Illustration from Abhandlungen von Insecten (1764–1779) | D. Jacob Christian Schäffers / Public domain
Leftist economics has struggled to counter the powerful metaphors that undergird neoliberalism. The image of the maxed-out national “credit card,” for instance, still pervades media narratives about austerity, despite economists’ best efforts to explain to reporters that government budgets are nothing like household budgets. But the opposing “finance as a parasite” allegory does seem to have stuck, at least among progressive policy groups. The argument frequently made is that an oversized financial sector feeds itself by siphoning wealth into speculative bubbles and away from “productive” investment in businesses, infrastructure, or other social goods.
In The Fall and Rise of American Finance: From J. P. Morgan to Blackrock (Verso, 2024), Scott Aquanno and Stephen Maher tell a different story. It’s a mistake, they argue, to suppose that the era of big finance indicates a “hollowed out” industrial sector—nor does it signal the retreat of the state. By tracing the development of contemporary finance to its origins the industrial firm itself, they emphasize that finance has been central to capitalism since its inception. New School graduate student Anna Pick sat down with Aquanno and Maher to discuss what their critical history means for movements aiming to transform the financial sector.
Anna Pick: How would you articulate the key political takeaway of your book?
Scott Aquanno: The problems that we’re seeing right now are problems of capitalism, not problems of a parasitic financial force exerting itself on an otherwise “healthy” capitalism.
Steve Maher: And that despite what some might say, capitalism is strong, not in decline, and that’s a realistic assessment of the political challenge we face.
Pick: Methodologically, what was the value of tracing a critical history of financialization, as opposed to just analyzing, for example, asset manager capitalism as it exists today?
Aquanno: If our goal is to understand contemporary financialization, it makes no sense to start in 2008. One of the things you would miss is the way in which what we call “new finance capital” unfolds through a prior financialization of the industrial firm, which takes shape in the post-war “Golden Age” of capitalism. Quite paradoxically, it was the attempt at imposing a watertight separation between investment and commercial banks in the thirties, which led to the financialization of the non-financial corporation—the very precise moment that many social democrats want us to go back to right now. It’s not that an outside financial system is exerting itself on an otherwise non-financial industrial system. The industrial firm financialized itself. Similarly, we can’t understand what globalization is about unless we see that it emerges as a solution to an underlying profit crisis.
Maher: So often you see this idea that we had a pre-financialized, “good” capitalism between 1945 and 1979, and we should just find a way of going back to it by reigning in a “parasitic” financial sector. We show that’s not possible because that never existed: financialization emerged right in the heart of the post-war Golden Age precisely because of the contradictions of internationalization—non-financial corporations financialized as part of the globalization process. And as that process unfolded, the interests of finance and industry became more and more closely entangled with one another. So the idea that you can go back to Keynesianism is based on a false perception of what Keynesianism was.
Pick: Why do you feel like the story that finance has a “parasitic” effect on the real economy and is detrimental to private sector competition has been so powerful—and so enduring across a fairly broad political spectrum?
Maher: Many good people, including people that we do political organizing with and know very well, hold this view of finance. I think it’s a failure to come to terms with the impasses of social democratic politics. Capitalism could not support the kind of Keynesian welfare state that had grown up around the post-war decades. And I think it’s very hard to accept what that means politically. It means that you either have to enact a truly radical reform that goes against the interest of the entire capitalist class, or you have to accept neoliberalism. Ironically, when Margaret Thatcher, for example, said, “There is no alternative,” she was right: there is no alternative within capitalism.
Pick: Competition is a word that is used flexibly in policy debates. For instance, there’s a big debate going on in the UK about how to maintain the “competitiveness” of the financial services industry after Brexit. Can you say a bit more about your theory of competition, and how it relates to financialization?
Maher: The typical argument about competition is that capitalism develops from a phase of supposedly perfect competition to imperfect competition, as concentration and centralization reduces the number of sellers in particular markets. By that argument, capitalism has become less competitive over time.
We argue, on the contrary, that there is no necessary link between the increasing concentration of capital in monopoly firms and competitiveness: capitalism has become more competitive because competitiveness is not a function of the number of sellers in a market but the mobility of capital. The more easily and cheaply capital can move, the more it can discipline all investment outlets to maximize the returns that it receives or face the withdrawal of investment. The financialized giant corporation is able to move capital around more freely, with lower transaction costs, and is therefore a more competitive form of capitalist organization than a smaller firm.
Pick: Given your claim that capitalism has always been “financial,” and that it’s difficult to separate industrial and financial capital, does it make sense to talk about there being “more” or “less” financialization across time or place?
Maher: Financialization needs to refer to something that is different from just normal old capitalism. We can define it by reference to the relative dominance of the financial sector or financial logics within governance structures—including in the university and the industrial corporation. This is different to privatization. You can have something that is publicly owned and financialized; you can also have something that’s privately owned and not financialized. That said, finance has always been, at all times, fundamentally central to the capitalist economy and integrated with the productive economy. Crucially, there is a structural tendency in the capitalist system toward financialization. Measures to suppress finance, to contain it, don’t change the basic laws of motion of the system.
Aquanno: One of the ideas we’re challenging is this notion that a “more” financialized economy can be measured by firms engaging in more activities that benefit their shareholders, at the expense of investing in the productivity of their business. In part, this comes from the new literature exploring asset manager capitalism—including [analyses] by Benjamin Braun and Brett Christophers—which suggests that these asset management firms, BlackRock, Vanguard, and State Street, are general managers of the economy, and that this is antithetical to long-term investment because they prioritize share buybacks and dividend payouts. But if you look at buybacks as just being capital extracted from the industrial system into the financial system, you’re only telling part of the story: Once it’s “extracted” from the industrial system, where does it go? It’s not going to sit in the financial system, it’s going to be reinvested somewhere.
Pick: The idea of “state capture”—that banks are writing their own rules because of the infiltration of regulators with financial interests—really resonated with people as a way to understand, for instance, the 2008 crisis. What is the role of corruption in the story that you’re telling?
Maher: Obviously one would not want to rule out the possibility for improper relationships between private institutions and individuals and state regulators. But I think that kind of argument is not necessary to explain what the state does. It’s rooted in the inadequate social democratic idea that the capitalist state is, in its DNA, neutral between the capitalist class and the working class, and that it’s then pulled in the direction of capitalist class interests because they out-lobbied the working class. The truth is that the state is, in its very DNA, a capitalist state. Its institutions evolved specifically to make capitalism function and to deal with the contradictions that emerge as it’s functioning.
Pick: Given that the Fed hasn’t always bailed out the banks, is there any historical contingency in how the central bank responds to capitalist crises? And, more broadly, is there room in your account for a theorization of the state as a site of political contestation?
Aquanno: It is not always bailing out the banks, but it’s always intervening to support the financial system. It’s not some passive observer that’s periodically intervening. It’s actively engaged in the financial system to make the banking system operate. The state is a terrain of struggle, not just between the capitalist class and the working class but also between different capitalist class fractions. As finance becomes more significant within the American political economy, so too do those apparatuses of state power most closely linked with the financial sector ascend in the hierarchy of state institutions—including the Federal Reserve. So the state is kind of a social relation, as Gramsci says. It’s constantly being made and remade as the capitalist system itself evolves.
Maher: The reason why the Federal Reserve was established in the first place was because they needed a more public institution that could coordinate the management of crises and stabilize the financial system. The fact that it didn’t bail out the banks during the Great Depression wasn’t the state saying, “We don’t care, let it crash.” It was the fact that the state hadn’t ever encountered something like that before. And so there wasn’t the capacity to manage the crisis. One common misunderstanding of the Keynesian period is that it was based on just holding down or limiting finance. No—it was rebuilding the financial system after the biggest and deepest crisis of capitalism in history. Eventually, the financial system busted out of its incubator and became hegemonic once more. The 2008 crisis was dealt with by a state that had much more expansive capacities to intervene in the financial system. So the state is always acting to stabilize the capitalist system.
Pick: Your framing of the Fed is that, as an arm of the state, it is always going to act in the interest of capital accumulation, even if as an unintended consequence. Does that risk depoliticizing central banking? Should a climate activist, for example, be trying to hold the Fed accountable?
Maher: It’s not about depoliticizing the state, it’s about politicizing capitalism. Climate activists should absolutely target the Fed, but as part of a broader vision for what it would mean to democratize the state. The problem is not what the Federal Reserve does or doesn’t do, or who lobbies it, but the system that it’s embedded in. The state is what it is because it has evolved as part of the capitalist system—not just because it was corrupted or lobbied against. Clearly the idea that we live in a democracy is a very limited truth at best.
We pose the question: What would it mean to democratize the state? For us that means deepening public control over the Fed and other macroeconomic institutions, to run finance as a public utility.
