by Michael Roberts
A review of The City – London and the global power of finance, by Tony Norfield, published by Verso Books
Tony Norfield has had 20 years experience in City of London
financial dealing rooms, for ten years as an executive director and
global head of FX strategy in a major European bank. He went on to
complete a PhD in economics at SOAS, London. Above all, he is a
Marxist. It’s a perfect recipe for an excellent book on modern British
imperialism and the features of global finance in the 21st century.
In The City, Norfield brings some key insights into
understanding the nature of modern financial systems and what role they
play in the working (or non-working) of capitalism. Norfield emphasises
that finance and production in 21st century capitalism are inseparable – “they are close partners in exploitation”.
They always were from the beginnings of industrial capitalism, but it
is even more the case now. So the view often expressed in Keynesian and
Marxist circles that there is a categorical division between finance and
productive capital, where the former is ‘bad’ and the latter is ‘good’,
is an error that leads to a misunderstanding of the nature of
imperialism and the role of financial centres like the City of London.
Another insight that Norfield reveals is the role of British
capitalism in imperialism. Britain is second only to the US in the
importance of its financial sector globally and in some areas like
foreign currency trading it leads (Norfield p71). Britain has the
second largest stock of foreign direct investment (FDI) of nearly $2trn,
equivalent to 30% of UK GDP. Of the top 500 global companies, the UK
was second only to the US with 34 companies. The UK had six financial
institutions in the top 50, compared to the US with ten. And UK bank
assets are four times UK GDP, the highest ratio in the world after
Switzerland and tax-haven Luxembourg.
The advantages of London as a global financial centre is its central
time-zone for financial dealing, the main language of imperialism
(English) and the huge back up in professional services, contrasting
with the relative weakness of US money markets and banks that have less
British capitalism lost its hegemonic status a hundred years ago but
in the post-war period its financial sector has maintained its global
status while its manufacturing base diminished. The Eurodollar market
in the 1960s and the ‘Big Bang’ of the 1980s, when US banks and foreign
banks were allowed to operate without restriction, has preserved the
On p111, Chart 5, Norfield provides an excellent chart that shows the
global pecking order for imperialist powers given a range of criteria
(GDP, military spending, FDI, bank assets and FX trading).
Norfield makes the point that financial privilege is a form of
economic power, enabling imperialist countries to draw upon resources
and value created elsewhere in the world. For Norfield, the definition
of imperialism follows: it’s where a small number of countries dominate
world markets through their multi-national corporations, which can be
both making things, providing services and financial, or often all
And he recounts the valuable research of some Swiss engineers on how just 147 companies globally control the world (p113), something I have mentioned before in my blog . Interestingly, the same Swiss researchers have recently published a new report that shows how US and European companies still dominate the levers of financial and corporate power globally, with Asia hardly having a look-in, despite the great Asian ‘production miracle’ of the last 30 years.
Finance cannot be divorced from productive capital: it is a feature
of the modern world economy. That means just looking at the activities
of corporations within the nation state is to miss the real story. As
Norfield points out, US corporation revenues from abroad are worth $3bn a
day and total more than the annual GDP of Switzerland.
A key part of Norfield’s book is to weave in facts like that about
modern imperialism with a Marxist analysis of the role of finance
capital. He correctly points out that banks can create money (p83) so
that money can appear to make money “completely independent of capitalist production” (p85). Money dealing and commercial banking are not ‘parasitic’ as such,
because they are necessary to lubricate the wheels of capitalist
production. But interest-bearing capital (money to make money) is
parasitic as it deducts from the profits of productive capital. And
imperialism is interest-bearing capital globalised.
Marx connected the phenomenon of money out of money (p90) with his
term ‘fictitious capital’: a claim on the value-creating assets of
companies and their future earnings. Norfield neatly exposes the
inadequacy of Hilferding’s classic Marxist account of finance capital.
Hilferding focused rightly on fictitious capital as a key feature of
monopoly capitalism or imperialism but he considered the banks as the
only levers of financial power, whereas in modern imperialism, there are
many other sectors of fictitious capital. And also that the nation
state plays a key role in supporting and expanding monopoly capital and
One advantage for modern capital accumulation is that bonds, stocks
and derivatives are extremely liquid (easy to buy and sell by the
second). But as Norfield correctly says, fictitious capital does not
break the link between the production of value from labour power or with
the value of ‘real’ assets like commodities, plant, equipment etc, it
just ‘stretches it’. The expansion of fictitious capital enables
capitalism to expand faster but also to crash further.
Indeed, the development of modern finance and the expansion of
fictitious capital in all its new forms from the 1980s onward was really
a response to the fall in the profitability of productive capital in all the major capitalist economies from the mid-1960s to the early 1980s.
Norfield holds to Marx’s law of the tendency of the rate of profit to
fall as the key underlying factor behind economic crises under
capitalism. But he is sceptical of the ability to measure the
profitability of capital with official statistics (p 153) and he reckons
that measures of national rates of profit can tell us little in this
Nevertheless, he attempts to measure US profitability and concludes
that there has been a rise from the 1980s and was the US rate was “relatively high”
by the time of the global financial crash (p155). This would appear to
contradict Marx’s law, so Norfield seeks an explanation in the rise in
the US rate of profit up to the Great Recession as an indication of a ‘credit-fuelled’ burst that was ‘fictitious’. This explanation has some validity, but I still think it is possible to measure the trend in the profitability of capital in the major economies and for the UK and for the US (and for that matter, for the world). And
I think such measures show that the rate of profit peaked in the late
1990s and early 2000s. So Marx’s law holds even without the explanation
of fictitious profits.
Norfield’s book is incisive in illuminating the nature of the modern
British economy. I have described Britain in the past as the world’s largest ‘rentier’ economy.
That’s an old-fashioned French word for an economy based on sucking up
‘rents’ through the monopoly ownership of capital (or land) from the
profits of the productive sectors. Both the sectors exploit labour but
the rentier economy relies on its financial and legal monopoly to take a
share of the surplus value appropriated from labour. This gives British
capital its important role in modern imperialism, but also its Achilles
heel in any global financial crash. British capital is more vulnerable
than most in another global crash.
One of the consequences of Britain’s rentier economy is its ambiguous
relationship with European capital, in particular Franco-German capital
and the European Union. British imperialist strategists have looked
across the Atlantic to the US for partnership in financial power but
also to Europe for trade and investment. The UK is the piggy in the
middle between the US and Franco-German Europe. That has now come to a
head as British capital considers whether it wants to break with the EU
or not, as Europe stutters along in its long depression.
What is clear from Norfield’s book is why the City of London is
overwhelmingly in favour of the UK staying in the EU and opposing
‘Brexit’. The City depends on the free flows of capital between the
‘capital surplus’ economies of the oil and resource producers (BRICS)
and North America’s multi-nationals into and out of Europe. That nexus
would be seriously impaired if the UK was outside the EU – especially if
the EU were to disintegrate itself in the future.
Tony Norfield blogs at: http://economicsofimperialism.blogspot.co.uk/
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