Financial Innovation and the Distinction between Financial and Industrial Capital

Abstract

Financial innovations and concomitant changes in the focus of activity of nonfinancial corporations are blurring the distinctions between financial and nonfinancial capital. Karl Marx, Thorstein Veblen, and John Maynard Keynes all considered the distinction between financial and analytically significant, and the distinction was centrally incorporated in their mature works. Marx distinguished between money capital and industrial capital throughout Capital; Veblen spoke of the different interests and roles of captains of finance and captains of industry in The Engineers and the Price System; and Keynes differentiated between both speculation and enterprise and rentiers and entrepreneurs in The General Theory. ' For Marx and economists in the Marxist tradition the distinction is important for two reasons. First, from the perspective of the labor theory of value, only workers employed productively in producing goods and services under the control of capitalists produce surplus value; profit and interest are seen as competing claims on this surplus value. To the extent that the share of the total social in the cir