2. Banks & Their New Role¶
Core Argument¶
In the transition from competitive capitalism to imperialism, the banking system undergoes a profound metamorphosis, shedding its modest intermediary role to become the commanding height of the entire economy. Banks, whose principal function is to transform inactive money capital into active, profit-yielding capital, concentrate into a handful of colossal establishments. They cease to be mere middlemen in payments and instead become powerful monopolies that command virtually all money capital and the greater part of the means of production. This transformation is the fundamental precondition for capitalism’s growth into its imperialist stage.
The empirical evidence from Germany between 1907–08 and 1912–13 is striking: deposits in joint-stock banks with capital over one million marks rose by 40 percent, from 7,000 to 9,800 million marks, with nine big Berlin banks concentrating almost half of all deposits. By 1909, these nine banks, together with their affiliates, controlled 83 percent of total German bank capital. The Deutsche Bank group alone directly and indirectly controlled 87 banks, with total capital estimated at between two and three thousand million marks. This concentration proceeds not merely through absorption but through “annexation” via holdings, share purchases, and credit systems. The six big Berlin banks expanded from 42 branches and holdings in 1895 to 450 in 1911; in Britain and Ireland, four big banks each commanded over 400 branches; in France, three big banks grew from 64 branches in 1870 to 1,229 in 1909.
The new role of banks is most evident in their growing connection with industry. Routine operations like discounting bills or running current accounts become instruments of control when multiplied, as the bank accumulates vast capital and gains detailed knowledge of the client’s economic position, rendering the industrial capitalist dependent. A personal link-up develops through share acquisitions and interlocking directorates: in 1910, six big Berlin banks had directors on 751 industrial companies, while 51 major industrialists sat on the banks’ supervisory boards. This link-up extends to government, with seats offered to ex-civil servants, MPs, and city councillors. A systematic division of labour emerges among bank directors, with some specialising in whole branches of industry, others in specific regions or foreign relations. French banks like Crédit Lyonnais employ permanent research staffs of engineers, statisticians, and economists. The result is the coalescence of bank and industrial capital into finance capital, with banks striving for universal, durable connections with industry. The crisis of 1900 accelerated this process, and the twentieth century marks the turning point from old capitalism to the domination of finance capital. Scattered capitalists are transformed into a single collective capitalist; a handful of monopolists subordinate all commercial and industrial operations, ascertaining capitalists’ financial positions, controlling them through credit, and determining their fate. The Stock Exchange declines in importance as banks themselves become stock exchanges. The final word in banking development is monopoly.