessons from the French Crédit Mobilier in the
New York Daily Tribune
JOSEPH RICCIARDI*
ABSTRACT: The role of financial intermediaries in economic devel
opment can be clarified by examining Marx's contributions to an
old debate among economic historians regarding the role of joint
stock investment banking and, in particular, the rise of the French
Crédit Mobilier, in French economic development. Marx's account of
the Crédit Mobilier, in a series of articles written for the New York Daily
Tribune during the 1850s, contains the oudines of a theory of the
potentially destabilizing role of financial intermediaries in economic
development. Five propositions regarding financial intermediaries
(Fis) in development emerge: First, Fis promote the multiplication
of financial claims to social wealth beyond any conceivable basis
for their realization in production. Second, Fis immobilize and
misallocate capital. Third, the lender of last resort function of the
Central Bank is necessarily ineffective in confronting crises of Fis.
Fourth, Fis accelerate the restructuring and concentration of capi
talist property. Finally, Fis play an explicit political role in "buying
time"in the context of class struggle, deferring conflict to a later date.
Introduction
tional capital markets, sustained during the "lost" decade of
FINANCIAL
PUBLIC,
the 1980s, theTURBULENCE
financial contagion of theIN
1990s,
and renewed private, and interna
* The author wishes to thank Harry Cleaver, William Darityjr., the late Laurence Moss, Michele
Naples, and John Parsons for detailed comments on earlier versions of this paper. The author
is also grateful to the late C. P. Kindleberger for assistance on matters of French financial
history. Finally, thanks to the Science & Society reviewers for their painstaking scrutiny to
improve the argument. Errors that may remain are the responsibility of the author alone.
497
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498
SCIENCE 6= SOCIETY
with global financial collapse in 2008 (Bear Stearns, Lehman Broth
ers, AIG) and 2010 (EU sovereign debt, Greece, Italy, et al), presse
economists of all persuasions to reexamine the role of money and
finance in the macroeconomy. Worn explanations from economis
have been challenged by new frameworks advanced by geographers
(Harvey, 2011), philosophers (Caffentzis, 2013) and anthropologist
(Graeber, 2011 ). This paper examines the destabilizing role of fina
cial intermediaries in the macroeconomy by revisiting Marx's analy
sis of the rise of the French Crédit Mobilier as the first appearance of
investment banking in nascent European capitalism. Ex post, Mar
contributes to an old debate among economic historians: Did the ris
of joint stock investment banking really matter in French economi
development? Did the financial innovation of the Crédit Mobilier serve
to more efficiently allocate capital, permitting France to break throug
its metallist financial backwardness and fuel French industrialization
some 50 years after Britain?1 Or did the Crédit Mobilier inherently desta
bilize French accumulation, fueling the speculation that ultimately
produced the global financial collapse of 1857?
It was the October 1987 New York stock market crash that first con
centrated attention on "bubbles" in the modern mainstream econom
ics literature.2 Against Post-Keynesian claims that financial markets
are inherently unstable and fuel speculative distortions (asset-prices
diverging from fundamentals), orthodox economists affirmed that
financial markets are "informationally efficient." The implication:
Bubbles can exist where asset prices diverge from equilibrium values,
but such deviations can not be systematically sustained or exploited
1 The Crédit Mobilier was founded by Issac and Emile Péreire in 1852. It was one of the most
important financial institutions of the 19th Century. The Péreire brothers, imbued with St.
Simonist doctrine, leveraged their investment bank to finance enormous rail, industrial, and
public works projects on a global scale, competing with the commercial banking interests
of the Rothschilds. Note: this should not be confused with the U. S. Credit Mobilier, a con
struction company founded in 1863 by officers and large stockholders of the Union Pacific
railway. The latter earned its notoriety by engaging in large-scale graft involving leading
members of the Republican party, a scandal that was revealed by The Sun newspaper of New
York in 1872.
2 See the Symposium on "Bubbles" (Stiglitz, 1990) and Tirole, 1989. For recent orthodox
theorization on bubbles and financial crises see Brunnermeier and Oehmke, 2012. For a
Marxist perspective, see Parsons, 1988, who emphasizes the positive effects of developed
financial markets in the coordination of productive activity. He is critical of those he terms
"bubble theorists" who equate modern financial markets with gambling. Parsons recognizes
the potential for economic crises generated by these markets, but does not address the
predisposition to crises associated with the autonomous drive of financial accumulation to
outstrip its basis in the production of real wealth.
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MARX ON FINANCIAL INTERMEDIATION
499
for profit by speculators. Orthodoxy concluded that since marke
incorporate all unanticipated information into asset prices, bubb
can exist and be rational as a consequence of numerous "friction
but financial markets in themselves present no inherent foundat
or predisposition to speculation.3
Marx's commentary on the role of French investment banking in
spawning the recurrent crises of the 1800s provides useful insight in
the specific role of financial intermediaries in the process of capitali
crises. In what follows, I examine Marx's views on financial inter
diation developed in a series of articles written for the New York Da
Tribune during the 1850s, which have received little attention4 and
often dismissed as Marx's journalistic work for hire.5 The articles re
Marx's real-time analysis of the rise of private joint-stock banking a
an innovation in French finance, highlighting its role in simulta
ously accelerating industrialization and promoting financial colla
Five distinct contributions to understanding the specific role
financial intermediaries in capitalist crises emerge from Marx's exam
nation of the Credit Mobilier. First, financial intermediaries promot
the multiplication of financial claims to social wealth beyond an
basis for their realization in production. Financial intermediaries thu
predispose the economy to debt-deflation crises due to the driv
force of speculation in the normal operations of finance. In contr
with the post-Keynesians, however, Marx argues that the heart of th
debt-deflation crisis is a crisis of imposing work. This means that su
cessful collateralization is contingent on convincing debt-holders
capital's capacity to discipline labor and annex surplus value at a futu
date — a capacity which is inherently uncertain.
Second, Marx suggests that financial intermediaries immobili
and misallocate capital. Such misalignments occur across product
3 This specification of the informational efficiency of financial markets is the cornerston
the Efficient Markets Hypothesis.
4 One brilliant exception is the piece by Sergio Bologna (1974). It is interesting to note
even in such a developed theoretical treatment on finance as Hilferding's Finance Cap
no mention whatsoever appears regarding Marx's NYDTarticles on the Crédit Mobilier. F
comprehensive discussion of Marx's "career" at the Tribune and his rivalry with Henry Ca
see Perelman, 1987.
5 Marx and Engels were not immune from "work for hire." Both contributed entries t
New American Cyclopedia (New York, 1858-63), a 16-volume dictionary, which Engels refe
to as a "purely commercial matter, nothing else." The numerous articles written for the
York Daily Tribune, however, where Marx served as a European correspondent, were wi
read, with a circulation of 200,000, and influenced U. S. economist Henry Carey. During
U. S. Civil War, Marx devoted his articles increasingly to American affairs (Morias, 1948
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SCIENCE àf SOCIETY
500
sectors {e.g., agriculture vs. industry), within production (labor vs
capital), over time (present vs. future), as well as disrupting the c
culation of value over the various circuits of capital.
Third, Marx argues that Central Bank efforts to intervene as the
"lender of last resort" prove ineffective in the face of financial crises
since the Central Bank merely substitutes the fictitious capital of the
state for the bad debt of private capital. Fourth, Marx argues th
financial intermediaries accelerate the restructuring and concent
tion of capitalist property.
Finally, Marx argues that financial intermediaries play an explicit
political role in the context of the class struggle. French finance capit
was mobilized to "buy time" in order to consolidate power and strangle
the February Revolution, as well as to provide support for Napoleon
program for "Imperial Socialism."
Each of these five propositions is examined in detail below to
suggest an outline of Marx's thinking on financial intermediation
Caution must be exercised with any attempt to formulate genera
principles from the particular experience of the Crédit Mobilier. None
theless, Marx's rich observations on the role of investment bankin
in French development and crises offer a unique view of the overa
dynamics of accumulation, seen specifically from the perspective
finance.
I. FINANCIAL INTERMEDIARIES, SPECULATION,
AND FICTITIOUS VALUES: THE CRÉDIT MOBILIER
AND THE LOGIC OF DEBT-DEFLATION
Conventional wisdom has long been that the British significant
stripped the French in economic development in the 18th and
centuries, because French financial institutions lagged behind
British counterparts by 30 years in joint-stock banking and ov
years in central bank formation and policy (Kindleberger,1983
nomic historians since the 1950s (e.g., Cameron, 1961; Gerschen
1962) have suggested that the Crédit Mobilier was the most impor
example of a financial intermediary engaged in financing Fren
nomic development. Massive public works and long-term invest
projects were facilitated by the Crédit Mobilier's role in restructu
French capital markets — intermediating funds from savers to inve
through indirect security issue. This was presented as "democra
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MARX ON FINANCIAL INTERMEDIATION
501
credit" and showcasing economic development through the const
tion of urban centers.
Marx's chronicle of the Crédit Mobilier provides us with a different
picture of the role of financial intermediaries in capitalist accumulation
— a view unparalleled in his more traditionally cited economic writ
ings. Marx's New York Daily Tribune series examines the destabilizing
role of the Crédit Mobilier and of capitalist finance generally in pro
voking economic crises. For Marx, as with the economic historians,
"finance matters," but not because of the economies associated with
an improved intertemporal allocation of capital. It is the distortions
in capital allocation resulting from speculation that concern him.
Between June 1856 and December 1857 Marx wrote 58 articles
for the New York Daily Tribune. Of these, 13 directly addressed mat
ters concerning the Crédit Mobilier, which, Marx argued, "presents
itself as one of the most curious economical phenomena of our
epoch" (MECW, XV, 10). Early neoclassical formulations, e.g., Tobin
(1968), argue the principal raison d'etre of a financial system is ensur
ing that risk bearing is distributed in accordance with "tastes" for
risk-taking. Financial intermediaries reduce risk and thus augment
real economic activity by promoting investment that would other
wise be rationed due to a misallocation of risk. It happens that Issac
Péreire (1854) wrote of a similar sort of "risk-pooling" and "risk
reduction through portfolio diversification" in his promotion of the
Crédit Mobilier in the 1850s.
Marx, however, viewed the essence of such portfolio diversifica
tion on the part of financial intermediaries not as risk-reduction, but
as speculation:
We have heard, from Issac Péreire, that one of the mysteries of the Crédit
Mobilierwas the principle of multiplying its action and diminishing its risks
by embarking in the greatest possible variety of enterprises, and withdrawing
from them in the shortest possible time. Now, what does this mean when
divested of the flowery language of St. Simonism? Subscribing for shares to
the greatest extent, in the greatest number of speculations, realizing the
premiums, and getting rid of them as fast as it can be done. Stockjobbing,
then, is to be the base of the industrial development, or rather all industrial
enterprise is to become the mere pretext of stock-jobbing. (MECW, XV, 20.)
For Marx, investment banks drive industrial accumulation into the
hands of stockjobbers.
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SCIENCE & SOCIETY
Financial intermediaries are predisposed to excessive risk-tak
in their investment activities due to the profit logic of their nor
operations. For the Crédit Mobilier, its nominal source of profits deri
simply from the spread between the rate of interest payable on
deposits and debentures, and the interest receivable on the secur
in which it subsequently invested. In order to maximize this inte
rate spread, the Crédit Mobilier sought, on the one hand, to in
the capital realized from the issue of its debentures in projects
promised the highest returns, but typically involved higher risk
substantial price variability. The incentives to this sort of risk-takin
were heightened by the fact that shareholders "shared" in all t
risks of the Crédit Mobilier, but were entitled only to a fixed return
its debentures (MECW, XV, 23) .6 The Crédit Mobiliers function a
intermediary was to acquire other people's capital and to stimula
flurry of speculation in securities trading on the Bourse.
Profit maximization, on the other hand, dictated strategies f
driving up the value of its own debentures so as to augment the nom
nal value of the Crédit Mobilier's command over loanable capital for
given debt issue. Utilizing its privileged position with respect to
state — a government charter affording it a premium on its securit
— the Crédit Mobilier sought to drive up the price of its securities i
subsequent trade and issue. By driving the prices of its paper a
from the value of its fundamentals, the investment house aimed
further leverage its position in the market to reap speculative retur
The scheme was to financial intermediaries whatjohn Law's schem
was to commercial banking:
What are the means proposed to enable it thus to "multiply its action"
"diminish its risks"? ... The Crédit Mobilier, being a privileged company
certain that the shares of any new enterprise started by it will, on the fir
emission, fetch a premium in the market. It has learned this much fr
Law, to allot its own shareholders the new shares at par, in proportion to t
6 Note the parallel to Keeton's (1984) argument that Fis take on higher levels of risk th
socially optimal due to the moral hazard problem associated with fixed premium dep
insurance.
7 Law, a Scottish economist, established theBanque Générale in France in 1716. He advocated
stimulating industry by extending credit. The bank leveraged its privileged government back
ing to promote the unbridled credit expansion that provided the fuel for Law's swelling of
shares in the Mississippi Company in Louisiana. Share prices skyrocketed, then crashed in
1720, implicating Law as the architect of the great Mississippi Bubble. His Banque Générale
subsequently collapsed, throwing the French economy into chaos.
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MARX ON FINANCIAL INTERMEDIATION
503
number of shares they hold in the mother-society. The profit thus insured
them acts, in the first place, on the value of the shares of the Crédit Mobili
itself, while their high range, in the second place, insures a high value
the new shares to be emitted. In this manner the Crédit Mobilier obtains com
mand over a large portion of the loanable capital intended for investment
in industrial enterprises. (MECW, XV, 20.)
Marx argued that rising securities prices were a prerequisite to
supporting a climate of speculation upon which the survival of the
Crédit Mobilier depended. By monopolizing what were formerly the
separate actions of individual private moneylenders, the Crédit Mobilier
"worked" both sides of the market. It drove up the value of its securi
ties and simultaneously collected promoter's profits, by "constantly
speculating for its own account on the fluctuations of the very same
securities, on their fall as well as their rise" (MECW, XV, 276).
Marx also identified the importance of turnover in the activities
of the Crédit Mobilier. On the one hand, profits derived from the differ
ential between the interest payable on the long-term industrial paper
it purchased and the interest receivable by "repackaging" this paper
and issuing its own liabilities of shorter term and smaller denomina
tion. On the other hand, an increased velocity of turnovers in its
purchases and repackaging or reselling of primary industrial issues
also accounted for major accretions to profits.
Marx probed further to examine the impact of speculation on the
solvency, liquidity, and capital adequacy of financial institutions. First,
he argued that the increased risk composition of the bank's portfolio
resulting from speculation posed a threat to solvency.8 Second, Marx
argued that a false appearance of liquidity resulted from the bank's
power to issue debt and thus control and accumulate sums of capi
tal far beyond its own initial capitalization. Lastly, capital adequacy
assumed a new dimension in the case of financial intermediaries whose
capital consists not of hard cash or tangible wealth, but merely the
paper representatives of industrial capital.
For the Crédit Mobilier, survival demanded capital market inter
ventions utilizing leverage to exploit asymmetries in power and infor
mation; i.e., to "circulate" capital in a manner that simultaneously
8 Here, poor earnings performance on the bank's income earning assets can result in a
situation where receipts plus cash inflows fall short of the bank's payment commitments.
Insolvency results when such a negative cash flow exhausts the bank's capital.
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504
SCIENCE & SOCIETY
redistributed capital in the organization's favor. Efficiency in "win
ning" such a zero-sum game rested principally in wielding the market
power secured by debt issue; i.e., attaching other people's claims to the
revenue streams of industrial capital. Capital formation thus move
beyond the scale of individual advances characteristic of the world o
self-finance. Contrary to the neoclassical world of McKinnon (1973
however, where "overcoming the barrier of self-finance" is growth pro
moting, Marx argues that this sort of capital formation fuels fictitious
capital accumulation and predisposes the economy to financial crisi
Marx focused particular attention on the power of financial inter
mediaries to issue debt and on their need to exercise this power. Fo
the Crédit Mobilier, it meant the power to borrow up to ten times its
own capital through the issue of its own debentures. He argued:
The exceptional character of its profits results from the enormous disproportio
between its capital and its operations. That disproportion ... form(s) ... th
organic law of its existence. If the disproportion ... were to disappear, th
Crédit Mobilier would not dwindle to a common banking house, but would
miserably break down. (MECW, XV, 271.)9
By definition, financial intermediaries "intermediate" through
the issue of indirect securities, repackaging the primary debt issue of
ultimate borrowers into liabilities whose maturity, denomination, and
risk composition are more in line with the preferences of ultimate
lenders. Marx argued, however, that this maturity transformation pro
cess was built on a shaky foundation of fictitious capital. The sourc
of instability is the bank's power to issue debt as a means of raisin
capital. This power affords the bank command over other people's
capital in addition to the command over idle savings. This capital,
however, is not backed by the tangible wealth-producing capacity o
industrial capital, but merely by the paper representatives of the value
9 Cameron (1961), as did Marx (MECW, XV, 274-77), attributes the demise of the Crédi
Mobilier to the inability of the Pereires to grab hold of sufficient funds through debt issue
Cameron writes: "The Pereires' original plan counted on the issue of the Crédit Mobilier'
own bonds to bring in most of the resources for these operations. Unfortunately, they
had to operate almost entirely without the assistance of this most powerful instrument.
Cameron notes that in the early history of the Crédit Mobilier interest rates were abnormall
high, which rendered bond issue prohibitively expensive. Cameron highlights the ongoing
"guerilla warfare" between the Crédit Mobilier and the Bank of France in conjunction with
the Rothschild empire who continually intervened to prevent th e Crédit Mohilier fro m makin
its fiduciary money issue.
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MARX ON FINANCIAL INTERMEDIATION
505
of industrial capital. Marx described the Crédit Mobiliers debentu
as such a form of fictitious value:
A paper money of its own invention; payable at very long dates; based, not
on the capital of the company, but on the securities for which it would be
exchanged ... such an issue of fiduciary money the Crédit Mobilier calls aug
menting its capital; common people are more likely to call it augmenting
its debts. (MECW, XV, 275.)
In this fashion the Crédit Mobilier manufactured fictitious value.
The power to issue its own paper was the power to monetize debt.
It stood between savers and investors, borrowing funds from the
public against its own paper, which was issued on the basis of its
intentions to make future purchases of industrial paper out of its
borrowings.
Marx argued that this organization of capital had profound desta
bilizing effects. First, while Crédit Mobilier debentures earned a fixed
yield on an aggregate of paper secured by a capital that was nominally
of the same amount, the realizable value of this capital was contingent
upon the quotations of the Bourse. When security prices inflated, so
did Crédit Mobilier profits. However, when security prices fell, Marx
argued, the threat of bankruptcy raised its head as the nominal value
of the "paper capital" that investors could "grab at" fell below the value
of their claims outstanding. These devaluations of capital formed the
basis of liquidity panics and runs. In such events, the only backing
the bank could offer was its paltry capital in conjunction with a sum
of industrial paper whose nominal value could vanish in an instant
when liquidated in the throes of such a panic. The holders of bank
liabilities can always expect to "share" in these losses, but not in the
gains of the bank's speculative activities.
Second, Marx argued that the power to generate fictitious cap
ital has negative impacts on aggregate accumulation through the
decapitalization of productive industry in order to fuel the spectacle
of gambling. He wrote:
Upon this operation of turning a great part of the national capital from
productive industry to unproductive gambling, the Crédit Mobilier rests its
main claim to the gratitude of the nation. Louis Napoleon, indeed, derives
an immense support from Messrs. Péreire & Co. Not only do they impart ficti
tious value to the Imperial funds, but they are constantly fostering, drilling,
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506
SCIENCE & SOCIETY
propping, propagating that spirit of gambling which forms the vital principle
of the present empire. (MECW, XV, 276.)
The point is not unlike Keynes' view that capitalist finance promote
speculation at the expense of enterprise.
In Marx's view, however, the crucial problem is that "paper rep
resentatives" of industrial capital — i.e., the various industrial secur
ties that comprise the "capital" of financial institutions — assume
an independent dynamic of their own, entirely disengaged from th
accumulation of real productive capital. Financial claims circulate
according to the circuit of interest-bearing capital — M-M' — in
the fantastic world in which money appears simply to breed mor
money. In such a world financial accumulation is driven forward b
speculation with no regard to the real production of wealth. Whe
financial accumulation is driven beyond its basis for realization in
real production, financial crises emerge. Thus the cycle: the ficti
tious capital of financial intermediaries forms a precipice of debt that
fuels speculative financial accumulation which ultimately outruns
real accumulation and collapses, resulting in a harsh deflation tha
devalues capital, destroys fictitious claims to wealth, and bankrupt
the holders of such capital.
What Marx saw in the Crédit Mobilier were the seeds of the classic
"debt-deflation" crisis.10 The analysis, however, went deeper than the
relationship between prices and debt. Marx linked the fictitious nature
of the capital characteristic of financial institutions to the problem
of commanding surplus labor in the circuit of industrial capital. This
relation between the money form and labor is examined below.
The Finance of Debt-Deflation and the Imperative of Surplus Labor
Financial accumulation proceeds on the basis of financial flows,
which take the form of interest-bearing capital (M-M'). The accumu
lation of industrial capital, on the other hand, proceeds on the basis
of the pure exercise of command over the conditions of production
10 There is a long-standing literature on debt-deflation crises, though typically dated substan
tially after Marx's time. Irving Fisher (1933) coined the term "debt-deflation" in his article
of the same name. Much of this analysis was "pilfered," however, from the work of Thorstein
Veblen (1904) on "Loan Credit." Keynes also advanced the analytics of "debt-deflation" as
did Minsky, 1982; Kindleberger, 1978; and Davidson, 1978.
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MARX ON FINANCIAL INTERMEDIATION
507
and the imposition of surplus labor. To the degree industrialists
on external finance, they can attempt to extend their command
productive capital and labor to expand their operations. Marx arg
however, that the loans made to industry by financial intermedia
have no backing in realized production and are advanced only
the anticipation of the realization of the products of future labo
industry. Yet in spite of this, financial institutions continue to rega
such loans as assets. Marx argued that the command over the n
conditions of production afforded by the extension of finance capita
is not secured until the realization of surplus labor from the new pr
ductive operations validates both the claim to future income associat
with the financial instrument as well as the return associated with the
accumulation of industrial capital. Until such validation occurs, the
capital involved is fictitious: The financial capital, because it represents
a claim to values which have not been newly produced; the industrial
capital, because it represents an advance of merely the promise of
future value and not the advance of previously realized value from a
prior period of production.
Marx claimed that the paper held by the Crédit Mobilier as its
"capital" was of no intrinsic value, nor was the fixed capital it repre
sented. Fixed capital has no use-value as an article of consumption,
and therefore has no value outside of its capacity to absorb living
labor. As a result, the securities held by the Crédit Mobilier as capital
could only lay claim to the future values produced through the mobi
lization of living labor to produce surplus value in conjunction with
fixed capital. In the absence of such command over labor, the paper
representatives of this capital amount to merely so much worthless
paper. Marx argued that this did not stop the banks from promoting
the accumulation of fictitious capital and the layering of debt. Despite
the fact that the real physical capital claimed by the bank's paper
does not circulate and possesses no real value outside of its capacity
to extract surplus labor — the first condition for it to possess any
value at all — the paper representatives of this capital circulate with
a life of their own and are transformed into so much money-capital
when placed as " Crédit Mobilier" debentures. The liquidity generated is
advanced once again as money-capital in industrial loans; i.e., further
purchases of industrial paper, which, in turn, are further capitalized.
A fundamental question arises with such a circuit: Does the money
value generated out of claims to fixed capital, when subsequently
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508
SCIENCE à? SOCIETY
loaned out, serve as an advance of capital, or does it merely circula
as revenue? From the point of view of the individual financial int
mediary the money loaned counts as an asset upon which it expects to
make a return. This return accrues as interest, the payment of which
is associated with the command over the income streams of other
economic agents that results from the pure ownership of capital on
the part of the intermediary. The interest paid, however, must origi
nate as a deduction from the surplus value produced by the borrower
who must have mobilized labor productively — or else suffer a loss.
From the vantagepoint of accumulation at the level of society
as a whole, however, the advanced interest-bearing capital realizes
itself as capital only to the degree an imposition of surplus labor is
achieved that would not otherwise occur in its absence. Such newly
created surplus value must be "shared" between both industrial and
financial capitalists in proportions corresponding to their relative
economic power. If, however, the payment of interest were the result
of the liquidation of borrower assets as opposed to the creation of new
values, then the effect of the loaned interest-bearing capital would
be to merely transfer ownership of existing values from borrower to
lender. In such a case, the money-capital is invested in appropriation
and not accumulation. The circulation of value in this circumstance
appears as a redistribution of money or the circulation of money as
revenue and not a circulation of money as capital.11
Marx argued that the generation of fictitious values may occur
even if surplus labor is imposed in the final instance as a result of the
mobilization of idle capital; i.e., upon the successful completion of the
circuit of productive capital initiated by the mobilization of previously
idle money capital. Since the financial system is predisposed to gener
ate financial claims beyond their basis for realization in production,
financial accumulation proceeds at the expense of real production.
11 The distinction between the circulation of money as money (revenue) and the circulation of
money as capital is an important one in Marx's work. The advance of money as money refers
to the circulation of money in its role as a pure medium of exchange — for the execution of
transactions. The advance of money as capital, however, refers to money's role in securing
command over surplus labor and the realization of surplus value on a sum of money-capital
advanced. In his later work in Volume III of Capital, Marx argued that financial crises are
associated with the collapse of the circuit of money as capital into the simple circulation of
money as medium of exchange. While ex ante such claims were advanced as capital, ex post
they have merely recirculated the existing stock of values.
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MARX ON FINANCIAL INTERMEDIATION
509
Financial intermediaries not only create fictitious values, but
their nature engage in a layering of fictitious values. Even the l
money-capital employed by individual financial intermediaries, M
noted, is built on a layering of the debt of the intermediaries th
selves. The liabilities issued to raise this loan capital are secured o
against the expected future realized values of the investment project
which are yet to be financed by these very same prospective fut
loans. The shareholders and creditors of the intermediary, therefore
hold claims to the capital and future revenues of the intermed
which at the same time give rise to the set of claims on labor and ne
means of production exercised by the intermediary's industrial cl
borrowers.12
Time is of the essence in all these relationships. Time must se
rate attempts by the different wealth-holders to exercise the variou
"duplicate" claims at the same moment. Until wealth is newly produc
through the mobilization of living labor and the imposition of surpl
labor, the financial intermediary accomplishes nothing except
multiplication of paper claims to real values, which are beyond h
of realization in the aggregate. Thus, where financial intermedia
are present, holders of financial instruments must be satisfied twice
First, the intermediary's claim on the surplus value of the indust
borrower must be realized. Then, the shareholders and creditors
the intermediary must be satisfied by means of a further deduc
from this surplus value, which has been realized through the suc
ful completion of the circuit of interest-bearing capital on the p
of the intermediary.
Marx emphasized that successful completion of the circuit o
interest-bearing capital, M-M', presupposes the successful impo
tion of surplus labor in the circuit of productive capital. Witho
this, financial crises are immanent and capital is devalued — th
accumulation of capital is reduced to the mere appropriation of ot
people's capital and the existing stock of values is redistributed. I
this link between the fictitious capital of financial intermediaries an
the imposition of surplus labor in the sphere of industrial capital th
formed the core of Marx's analysis of the debt-deflation crises in
ent in financial intermediation.
12 In this respect Kindleberger's notion of speculation being something akin to "selling the
same horse twice" (Kindleberger, 1978) is apropos to Marx's discussion of the link between
speculation and fictitious capital.
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SCIENCE & SOCIETY
510
II. THE CRÉDIT MOBILIER AND
THE IMMOBILIZATION OF CAPITAL
In his November 26, 1856 article entitled, "The Economic Cr
France," Marx (MECW, XV, 130-5) develops a second line o
ment regarding the Crédit Mobilier: that normal operations imm
rather than mobilize the circulation and accumulation of ca
Marx suggests that the routine functioning of financial capital d
the allocation of capital, both within the firm and with respect
macro-composition of sectoral demand, which immobilizes cap
inevitably renders continued reproduction of the existing pro
capital impossible.
As suggested by the very name of the institution, the P
brothers envisioned the central function of the Crédit Mobilier to
be the mobilization of capital. Through the issue of its indirect
securities, the Crédit Mobilier sought to monetize France's tangible
wealth and so mortgage French capital in order to conduct its
lending activities abroad. The Péreires argued that the "mobile
assets" — i.e., the shares and annuities that comprised its invest
ments in joint-stock enterprises — made up the collateral for Crédit
Mobilier debentures in the same way that mortgaged property or
"fixed assets" secured the mortgage bonds issued by the Credit Fon
der. While these "mobile assets" served as bank capital, they also
acted to "free up" surplus commodity capital and fixed capital
by "monetizing" them and recirculating these values as fictitious
loan capital abroad. Emile Péreire boasted: "France . . . must sell
its capital, its credit, and the science of its engineers as well as its
machines, its textiles, and its articles of taste to those who can and
will pay for them. ... I believe I have done a more useful and more
moral [m'c] thing by promoting the Swiss, Spanish, Russian, and
Austrian railways than if I had undertaken the Graissessac railway"
(quoted in Cameron, 1961, 148).13
Péreire viewed the nation's capital as a "commodity" that could
be sold profitably by monetizing the national wealth and loaning it
at interest.
13 Péreire argued that foreign rail investments securitized by national capital would prove more
productive than Napoleonic financing of the Graissessac Railroad, which (when completed,
in 1858) transformed the small artisanal mining concessions of southern France into a major
regional supplier of coal to the Mediterranean.
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MARX ON FINANCIAL INTERMEDIATION
511
Marx attacked Péreire's argument:
The tendency [of the Crédit Mobilier] is to fix capital, not mobilize it. What it
mobilizes is only the titles of property. The shares of the companies started by
it are, indeed, of a purely floating nature, but the capital which they represent
is sunk. The whole mystery of the Crédit Mobilier is to allure capital into industrial
enterprises, where it is sunk, in order to speculate on the sale of the shares created to
represent that capital. This explains the curious phenomenon that while the
shares of the Crédit Mobilier are continually falling on the Bourse, its action
is continually extending over Europe. (MECW, XV, 133, emphasis added.)
In Marx's view, what financial intermediaries mobilize are paper
claims to social wealth. These claims are mobilized precisely by immo
bilizing the movement of capital in general. In order to circulate and
therefore speculate on these paper representatives, real capital values
must be "fixed" in the tangible form of fixed capital. This fixed capi
tal serves as the collateral for the securities and the resultant mass of
fictitious values that is generated through the advance of credits on its
behalf. Thus, financial intermediaries "fix" liquid capital in bursts of
speculative investment in productive capital — plant and equipment
— in order to collateralize and monetize this capital for yet further
lending and fixing.
The neoclassical view (e.g., Mishkin, 2010; Wood, 1981) is that
financial intermediaries promote growth by realizing investment
opportunities that would otherwise be rationed due to lack of funds
and/or the higher cost of securing funds on an individual basis. By
improving the allocative efficiency of capital markets, financial inter
mediaries ensure the optimal allocation of savings to ultimate users
of funds, thereby maximizing the flexibility and mobility of capital.14
Opposed to this view, Marx argued that financial intermediaries
promote distortions in the allocation of productive capital. These
distortions, moreover, are a direct outcome of the normal opera
tions of precisely the same efficient capital markets. In competitive
and unregulated financial markets, where financial intermediaries
are permitted to develop in response to existing market frictions, it
is only "titles to property" that are traded in the circuit of interest
bearing capital — not the real physical capital itself. While financial
14 The idea is not new. It was Smith who argued that the banking system constitutes a "waggon
way" for economic development.
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512
SCIENCE & SOCIETY
intermediaries mobilize these paper claims to real values in the circu
of interest-bearing capital, the real capital underlying these clai
remains immobile. Nonetheless, the real physical capital must be
ent to serve as collateral for the mass of paper trading that takes pl
overhead. The result is that although capital markets are "efficient"
the transaction of paper claims to capital (i.e., in the sense of a r
generalization of security prices for securities of the same qualit
the underlying allocation of productive capital that emerges is of
suboptimal and unstable.
Savers do not want to hold real capital, because they either lack t
necessary money-capital to own it or the knowhow or will to ope
it. Financial intermediaries do not care to hold real capital, as th
prime interest is in speculation. Profitable speculation on holdi
and reselling real fixed capital assets is especially difficult, given
rapid depreciation of fixed capital that comes with both technologic
revolutions and physical decay.
On the one hand, paper securities preserve the flexibility of capi
by remaining perpetually outside of production and uncommitted to
cific use-values (Harvey, 1982, 266). It is essential that capital rem
fluid to respond spatially and sectorally to working-class initiatives
production, as well as to the changing compositions of consumpt
demand that devalue capital and so ruin its owners. On the other han
this "mobility" of capital in its money value form is only apparent.
circulation of capital as a whole must include the metamorphosis
capital values into commodity-capital and productive-capital. Th
fantasy of interest-bearing capital is the appearance that the a
mulation of capital can proceed entirely within the confines of
circuit of money-capital.
Marx argued that the imperative of production inevitably c
fronts the fantasy of financial capital. To receive interest, lenders m
sacrifice the flexibility of their money-capital for a specified period
time. During this time money must enter the sphere of product
at which point that sum of value becomes tied down to the spec
use-values comprising the elements of production. To the degree
duction is successful and surplus labor realized, the newly produ
values might, indeed, support the paper claims of interest-bear
capital circulating overhead. There is the danger, however, that
loaned money-capital may simply be transformed into the commodit
hoards of speculators attempting to drive prices above values and th
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MARX ON FINANCIAL INTERMEDIATION
513
force an appropriation of existing values that exceeds the outstanding
interest commitments of these merchant-capital speculators. In ad
tion, there is always the danger that the real productive investmen
of industrial capital are simply not profitable.
One problem that arises is the coordination of the amount of
time lenders are willing to part with their money-values at a give
price (interest) and the amount of time borrowers require to real
the production of the augmented sum of values at a given retur
and efficiency in imposing work in production. Coordinating thes
exchanges is the objective of the capital market. But, at its root l
the contradiction that the greater the advance of interest-bearin
capital achieved to extend the flexibility and spectacular character
capital accumulation, the greater the necessity to commit this capi
to specific use-values which constrain and impede the flexibility a
coordinating powers of capital as a whole.
Once again, the logic of financial accumulation assumes a life o
its own that fails to ensure that the underlying conditions of real pro
duction will guarantee the future surplus value necessary to effect th
wealth transfers essential to motivate interest-bearing capital. Und
these circumstances a great portion of financial accumulation is merel
the accumulation of bad debt which is at the same time the failure
to secure command over future surplus labor in production. What
appears initially as simply the "mismanagement" of the loan-portfolio
in the face of "uncertainty" is, in fact, the loss or absence of command
over labor. From the perspective of capital, the loss of command is the
result of the diversion of capital from real accumulation to financial
accumulation, as well as the disarticulation of the financial and pro
ductive circuits of capital that occurs with the circulation of fictitious
values. In part, it is the mismanagement of the financial capitalist
who fails in "pushing debt" to determine that the appropriate condi
tions of production are in place to provide the means of repayment
for outstanding loans. More fundamentally, it is the sheer inability to
harness working-class refusal and impose surplus labor.
It is true that industrial production by its nature requires that capi
tal be "fixed" in plant and equipment which demands the advance of
money-capital over the lifetime of the fixed capital. Marx points out,
however, that investment banks engaged in short-run profit maximiz
ing behavior in the market for long-term securities tend to promote
the sinking of fixed capital to a degree that is wholly out of proportion
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514
SCIENCE 6J5 SOCIETY
to the funds made available for the working capital necessary to oper
ate the installed plant. In addition, fixed capital is advanced to an
extent that would exceed the existing limits to demand, if the work
ing capital were available to operate at capacity production. Marx
noted that this asymmetric "fixing" of capital is peculiar to financial
intermediaries engaged in long-term investment banking:
The Crédit Mobilier fixes actually floating capital. Railway shares ... may be
very floating, but the capital they represent, i.e., the construction of the
railway, is fixed. A mill-owner who would sink in buildings and machinery apart
of his capital out of proportion with the part reserved for the payment of wages and
the purchase of raw material, would very soon find his mill stopped. The same holds
good with a nation. Almost every commercial crisis in modern times has been
connected with a derangement in the due proportion between floating and
fixed capital. (MECW, XV, 20-1, emphasis added.)
The short-run profit-making promotional dynamics of financial
accumulation can overwhelm real accumulation such that the alloca
tion of productive capital between its fixed and circulating compo
nents is hopelessly distorted. The "Mobilier," instead of "mobilizing
credit," sunk "floating capital" — liquid capital, in speculative bursts
of real fixed investment for productive capital, but without regard
to the general capacity for society to absorb the new boom in plant
(i.e., without regard to the limits of the market) and without regard to
the availability of working capital needed to run the new enterprises.
Moreover, the international operations of the Crédit Mobilier extended
this "immobilization" of capital to the whole of Europe.
In this world capital truly inverts itself. Claims to capital, i.e.,
financial assets whose price is determined by the expectations of
prospective future yields, are claims only to alienable property —
which wage labor is not. Because waged labor is not collateralize
able, the real substance of the creation of future value — labor
— does not enter into the trade in claims to the future revenues
generated by it. This leads to the curious phenomenon that while
lenders will advance enormous sums of money for projected fixed
capital constructions, they are less willing to advance money to
foot the wage bill necessary to operate such enterprises — the view
being that at least in the event of failure, recompense can be had
from liquidating the physical plant, whereas no such claims can
be made against labor.
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MARX ON FINANCIAL INTERMEDIATION
515
Work by economic historians has demonstrated Marx correc
regarding the impact of the Crédit Mobiiieron French accumulat
Born (1983, 77) writes: "The Crédit Mobiliers most glaring weakn
lay in its extraordinary immobilization of capital." Bertrand G
(1973, 293) reconstructs the Crédit Mobilier 's 1862 balance sheet onl
to find an uncharacteristically high proportion of its assets imm
lized in long-term industrial paper. Harvey (2013) documents h
the Pereires' credit matrices promoted massive construction in
ments, underwriting the "Haussmannization of Paris." He notes
the resultant "overproduction" of high-value housing construct
proved difficult to liquidate, immobilizing capital, leading to th
bank's decline.15
One final consequence of this immobilization of capital and the
consequent drying up of working capital addressed by Marx was the
decapitalization of agriculture. Marx argued:
Agriculture, never highly developed in France, has positively retro
graded. . . . On the one hand we see taxes constantly increasing; on the
other, decreasing labor... laborers being drafted ... by the railway and other
public works — with the progressive withdrawal of capital from agricultural
to speculative pursuits. (MECW, XV, 133-4.)
III. THE FICTITIOUS NATURE OF STATE DEBT
AND LENDER OF LAST RESORT
Marx's third contribution on the subject of financial intermedia
concerns the policy for a "lender of last resort" to restore confiden
in the midst of a liquidity crisis. He questions whether further
sions of fictitious capital — through conversions of private fina
obligations into obligations of the state — can offer any hope
resolution. In the case of France:
When that crash comes, after an immensity of French interests have been
involved, the Government of Bonaparte will seem justified in interfering with
the Crédit Mobilier.... Louis Bonaparte, the imperial Socialist, will try to seize
upon French industry by converting the debentures of the Crédit Mobilier into
15 Sraffa also addressed the matter of the "immobilization" of capital in his study of the 1920s
bank crisis in Italy (Sraffa, 1922, 194).
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516
SCIENCE SOCIETY
State obligations. Will he prove to be more solvent than the Créd
That is the question. (MECW, XV, 24.)
Marx argued that financial panic prompts the mas
holders to attempt the impossible — to cash in their pap
tatives of value for direct command over real values. The ve
structure of the private issuers, however, renders satisfa
total demand impossible. The appeal is to state debt. It is
the state can make good on the claims of security-holders b
its powers to annex the nation's tax revenues.
Again the question reemerges of whether money in su
cial scheme continues to be advanced as capital, or, merel
as revenue. To the degree the resolution of the private finan
is achieved by making good on private debt through an i
debt backed by taxes, all that is accomplished is a social
losses; this affords no productive contribution to capit
tion, save for the indirect effects of containing the scope o
losses associated with stemming the run.
On the occasion of the 1857 failure of the Guaranteed Discount
Association, a large Hamburg bill-broker, Marx wrote:
The guaranty of the Discount Association itself was found to need another
guaranty in its turn, and the advances of the state, limited in their amount as
well as the description of commodities to which they applied, became ... rela
tively useless, at the same ratio that prices were going down. To uphold prices, and
thus ward off the active cause of the distress, the state must pay the prices ruling before
the outbreak of the commercial panic, and realize the value of bills of exchange which
had ceased to represent anything but foreign failures. In other words, the fortune of the
whole community, which the government represents, ought to make good for the losses of
private capitalists. This sort of communism, where the mutuality is all on one side, seems
rather attractive to the European capitalists. (MECW, XV, 405, emphasis added.)16
Marx argued that in the financial world characterized by a pyra
miding of fictitious values, there always appears to be a need for a
guarantor of some sort. The introduction of state debt resolves the uncertainty
16 Here Marx articulates the role of the state in "privatizing the gains and socializing the losses"
from speculative financial behavior in the private sector. This theme was popularized byjoseph
Stiglitz during the U. S. Occupy Wall Street protests in 2011. View his remarks on YouTube
video, 12:39 (begin @ 3:00) posted by Noel Hefele, October 2, 2011, https://www.youtube
.com/watch?v=2TF8L2DWhpw&feature=youtube
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MARX ON FINANCIAL INTERMEDIATION
517
of the extant illiquidity of the present by substituting for it the uncertaint
the future. While there is a significant degree of certainty regardin
the state's capacity to exact reimbursement for today's borrowing ou
of future taxation, it is significantly less certain that tomorrow's ta
revenues will be exacted out of newly produced additions to capi
as opposed to a decapitalization of existing capital, resulting fro
the failure to impose surplus labor in the interim. In this man
state debt provides a short-term solution for financial crises brou
on by the breakdown in confidence in a world over-accumulated
financial claims, but does so only by displacing the potential rupt
in accumulation into the future on a larger scale. At best, in a cr
the state's guarantee can make individual creditors whole, but on
as a result of distributing the burden of losses over the entire societ
Marx is quick to point out that the state is not aloof from the cl
struggle in its attempts to assert itself as a "lender of last resort." In
examination of the 1856 crisis he noted that war between the spe
tors and industry had "increased suffering and discontent among
workmen — especially at Lyons and in the south of France . .. [t
degree . .. only to be compared with that which attended the crisis o
1847." Working-class discontent brewed against a financial backd
in which speculation had rendered Crédit Mobilier issues so volati
to be considered dangerous:
The embarrassed companies harass the Government for leave to raise money
by new emissions of shares and bonds. The Government, comprehend
that this would simply amount to giving leave to further depreciation of t
old securities in the market, attended by increased disturbance at the Bour
dares not yield. On the other hand, the money must be found; the suspensi
of the works would not only be bankruptcy but revolution. (MECW, XV, 13
Thus, the state's "lender of last resort" capabilities are by no me
unambiguous. Aside from the traditional "moral hazard" proble
there is the problem that intervention on the part of the state to res
one institution may trigger a run across many sectors — where losse
accrue as a result of the vulnerability of the existing stock of paper
capital losses.
At the same time, there exist definite social pressures associat
with the fragility of the balance of class forces which impose constra
at both ends of the policy spectrum: On the one hand, there are soci
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518
SCIENCE & SOCIETY
limits to the state's power to actively intervene to bail out fict
capitals due to working-class refusal to accept the loss in purch
power associated with either the new taxes or the inflation nece
to finance the bailout. There is, in addition, the potential hazar
generalizing the panic by calling attention to it with state interven
On the other hand, there are social limits to the state's ability n
bail out (in an effort to discipline economic units prone to m
hazard) due to working-class refusal to accept the loss of inco
associated with the attendant rise in unemployment that accomp
failing enterprises.
It is important to note that for Marx the future uncertainty a
ciated with the substitution of state debt for bad debt, during cris
is not a question of the degree of commodity-backing of statepaper currency, as suggested by proponents of the Currency Sc
Rather, it is tied to the uncertainty of capital's command over fut
labor. One hundred percent commodity-money will not prevent cr
and the devaluation of financial claims. The presence of mone
intrinsic value will not resolve the dilemma of a credit mechanism
built on the promulgation of paper representatives of values issued
in anticipation of their real labor counterparts in production:
In Hamburg ... there is no money but silver. There exists no paper circula
tion at all.. .. still the panic not only rages there most severely, but since the
appearance of general commercial crisis — Hamburg has been their favorite
arena. (MECW, XV, 406.)
This has contemporary relevance, to wit, the "gold bugs" and the
modern clamor to establish a 100% reserves gold standard to restore
stability in money and financial markets.17 Dowd (1991) demonstrated
that a directly convertible gold standard is predisposed to spasmodic
liquidity crises, since the market for specie can only clear by forcing up
interest rates. For Marx, simply "rushing to gold" does not guarantee
the preservation of value. What is central is money's command over
labor and its product. The demand for money is contingent on the
guarantee that holding it will not result in the loss of command over
future labor relative to present labor. The fact that money of intrinsic
value possesses value itself as a produced commodity does not explain
17 See the incessant calls for a return to the Gold Standard by the CATO Institute.
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MARX ON FINANCIAL INTERMEDIATION
519
its command over labor. The question becomes: What determines th
particular instrument that serves as the generally accepted means
exchange and will it continue to function as means of exchange aft
the crisis? The fact that the state determines the particular commo
ties to serve as the generally accepted means of exchange is mor
important than the fact that the money instrument is a commodi
of intrinsic value.
IV. THE CRÉDIT MOBILIER AND THE RESTRUCTURING
OF CAPITALIST PROPERTY
The fourth theme is the role of the Crédit Mobilier in restructuring
"socializing" capitalist property. Through its patronization of lim
liability joint-stock companies, the Crédit Mobilier played an impor
role in leveraging operations to facilitate the progressive annihilati
of small individual private capitals which ultimately led to an imme
centralization of capital. Proprietors became speculators, losers
bankrupt, capital was centralized, and a few industrial magn
emerged to oversee a vast accumulation of capital — command
its total amount, yet only responsible to their relatively diminis
share in it. Marx, not unlike Veblen later, argued that recklessness
the management of the national capital increased with this separati
of ownership from control (see Veblen, 1904).
The role of the credit mechanism in the concentration and cen
tralization of capital is developed in great detail in Volumes I and III
of Capital. What is unique about Marx's early discussion in the Tribune
articles, however, is, first, his rejection of the notion that competi
tive or laissez-faire banking has a basis for existence, and second, his
insistence that the inevitable concentration of capital fueled by the
credit mechanism leads to a corresponding concentration of labor.18
Marx maintained that laissez-faire banking is merely a pretext
for the concentration of capital and is itself a contradictory and
ephemeral state of financial organization. He examined the chronic
battles for financial liberalization waged by the Pereire brothers, who
sought to carve out a competitive place for investment banking in the
French financial landscape dominated by Rothschild's haute banque.
18 Stephen Hymer (1960) similarly argued that the organizational development of capital and
labor are organically linked.
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520
SCIENCE & SOCIETY
Yet, behind the call for financial deregulation, Marx noted tha
Pereire's true aim was to annex other people's money so as to
age the Crédit Mobiliers operations and realize the St. Simonist
of commanding all of French banking. For Marx, monopoly i
highest stage of competition in banking.
Second, on the labor front, Marx argued that the Crédit Mo
was spawning a modern form of Fourier's Industrial Feudalism
The application of joint-stock companies to industry marks a new ep
the economical life of modern nations.... By this contrivance, propri
have been converted into shareholders, i.e., speculators. The concent
of capital has been accelerated.... A sort of industrial kings have been
ated ... being responsible only to the amount of their shares.... Beneat
oligarchic Board of Directors is placed a bureaucratic body of the pr
managers .. . and beneath them ... an enormous and daily-swelling m
of mere wage laborers ... who ... become more dangerous in direct
to the decreasing number of [capital's] representatives. (MECW, XV
Marx was quick to point out that relations between capital and
in conjunction with the heightened climate of speculation aggra
tensions in the class struggle.
V. THE POLITICAL ROLE OF THE CRÉDIT MOBILIER
"IMPERIAL SOCIALISM" AND NAPOLEON'S BID TO BUY
TIME IN THE FRENCH CLASS STRUGGLE
The final theme in Marx's analysis is that financial institutions s
a political role in accumulation and act chiefly in the interests o
capitalist class. He examines the role of the Crédit Mobilier as a "fin
cial arm" for Napoleon's consolidation of power. Napoleon need
financial institution that would make him independent of Roths
and the haute banque, who supported the House of Orleans and
uncooperative when Napoleon was elected president of the seco
French republic. Marx argued that Napoleon was forced
to appear simultaneously as the robber and the patriarchal benefactor
classes. He could not give to the one class without taking from the other,
he could not satisfy his own wants and those of his followers without rob
both ... to steal France in order to buy France — that was the great problem
man had to solve ... [by] the one great resource that had carried him
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MARX ON FINANCIAL INTERMEDIATION
the most difficult economical situations — CREDIT. (MECW, XV, 14-15,
emphasis added.)
Napoleon found it necessary to "buy time" to consolidate his
rule. He required an independent arm of credit that would be "state
serving" to counteract the strangulation of credit imposed by the
disapproving haute banque. State credit offered the short-run illu
sion of dissolving the class relation. Marx argued that it was for this
reason Napoleon appealed to the St. Simonist banking tradition in
France which "deluded itself with the dream that all the antagonism
of classes must disappear before the creation of universal wealth by
some new fangled scheme of public credit." It is in this context that
Isaac and Emile Péreire appear as the financiers, if not the founders,
of "Bonapartist Socialism."
Napoleon looked with favor on the Crédit Mobilier and sought to
gain control of French industry with its Lilliputian capital outlay. Marx
characterized the project as "Imperial Socialism":
The Crédit Mobilier proposes to favor... the "public works" — which means,
to make industry and public works in general dependent on the favor of the
Crédit Mobilier, and therefore on the individual favor of Bonaparte.... What
does the Crédit Mobilier propose? To substitute for all these different stocks
issued by different joint-stock companies, one common stock issued by the
Crédit MobilieriXseM. But how can it effect this? Buying up all the bonds, shares,
debentures, etc. — in one word, all the paper of a concern — is buying up
the concern itself. Hence the Crédit Mobilier avows the intention of making
itself the proprietor, and Napoleon the Little the supreme director, of the
whole varied industry of France. This is what we call Imperial Socialism.
(MECW, XV, 11.)
In contradistinction to "revolutionary socialism" — the direct expro
priation of capitalist property by the working class — Marx used the
term "Imperial Socialism" for the gradual destruction of private prop
erty through its incorporation into the hands of an alienated state —
i.e., a socialization of capital without elimination of the class relation.
Lastly, Marx noted that with all forms of credit, loans eventually
"come due." He observed that the greatest despair among the bour
geoisie in 1857 was the sense that the victory over the 1848 revolution
— a victory that was genuinely purchased on credit — was about to
collapse as the real terms of the loan, measured in terms of the class
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521
522
SCIENCE äf SOCIETY
relation, came "due." The borrowed time purchased to displace t
contradictions of the class struggle of 1848 to the future was now up
Settlement day, brought on by the agitation of the working class
would provoke a massive devaluation of the fictitious values that
provided a temporary buffer of prosperity between the classes:
The anxiety of the upper classes in Europe is as intense as their disapp
ment. . . . With a view to save their property they did everything in th
power to put down the Revolution.... They are now discovering that th
were themselves the instruments of a revolution in property greater than
contemplated by the revolutionists of 1848. A general bankruptcy is staring
them in the face, which they know to be coincidental with the settlem
day of the great pawning shop in Paris.... They know that every marke
over-imported; that every fraction of the proprietary classes .. . has b
drawn into the vortex of the speculative mania; that no European coun
has escaped it; and that the demands of Governments on their tax-pay
people have been stretched to the last point.... a social revolution broug
about by no underground plots of the secret societies among the work
classes, but by the public contrivances of the Crédit Mobiliers of the ru
classes. (MECW, XV, 114.)
While credit may provide temporary relief from the barriers to a
mulation posed by working-class power, credit can never overcom
the barrier of the class relation itself. Capital's victory over the Revo
tions of 1848, through the utilization of credit, proved to be its chie
vulnerability one decade later.
Further Research on Financial Intermediation
and Crisis in Modern Context
The five propositions gleaned from Marx's analysis of the French
Crédit Mobilier should provide insight on how to think about banking
and finance in the larger context of contemporary accumulation. We
have examined Marx's work on the financial form and content of accu
mulation, enumerating the specific role of financial intermediaries
in the production of volatility and crisis in 19th-century France. The
lessons of the Crédit Mobilier, properly interpreted in modern times,
must also be grounded in the larger analytical context of Capital and
the Grundrisse. Finance at all points must be reconciled with capital's
capacity to discipline labor and harvest surplus value at a future date.
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MARX ON FINANCIAL INTERMEDIATION
523
The uncertainty of "money as capital" is the uncertainty of the c
struggle itself. This methodological premise separates Marx from
post-Keynesians, both in terms of understanding the forces pro
ing speculative debt-deflation crises and the spectrum of reme
proposed as cures.
Each of the five propositions suggests a framework for "siftin
financial events in modern context. Contemporary lessons eme
from a reexamination of the systemic misallocation of financial capi
that produced the 2008 housing bubble and the corresponding growt
of fictitious capital in derivatives markets that circulated the crisis g
ally. Debt-deflation proceeded without salvation in the imposition
surplus labor. Capital was "immobilized," applied out of proportio
the housing sector, in the name of "mobilizing" it through the issue
mortgage-backed securities. Prospects for the realization of advan
as "capital" proved unlikely, working from a foundation of securitiz
revenue streams, notwithstanding efforts to insure returns with the
tiary securitization of collateralized debt obligations (CDOs). Bailo
in the form of Central Bank credits and augmenting state debt
prevent a more profound collapse. The resulting 2010 sovereign d
crisis, however, raised the stakes for severe redisciplining of labor i
weak states while postponing the day of reckoning of finance "as cap
tal" to a future date. Substantive restructuring of capitalist prop
ensued via a global redistribution across failed financial institutio
"accumulation through dispossession" proceeded apace across cla
lines as homeowners and debtors generally surrendered propert
through mass foreclosures. Debtor resistance, Occupy Wall Stre
and a sustained global spectrum of mobilizations against austeri
fueled political tension, deepening the crisis. Continued applica
of monetary emission and fiscal stimulus via state debt served to "bu
time," in attempts to consolidate social control.
A more thorough "sifting" of contemporary financial cri
through the filter of Marx's propositions on financial interme
tion is a project for future research. Lessons from the Crédit Mobili
do, however, suggest that reform palliatives afford no cure. Tweakin
information access and regulation on trades will not erase the st
tural predisposition to speculative excess. Crisis resolution with
active resistance will only provision the socialization of losses to pay
the cleanup of devalued assets liquidated to realize privatized ga
Finally, well-intentioned calls for policies of "bank nationalizat
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524
SCIENCE & SOCIETY
that fail to envision the elimination of the class relation, are see
only produce a depraved socialization of capital and the inevitab
reemergence of crises at the level of the state.
Department of Economics
Babson College
Wellesley, MA 02157
ricciardi@babson. edu
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