⧠26 Financial capital

We have previously seen that among the entrepreneurs there is a continuous and fierce struggle for buyers, and that the unfailing result of this struggle is the victory of the great entrepreneurs. Hence the lesser capitalists are ruined, so that capital and production as a whole accumulate in the hands of the great capitalists (the concentration and centralization of capital). By the beginning of the eighties in the nineteenth century, the centralization of capital was already far advanced. In place of the individual owners of enterprises there now appeared large numbers of joint-stock enterprises, cooperative concerns; but it must be carefully noted that these 'cooperatives' were companies of capitalist shareholders. What was the significance of this development? Why did joint-stock companies come into existence? It is easy to answer the question. The time had arrived when every new undertaking required the command of a considerable quantity of capital. If an enterprise scantily furnished with capital was founded, its chance of life was poor; on all sides it was surrounded by its more vigorous competitors, by enterprises which were manufacturing on a larger scale. If, therefore, a new enterprise was not to perish in its infancy, if the undertaking was to live and thrive, it had to be built up on strong foundations. But strong foundations could only be provided by those who had plenty of capital. The joint-stock company was the outcome of this need. The essence of the matter is that a few great capitalists make use of the capital of lesser capitalists, and make use also of the savings that have accumulated in the hands of non-capitalistic groups (employees, peasants, civil servants, etc.). Matters are arranged in the following way. Everyone contributes his portion; everyone takes a 'share' or a number of 'shares'. In return for his money he receives a 'share certificate' which gives him the right to receive a definite portion of the income. In this way the accumulation of small sums promptly gives rise to a large quantity of 'jointstock capital'.

When joint-stock companies first came into existence, certain bourgeois theorists, and in addition certain socialist advocates of class collaboration, began to assure the world that a new era was beginning. Capitalism, they declared, was not destined to result in the dominion of a small group of capitalists. Far from this; out of his savings every worker would be able to buy shares, and in this way every worker would become a capitalist. Capital, they said, was to an increasing extent being 'democratized'; in course of time, the difference between the capitalists and the workers would disappear without any revolution.

Of course this was utter nonsense. Things worked out very differently. The great capitalists simply made use of the lesser capitalists for their own purposes. The centralization of capital went on more rapidly than ever, now that competition had taken the form of a struggle between huge shareholding concerns.

It is easy to understand how the great capitalist shareholders have been able to make the small shareholders their hodmen. The small shareholder often lives in another town from that in which the enterprise is centred, and cannot travel a hundred miles or more to attend a shareholders' meeting. Even when some of the ordinary shareholders turn up at the meeting, they are unorganized, and merely jostle one another like blind puppies. But the big shareholders are organized. They have a common plan; they can do what they please. Experience has shown that it suffices the great capitalist to own one-third of all the shares, for this gives him absolute control of the whole undertaking.

But the development of the concentration and centralization of capital was to advance still further. During the last few decades the place of individual enterprises and individual shareholding companies has largely been taken by great capitalist combines known as syndicates, cartels, and trusts. Why have these been formed? What is their significance?

Let us suppose that in a certain branch of production, textiles or engineering, for instance, the lesser capitalists have already disappeared. There remain only five or six huge firms, shareholding companies, producing nearly all the commodities in these particular branches of enterprise. They are carrying on a cut-throat competition; they lower prices, and consequently make smaller profits. Let us now suppose that two of these concerns are larger and stronger than the others. Then these two will continue the struggle until their rivals have been ruined. Let us further suppose that the strength of the two remaining competitors is practically identical; they work on a similar scale, they have the same sort of machinery, and they both employ about the same number of workers; there is no notable difference between them as regards the net cost of production. What will happen then? Neither can gain the victory; both are being exhausted by the struggle; neither of them is making any profit. The capitalist groups draw the same conclusion. Why, they ask themselves, should we go on cutting prices against one another? Would it not be better for us to unite, to join forces in order to fleece the public? If we combine, there will be no more competition; we shall control the market, and we can force up prices to any figure we please.

Thus arises the combine, the league of capitalists, known as the syndicate or trust. The syndicate is distinguished from the trust in this way. When a syndicate is organized, the participating concerns agree that they will not sell their wares below a specified price; or they agree to share out the orders; or they agree to a territorial division of the market (you confine your sales to one district, and I will confine mine to another); and so on. In this arrangement, however, the management of the syndicate is not entitled to close down any of the undertakings; these are all members of a league in which each retains a certain measure of independence. In the trust, on the other hand, there is so intimate a union that each individual undertaking completely loses its independence; the management of the trust can close it down, reconstruct it, transfer it to another place, do whatever seems likely to be advantageous to the trust as a whole. The owner of the individual undertaking of course continues to receive his profits regularly, and these profits may even be larger than before; but the entire management is vested in the solidly constructed capitalist combine, the trust.

Syndicates and trusts exercise an almost complete control over the market. They no longer fear competition, for they have crushed competition. Its place has been taken by capitalist monopoly, that is to say, by the dominion of a single trust.

In this way the concentration and centralization of capital gradually lead to the suppression of competition. Competition has devoured itself. The more frantic the development of capitalism, the quicker did centralization proceed, because the ruin of the weaker capitalists was more speedily effected. In the end the centralization of capital, arising out of competition, proved fatal to competition. 'FREE COMPETITION' HAS BEEN REPLACED BY THE DOMINION OF CAPITALIST COMBINES, BY THE RULE OF SYNDICATES AND TRUSTS.

A few examples may be given, to show the enormous power wielded by trusts and syndicates. In the United States as long ago as 1900, that is to say in the very beginning of the twentieth century, the proportion of production in the hands of syndicates and trusts was as follows: Textiles, more than 50 per cent; glass, 54 per cent; paper, 60 per cent; metals (excluding iron and steel), 84 per cent; iron and steel 84 per cent; chemicals, 81 per cent; etc. It need hardly be said that during the last two decades the power of the combines has enormously increased. In actual fact, the whole industrial production of the US is today controlled by two trusts, the Standard Oil Trust and the Steel Trust; all the other trusts are dependents of these. In Germany, in the year 1913, 92.6 per cent of the coal mined in the Rhenish-Westphalian region was in the hands of a single syndicate; of all the steel produced within the German empire, nearly half was manufactured by the Steel Syndicate; the Sugar Trust supplied 70 per cent of the home demand and 80 per cent of the export demand.

Even in Russia quite a number of branches of industry had already passed completely under the sway of the syndicates. 'Produgol' produced 60 per cent of the Donetz coal; 'Prodameta' [metal syndicate] controlled 88 to 93 per cent of the production; 'Krovlya' supplied 60 per cent of all the iron used for roofing; 'Prodwagon' was a syndicate of about 15 concerns building railway carriages; the Copper Syndicate controlled 90 per cent of the output of copper; the Sugar Syndicate controlled the entire production of sugar; and so on. According to the calculations of a Swiss expert, at the beginning of the twentieth century half the capital of the world was already in the hands of trusts or syndicates..

Syndicates and trusts do not only centralize homogeneous enterprises. With increasing frequency there arise trusts that simultaneously embrace several branches of production. How does this take place?

The various branches of production are connected one with another principally by means of buying and selling. Let us consider the production of iron ore and of coal. Here we have to do with products which serve as raw material for iron foundries and engineering workshops; in their turn these workshops turn out, let us suppose, machines; the machines serve as means of production in a series of other branches; and so on. Now let us imagine that we have an iron foundry. It buys iron ore and coal. Of course the interest of the smelting works is to buy the ore and the coal as cheaply as possible. But what if the ore and the coal are in the hands of another syndicate? There then begins a struggle between the two syndicates, which ends either in the victory of one of them or else in a fusion of the two. In either event there arises a new syndicate, uniting both branches of production. It is obvious that such a union can be effected in the case, not merely of two, but of three or of ten branches of production. Such enterprises are termed ' compound' (or 'combined') enterprises.

In this manner syndicates and trusts do more than organize individual branches of production; they consolidate into a single organization various kinds of production, uniting one branch with a second, a third, a fourth, etc. Formerly, in all branches, the entrepreneurs were independent of one another, and the whole work of production was dispersed in a hundred thousand petty factories. By the beginning of the twentieth century, production was already concentrated in the hands of huge trusts, each organizing many branches of production.

Unions of individual branches of production came about in another way besides that of the formation of 'combined' enterprises. The reader must now consider a phenomenon which is of even greater importance than 'combined' enterprises. We refer to the dominion of the banks.

First of all it is necessary to say a few words about banks.

It has already been pointed out that when the concentration and centralization of capital had advanced to a considerable degree, there arose a need for capital which could be employed for the immediate establishment of large-scale enterprises. This need was one of the causes of the development of jointstock companies. The organization of new enterprises required larger and ever larger quantities of capital.

Now let us consider what the capitalist does with the profit he receives. We know that he spends part of it upon his own immediate needs, in the way of food, clothing, and so on; the remainder, he ' saves'. The question arises, How does he do this? Is it possible for him at any moment to expand his business, to devote the 'saved' part of his profits to this purpose? No, he cannot do so, for this reason. Money flows in continually, but only in driblets. The commodities he produces are sold from time to time, and from time to time money is received for them. Evidently, that he may use these receipts for the expansion of his enterprise, the accumulation of a considerable sum is requisite. He will therefore have to wait until he has secured as much money as he needs - let us suppose that it is for the purchase of new machinery. And until then, what is he to do? Till then he cannot use the money. It lies idle. This does not happen to one or to two capitalists merely; at one time or another it happens to all. Free capital is constantly available. We have, however, pointed out before that there is a demand for capital. On the one hand there are superfluous sums lying idle; on the other hand there is a need for these sums. The more rapid the centralization of capital, the more vigorous is the demand for large sums of capital, but the greater likewise is the quantity of free capital. It is this state of affairs which gives the banks their importance. The capitalist, not wishing his money to lie idle, puts it in the bank, and the bank lends it to those who need it for the development of old enterprises or for the starting of new undertakings. Certain manufacturers deposit money in the bank, and the bank lends the money to other manufacturers. These latter, with the aid of the borrowed capital, extract surplus value. Part of their receipts is paid to the bank as interest. The bank then pays a portion of this last sum to its depositors, and keeps the rest as banking profits. Thus the machine grinds on. We can now understand why, during the latest phase of the capitalist régime, the role of the banks, their importance, and their activity, have expanded to a marvellous degree. The sums of capital sucked up by the banks are continually increasing. And to an increasing extent the banks invest capital in industry. Banking capital is ever ' at work' in industry; it undergoes conversion into industrial capital. Industry grows dependent on the banks, which support it and nourish it with capital. Banking capital coalesces with industrial capital. Here we have the form of capital which is known as financial capital. To summarize, FINANCIAL CAPITAL IS BANKING CAPITAL WHICH HAS BEEN GRAFTED ON INDUSTRIAL CAPITAL.

Through the instrumentality of the banks, financial capital effects a yet more intimate union of all branches of industry than was effected by the direct combination of enterprises. Why is this?

Let us suppose that we have before us a great bank. This great bank supplies with capital (or, as the phrase runs, 'finances') not merely one, but a large number of enterprises, or quite a number of syndicates. It is naturally to the bank's interest that,these financial dependents should not clash one with another. The bank unites them all. Its persistent policy is to bring about an actual union of the undertakings into a whole which shall be under its own administration. The bank begins to hold the reins in quite a series of branches of industry. Its confidential agents are appointed directors of trusts, syndicates, and individual undertakings.

Thus in the end we arrive at the following picture. THE INDUSTRY OF THE WHOLE COUNTRY IS UNITED INTO SYNDICATES, TRUSTS, AND COMBINED ENTERPRISES. ALL THESE ARE UNITED BY BANKS. AT THE HEAD OF THE WHOLE ECONOMIC LIFE THERE IS A SMALL GROUP OF GREAT BANKERS WHO ADMINISTER INDUSTRY IN ITS ENTIRETY. THE GOVERNMENTAL AUTHORITY SIMPLY FULFILS THE WILL OF THESE BANKERS AND TRUST MAGNATES.

This is very well shown in the United States. Here the 'democratic' administration of President Wilson is nothing more than a servant of the trusts. Congress merely carries out what has previously been decided at secret conclaves of trust magnates and bankers. The trusts spend vast sums in buying congressmen, in financing electoral campaigns, and the like. Myers, an American writer, reports that in the year 1904, the great life insurance companies spent the following sums in bribes: the Mutual, $364,254; the Equitable, $172,698; the New York, $204,019. The minister for finance, McAdoo, Wilson's sonin-law, is one of the leading bank and trust magnates. Senators, ministers of State, congressmen, are merely the henchmen of the great trusts, unless they themselves hold large interests in these bodies. The State authority, the governmental machinery of the 'free republic', is nothing more than a workshop for the fleecing of the public.

We can therefore say that A CAPITALIST COUNTRY UNDER THE DOMINION OF FINANCIAL CAPITAL IS AS A WHOLE TRANSFORMED INTO AN IMMENSE COMBINED TRUST. AT THE HEAD OF THIS TRUST ARE THE BANKS. THE BOURGEOIS GOVERNMENT FORMS ITS EXECUTIVE COMMITTEE. The United States, Great Britain, France, Germany, etc., are nothing but State capitalist trusts, powerful organizations of trust magnates and bankers, exploiting and ruling hundreds of millions of wage slaves.