“Financial profit: profit from production and profit upon alienation”: Costas Lapavitsas and Iren Levina
Financial profit is prevalent in contemporary capitalist economies, yet its nature and sources remain unclear. In classical political economy, and for Marx, profit is conceptualised in two distinct ways. First, it is a newly produced flow of value (profit from production). Second, it is a share of either money revenue or existing sums of money, accruing through transactions in financial or real assets (profit upon alienation or expropriation). Both dimensions are vital to the analysis of financial profit, but the distinction is of particular relevance to profit from trading in financial assets, which has a dual nature. In immediate terms, profit from trading in financial assets arises from redistributing loanable money capital; when mediated, it represents the accrual of future surplus value. If, however, the mediation is incomplete, such financial profit remains redistributed loanable capital and is unrelated to newly produced value. In sum, financial profit is normally profit from production, but retains elements of profit upon alienation or expropriation.
Key-words: capital gains, exploitation, financial profit, loanable capital, profit
1. Theoretical problems posed by financial profit
Rising financial profit is characteristic of contemporary mature capitalist economies. In the USA the share of financial profit (taken as the profit accruing to financial institutions) in total domestic profit has averaged a little more than 10 per cent from 1945 to the end of the 1960s. The average rose to more than 30 per cent in the 1990s and 2000s; during this period, financial profit grew considerably faster than both non-financial profit and GDP. These phenomena obviously require empirical and historical analysis, but also pose major theoretical problems which have to be resolved at the outset.
The first problem has to do with the multiplicity of the forms of financial profit Financial profit accrues to financial institutions, but also to industrial corporations and even individuals that engage in financial transactions. It arises from transactions that are both greatly varied and qualitatively different from each other. Thus, financial profit could result from lending money, but also from merely handling monetary transactions, from trading in a huge range of financial assets, or from plain increases in the price of financial assets (capital gains). There is no comparison with industrial profit which arises from a great variety of particular transactions but always relates to productive activities.
The second theoretical problem has to do with the macroeconomic sources of financial profit. The significance of this issue can be clearly seen from the perspective of Marxist political economy which has a developed and highly specific theory of profit. .In general, the source of capitalist profit is surplus value created by industrial capital in production which is then subdivided in circulation. However, financial profit by definition arises in circulation and thus its link with profit generated in production is not immediately apparent. Given the multiplicity of forms of financial profit, this link is likely to be different among particular instances of financial profit. It is shown in this paper that, for some forms of financial profit, the link with profit in production could disappear altogether. On those occasions, financial profit would become pure profit of circulation. This possibility is demonstrated below for profit made from trading financial assets, a prominent form of financial profit in recent years.
The paper tackles these theoretical issues by, first, briefly reviewing approaches to profit in classical political economy and in Marx‟s work. It is shown in section 2 that the fundamental form of capitalist profit is typically that of a newly produced flow of value arising in production; however, capitalist profit can also be a share of either money revenue or existing stocks of money, accruing through transactions in financial or real assets and is then called profit upon alienation or expropriation. To demonstrate the significance of this distinction for financial profit, section 3 examines loanable capital as a special form of capital traded in the financial system. On this basis, section 4 considers the forms of financial profit and shows that they represent both profit from production and profit upon alienation. Section 5 then focuses on the most complex form of financial profit, namely profit from trading financial assets (capital gains). It is shown that such profit has a dual nature which is mediated by the repayment of loanable capital. If the mediation is complete, this profit represents a newly produced flow of value inter-temporally distributed; if the mediation is incomplete, it becomes profit upon alienation or expropriation. Section 6 concludes.
Research on Money and Finance is a network of political economists that have a track record in researching money and finance. It aims to generate analytical work on the development of the monetary and the financial system in recent years. A further aim is to produce synthetic work on the transformation of the capitalist economy, the rise of financialisation and the resulting intensification of crises. RMF carries research on both developed and developing countries and welcomes contributions that draw on all currents of political economy.
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