Zhu Jiaming: Industrial Capital · Financial Capital · Technological Capital

This article is sourced from the Digital Asset Research Institute (CIDA).

On April 11, the "University Salon" (formerly Harvard Salon) and "Reed Grass Wisdom" jointly held an academic salon simultaneously in Boston and Beijing. Professor Zhu Jiaming, Chairman of the Academic and Technical Committee of the Digital Asset Research Institute and economist, delivered a keynote speech titled "Industrial Capital, Financial Capital, and Technological Capital."

Subsequently, the Economic Observer published an abbreviated text of the speech in its "In-depth" section, titled "Capital and Technology." Now, we are reprinting this article under the title "Industrial Capital, Financial Capital, and Technological Capital" in this public account, hoping to share it with our readers.

In 2014, French economist Thomas Piketty's book "Capital in the Twenty-First Century" was published. In the context of a new historical backdrop, the author proposed that the phenomenon of capital returns exceeding economic growth rates is the most important aspect of contemporary capitalist economies and argued its deep-seated causes and consequences, namely the widening wealth gap between the rich, who primarily derive their wealth from capital income, and the populace, who rely on labor income, thus refuting the "Kuznets Curve," which posits that economic growth can alleviate socio-economic inequality.

This article aims to discuss the increasingly close integration of capital and technology since the mid-20th century, leading to the formation of technological capital and technological capitalism, as well as their impacts on developed countries and globally.

1. From Industrial Capital to Technological Capital

If we take the Industrial Revolution as an important historical milestone in capitalism, over approximately 250 years, capitalism has undergone three interrelated yet distinct developmental stages: industrial capitalism, financial capitalism, and technological capitalism.

Industrial Capitalism

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The industrial revolution and industrial capital dominated the stage of industrial capitalism. This period spans from the 1760s when humanity began to enter the steam age, continuing until around World War I, with the invention and widespread application of electricity, marking the entry into the "electrical age," lasting for a century and a half. The industrial revolution began with the invention of the steam engine, which provided power for machinery, promoting the formation of industries such as iron, steel, and coal.

The true golden age of industrial capitalism was concentrated in the last three decades of the 19th century and the first decade of the 20th century. During these thirty to forty years, the total industrial output of some developed capitalist countries surpassed that of agriculture, with the industrial focus shifting from light textile industries to heavy industries, leading to the emergence of new industrial sectors such as electricity, chemicals, and petroleum.

During this time, industrial capital was primarily invested in material production sectors such as industry, agriculture, construction, and mining, as well as in transportation and certain specific service industries.

The financial revolution and financial capital marked the stage of financial capitalism. This period spans from the mid-1870s to the first decade of the 21st century, lasting approximately 140 to 150 years. Financial capitalism can be divided into two basic phases.

The first phase saw the rapid expansion of interest-bearing capital and bank capital, a period characterized by the close integration of bank capital, lending capital, and industrial capital.

The second phase began after World War II with the Bretton Woods Conference and continued until the 1970s when the United States severed the link between the dollar and gold. Financial capital grew into a form of capital independent of industrial capital, forming a complete financial industry sector that is crucial for economic growth. Investment banks became symbols of financial capitalism.

The golden period of financial capitalism was concentrated from the end of the 20th century until the 2008 global financial crisis.

The technological revolution and technological capital, or technological capitalism, began after World War II, accelerating from the 1970s to the present, and it is still too early to determine whether we have entered a golden period.

Beginning in the mid-20th century, some large American companies established research institutions to implement R&D, marking the dawn of technological capitalism. Following this, the ICT revolution, led by computers and semiconductors, fully emerged, triggering the information revolution, the artificial intelligence revolution, and the arrival of the digital economy era.

The technological revolution has led to the expansion of technological capital, driving the advent of the technological capitalism era, where the technology industry is growing to become the dominant sector of the national economy and the primary contributor to economic growth.

Over the past two and a half centuries, both industrial capital and financial capital have shown a process of rising from low points to peaks and then declining, while the time frame for examining technological capital is still insufficient, and it remains in a period of ascent toward its peak.

2. Representative Economic Theories

In the field of economics, the representative theories of industrial capital, financial capital, and technological capital mainly include Marxism, Keynesianism, the Vienna School, and Monetarism.

Marx's "Capital." The first volume of "Capital" discusses industrial capital and the production process of industrial capital, proposing and demonstrating the theory of surplus value based on the labor theory of value.

The second volume of "Capital" discusses the circulation process of capital and the realization of surplus value, while the third volume analyzes the overall process of capital movement, involving the distribution of interest-bearing capital and surplus value among industrial capitalists, commercial capitalists, and lending capitalists, as well as issues related to credit, banking, and currency circulation in capitalism.

The publication dates of the three volumes of "Capital" are 1867, 1885, and 1894, which correspond to the typical era of industrial capitalism, focusing on capital in the form of industry.

Hilferding's "Financial Capital." This book was published in 1910. The capitalism of the 1910s showed significant changes compared to Marx's era: the mode of capital production became increasingly concentrated, and the connection between bank capital and industrial capital became tighter, with free capitalism transitioning fully into monopoly capitalism.

The historical significance of "Financial Capital" lies in its correction of Marx's labor theory of value, proposing that under certain conditions, paper currency can have value. The book states, "The value of paper currency should be derivable without reference to metallic currency," and that "this inherently valueless thing, paper currency, acquires value by performing a social function, namely circulation." Additionally, "Financial Capital" emphasizes the dependence of industrial capital on banks.

Lenin's "Imperialism: The Highest Stage of Capitalism." Written in 1916, Lenin reveals the relationship between monopoly capital and financial oligarchs, noting that the massive accumulation of monetary capital in a few countries leads to capital export growth, transforming a few wealthy nations into rentier states. Lenin defines the combination of industrial capital and financial capital as the highest stage of capitalism, namely imperialism.

Keynes' "The General Theory of Employment, Interest, and Money." Published in 1936, this book presents the theory of modern macroeconomics, systematically introducing the concept of "demand for money" while acknowledging market imperfections and the necessity of government intervention, breaking it down into three categories: transaction motive, precautionary motive, and speculative motive.

"The General Theory" breaks through the framework of neoclassical economics, separating monetary financial economics from the real economy, examining it as an independent form of capital, analyzing the broad money supply, comparing the relationships between interest rates, bond yields, and deposit interest rates, and deriving different models of how monetary financial capital and industrial capital influence the macroeconomy.

Schumpeter's "Innovation Theory." As a representative of the Austrian School, Schumpeter's innovation theory is primarily concentrated in his works "The Theory of Economic Development" (1911), "Business Cycles" (1939), and "Capitalism, Socialism and Democracy" (1942). According to Schumpeter's "innovation theory," innovation is about "establishing a new production function," achieving "recombination of production factors," and integrating with the production system to maximize excess profits.

Because capitalist societies can continuously achieve "new combinations," this becomes the primary independent variable of capitalist economies, causing "creative destruction" and driving the economic development of capitalism, with various different cyclical fluctuations in the economy stemming from the discontinuity and imbalance characteristics of innovation.

Friedman's "Monetarism." In his works such as "A Theory of the Consumption Function" and "The Optimum Quantity of Money and Other Essays," Friedman not only proposed "modern quantity theory of money," asserting a close and stable relationship between inflation and money supply, categorizing inflation as a monetary phenomenon, but also framed the monetary issue as a systemic premise for discussing macroeconomics. Various factors within the economic system determine the money supply, and changes in the money supply inevitably affect the adjustments and changes of economic variables such as real interest rates and output levels.

Overall, from Marx through Hilferding to Lenin, the focus has shifted from the production process of industrial capital to the attention on bank capital and financial capital, as well as the impact of the combination of financial capital and industrial capital on the development of capitalism.

The Keynesian revolution, Schumpeter's "innovation theory," and Friedman's "monetarism" have broken through the confines of neoclassical economics, which is limited to the real economy, placing monetary finance as an independent economic form, becoming the environment and premise for analyzing macroeconomics, and facilitating the formation and development of technological capitalism.

3. Micro Comparison of the Three Capitals

Comparison of the sources and composition of capital. The industrial revolution and industrial capital have profound historical roots with commercial capital, the primitive accumulation of capital, and even the slave trade.

In 1845, Engels' "The Condition of the Working Class in England" described the unbearable living conditions and labor conditions of the British working class. Thus, Marx stated in "Capital," "Capital comes into the world dripping from head to toe, from every pore, with blood and dirt." Compared to industrial capital, which originates from primitive capital accumulation, the main source of financial capital is the financial market, and its composition has undergone fundamental changes. As for the composition of technological capital, it includes the accumulation of technology enterprises, capital markets, venture capital, and technology funds from governments and universities.

Comparison of the factors of production of capital. In the evolution of industrial capital, financial capital, and technological capital, the factors of production have undergone fundamental changes. In the era of industrial capital, the factors of production were capital, land, and labor. By the time of financial capital and technological capital, information, particularly the so-called "big data," knowledge, and information have become the factors of production.

Comparison of investment methods and return periods of capital. The traditional investment return method in the real economy is profit, with a relatively short payback period and easily calculable return rates.

The return method for financial capital is interest, with long-term bond repayment periods reaching over 10 years, and stock market returns are always volatile. As for the return method of technological capital, the payback period is even longer, and the return rate becomes more complex and difficult to quantify. For example, Musk never promises people a payback period or return rate on their investments.

Comparison of the costs and risks of capital. The cost structure of industrial capital is stable, and the risk expectation range is defined. From financial capital to technological capital, the cost structure has changed, making cost control more difficult and risks more systemic. Compared to industrial capital, the scale of financial capital and technological capital is extremely enlarged, and the "feasibility studies" applicable to the real economy are difficult to apply to financial capital and technological capital.

Comparison of the main bodies of capital. The economic entities of industrial capitalism are factory owners, entrepreneurs, industrial workers, as well as industrial associations and trade unions. In financial capitalism, the economic entities are bankers, financiers, professional traders in capital markets, fund managers, and retail investors in banks and stock markets. In technological capitalism, the most important entities are scientists and inventors.

Comparison of the organizational forms of capital. The economic organizational forms of industrial capitalism are workshops, factories, enterprises, and companies. Financial capitalism consists of commercial banks, investment banks, various insurance and fund institutions. In technological capitalism, especially in the internet era, the representative organizational form is the platform supported by technology companies. Silicon Valley represents a network system of R&D, embodying the model of technology industry clusters.

Comparison of the corresponding markets of capital. Industrial capital corresponds to a market primarily based on material products or certain service products, where market prices depend on the equilibrium of supply and demand. Financial capital corresponds to capital markets, financial markets, foreign exchange markets, and monetary markets, with rules and mechanisms distinct from those of the real economy.

The market corresponding to technological capital is not only different from the real economy market but also distinct from the financial market, as technological innovation creates market demand for technology.

Comparison of the "marginal utility" of capital. Since the 1870s, the widespread use of marginal analysis in economic research has led to the formation of concepts such as marginal productivity, marginal cost, marginal revenue, marginal rate of substitution, and marginal propensity to consume. However, the marginal utility theory applicable to traditional industrial economies has completely failed in the financial industry, especially in the technological industry.

4. Macro Comparison of the Three Capitals

Comparison of economic development stages. In 1960, American economist Rostow published "The Stages of Economic Growth." This book proposed several stages of economic development: traditional society, preconditions for take-off, take-off, drive to maturity, age of high mass consumption, and beyond high mass consumption.

However, Rostow's stages of economic development summarize the developmental stages of the industrial revolution and the real economy era, and his theoretical framework is no longer suitable for financial capitalism and technological capitalism.

Comparison of economic cycles. In the traditional industrial economy era, economic cycles were commercial cycles, belonging to short cycles, generally around four years, with clear boundaries between the phases of prosperity, recession, depression, and recovery.

In the era dominated by financial capital to technological capital, economic cycles have lengthened, with the typical four-year business cycle represented by the Kitchin cycle being too short, requiring longer Kuznets cycles or even Kondratieff cycles. As economic cycles lengthen, the internal phases of economic cycles inevitably become blurred.

Comparison of economic crises. In the history of capitalist development, the economic crises of 1873 and 1929 are of typical significance, both belonging to the category of overproduction crises and being global crises. Typical cases of financial crises include the Latin American sovereign debt crisis in the late 1980s, the Asian financial crisis in 1997, and the global financial crisis in 2008.

These financial crises have differed from the mechanisms of traditional real economy crises and are relatively isolated. The 2008 global financial crisis marked the end of the golden age of financial capital.

Comparison of monopoly models. The basic monopoly models in the era of industrial capital were cartels, syndicates, and trusts. In the historical phase of financial capital, the typical monopoly model was the concern that realized the combination of financial capital and industrial capital, with financial capital in a subordinate position. In the period of technological capitalism, the monopoly model is the conglomerate, which helps achieve the integration of natural monopolies, resource monopolies, and administrative monopolies.

Comparison of the relationship between government and market, monetary systems, and fiscal systems. In the early and cyclical phases of industrial capitalism, a free market economic system was implemented. During the financial capitalism period, government intervention in the economy tended to strengthen, forming stable monetary and fiscal systems.

By the time of technological capitalism, national will influences technological development, requiring continuous capital and other resource investments from the state, with the government's role becoming significant and continuously increasing, enhancing supervision, management, and governance methods over technology. The unprecedented global competition in technology today is underpinned by competition for national resources.

Comparison of inflation models. Since the industrial revolution, especially since the 20th century, any increase in the money supply directly leads to currency devaluation and inflation, severely impacting the basic lives of the populace. From the end of the 20th century to the past 20 years of the 21st century, the supply of money (M2) has continued to expand, even implementing an increasingly expansive "monetary easing" policy.

However, the inflation rate based on the CPI index has remained relatively stable. This is because a large amount of money has flowed into the asset sector, driving up asset prices.

Subsequently, the technology sector has become the largest black hole for absorbing money, pushing up the prices of technological products. The current widening wealth gap is between those who own assets and those who control technological resources, becoming the new beneficiaries. Today's wealth gap is no longer merely a problem of unequal distribution of social income but rather an issue of the uneven distribution of capital.

Comparison of monetary environments. In the era of industrial capital, the basic monetary environment was the gold standard or a bimetallic standard. After World War II, with the expansion of financial capital, the monetary financial environment was defined by the Bretton Woods Conference and the post-Bretton Woods system. The monetary environment in the new phase of technological capitalism will be digital currency.

Comparison of globalization forms. Globalization has already experienced three stages: trade globalization, financial globalization, and technological globalization. Entering the 21st century, service trade based on technology transfer, intellectual property, and patents has become the main international trade for major countries in the world. The imbalance in technological trade has triggered new types of international trade frictions and conflicts. Traditional international trade theories, such as the "factor endowment theory" and the idea of comparative advantage, are no longer sufficient to explain the current situation and development trends of technological globalization.

5. The Changes Brought by Technological Capitalism to the Economy and Society

If we consider technological capitalism to have begun with the ICT revolution, it has now been over half a century. Now, the technological revolution has far surpassed the scope of ICT, with revolutions in computing power, artificial intelligence, materials, and life sciences forming a cumulative technological revolution that influences and changes the economy and society, even humanity itself.

Technology vs. Humanity

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The technological revolution injects a rapidly increasing number of variables into the economic system, transforming it into a dynamic system of self-creation and self-renewal, continuously reinforcing complexity and uncertainty. People's rational expectations for the future economy and the difficulty of economic governance are increasing.

Under the impetus of the technological revolution, while human economic activities are expanding into outer space, they are also entering quantum structures and genetic structures at the nanoscale due to nanotechnology and electron microscopy. Meanwhile, the way time exists is also changing.

The traditional real economy has its economic laws, and equilibrium theory is an explanation of these laws; monetary financial economics also has its specific laws, such as the theory of money supply; the technological economy is subject to its own technological laws, such as Moore's Law in semiconductor and chip development, and Metcalfe's Law, which reveals that network value is proportional to the square of the number of connected users.

Technological capitalism has produced specific "game entities": technology itself, technology companies, governments, and the ultimate users of technology. In the technological game process, no entity can fully control the evolution of technological capital. Relatively speaking, within the "technology game" entities, the weight of technology itself is continuously increasing. In the context of the "technology game," the global "technological order" is far more complex than the "economic order," "financial order," or even geopolitical considerations.

Since the 21st century, a new dual economy is forming globally: the traditional real economy as one dimension, and high-tech and hard technology, particularly the digital economy, as another dimension. Developed countries, including the United States, have entered this new dual economy, impacting and changing the connotations of the division between developed and developing countries.

This new dual economy leads to "new" social inequalities, such as the "digital divide" and "digital survival." If industrial capitalism and machine-based large-scale industry produced the proletariat, technological capitalism exacerbates the significant increase in unemployment in traditional industries and the shrinkage of the middle class, creating a large "useless population" and stimulating the revival of "new Malthusianism."

The technological revolution has driven and catalyzed the formation and development of post-industrial society, information society, and digital society. For example, due to the digital economy, all social and economic activities are "bit" based, leading to a new understanding and new rules that "everything is computation, and code is law." Blockchain has become a new sociological technology. Social governance has shifted from rule by man to rule by law, and then to a fusion of rule by law and technological governance.

In 1944, political economist Polanyi published "The Great Transformation." This book proposed that the conflict between the basic requirements of the market and organized social life ultimately led Western civilization to a point where it had no choice but to resort to world wars. Therefore, we need to critique and reflect on the free market economy.

The technological revolution is fundamentally changing economic structures, economic systems, and economic organizations, promoting a "great transformation" from an economy dominated by technology to one dominated by technology, achieving balanced development among industrial, financial, and technological sectors, establishing a sharing economy, increasing the supply of public goods, and alleviating the intensifying social inequality.

Entering the 21st century, the technological frontier of the global technological revolution is constantly changing, showing a trend approaching the "singularity." The inherent vitality of technology itself is beginning to challenge the boundaries of human control over technology.

Advancements in artificial intelligence, genetic engineering, and quantum technology are repeatedly transforming people's expectations. Moreover, the technological revolution involves technological ethics and morality, further changing humanity itself. The inevitable result of technological development is not to strengthen anthropocentrism but to weaken it, even influencing the evolution of human culture and the history of civilization.

6. How to Anticipate and Prevent Technological Crises?

As capitalism has undergone over 250 years of historical evolution, transitioning from industrial capital dominance to financial capital dominance, and now entering the era of technological capital dominance, it is certain that in the next decade, the technological revolution will continue to absorb more capital, more human resources, and natural resources, further changing the operational modes of the economy, social forms, international patterns, and even geopolitical dynamics.

So, does the technological revolution have development cycles and limits? Is there a possibility of a technological crisis? From a rational perspective, technological revolution crises not only can occur but may even be brewing now.

For example, the continuous and seemingly endless exponential growth of big data, the computing power industry created by the storage and processing of big data, is accompanied by an almost limitless consumption of energy, which contradicts the carbon neutrality goals pursued by countries worldwide. Could a big data crisis potentially trigger a technological and economic crisis in the digital economy era? At the very least, it is worth pondering and observing.

In the contemporary world, due to the technological revolution, globalization is irreversible, and the construction of a human community will continue to deepen. Countries around the world, in the face of the wave of technological revolution, need not only competition but also cooperation.

Professor Zhu Jiaming is giving a lecture

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