The Collapse and Reconstruction of the American Financial System: From JPMorgan Chase to BlackRock (Part Two)

Original Title: "The Fall and Rise of American Finance"

Original Authors: Scott M. Aquanno, Stephen Maher

Original Compilation: MicroMirror

Benjamin Braun conducted the most significant study on what he calls "asset management capitalism," arguing that this new corporate governance system has replaced neoliberal shareholder capitalism. However, despite the broad concentration and diversification defined by this system, Braun contends that asset management firms have "no direct economic interest" in their portfolio companies. This is because, as "fee-based intermediaries," they are seen as not directly benefiting from the performance of the companies in which they hold shares: all returns are passed on to their clients, and they only make money from fees. Therefore, he believes their primary interest is to maximize asset management, and they have little incentive to undertake costly interventions to improve the performance of portfolio companies. This distinguishes asset management capitalism from classical financial capital, where companies are primarily controlled by financiers.

However, despite the apparent lack of active control by asset management firms, Braun also hints (somewhat ambiguously) that the concentration of assets in these firms suppresses competition. Other researchers, such as Jan Fichtner, Eelke M. Heemskerk, and Javier Garcia Bernardo, argue that although the Big Three are passive investors, they are not passive owners. Instead, they demonstrate that these firms have developed coordinated and concentrated voting strategies within the funds they manage, enabling them to exert substantial power over their portfolio companies. They argue that perhaps more importantly, these firms may exert "hidden power" behind the scenes. However, these scholars also believe that the concentration of financial power leads to suppressed competition. With large asset management firms owning all competitors in specific industries, these firms lose the motivation to compete, leading to price increases and weakening the vitality of capital.

In fact, competition among large asset management firms forces them to intervene to maximize the competitiveness of their portfolio companies. Asset management firms compete with each other, as well as with all other financial institutions, to attract savings. This means that compared to other possible channels, they must offer the most attractive returns to clients. Furthermore, as Braun recognizes, the fees these firms charge are calculated as a percentage of the value of the assets they hold. If they are interested in maximizing their fees, they must also be equally interested in maximizing the value of their holdings. Given that they cannot trade, this directly incentivizes them to intervene in corporate governance. The interests of asset management firms and their clients are almost entirely aligned.

The clear implication of these works is that "saving capitalism" requires controlling finance and restoring competition. Like Braun, Fichtner and others argue that finance is parasitic, draining rents from industries, weakening competitiveness, raising consumer prices, and contributing nothing to production or national prosperity. In contrast, new financial capital is fiercely competitive, reinforcing discipline to maximize utilization and profit. Therefore, the primary political task is not to "restore competitiveness" by attacking finance, but rather the opposite: we must create spaces free from competitive pressures where we can begin to form more cooperative and democratic forms of social, political, and economic organization. Those seeking to create a more just and sustainable world must confront capital itself, not just finance.

Rethinking Finance and Corporations

Financialization is rooted in the evolution of capitalism, as it addresses tensions and antagonisms. Since the contradictions of capitalism can never be fully resolved, it must continually change to overcome the barriers and crises they produce—this process is akin to Darwinian adaptation. Class conflict is the most significant, but by no means the only contradiction. While the wave of working-class struggles in the 1930s certainly followed the stock market crash of 1929, it also revealed the profound instability of the bank-centered financial capital system. This prompted the state to separate banking from corporate governance, leading industrial firms to take on new financial functions. Subsequently, these firms adapted to the challenges of managing increasingly complex, internationalized, and diversified operations by reorganizing corporate planning into internal financial markets.

In the 1970s, as working-class radicalism squeezed corporate profits, financialization and globalization imposed class discipline, lowering labor costs, thereby restoring profits and allowing accumulation to resume. The resulting financial hegemony centered around banks and a new class of institutional investors holding large amounts of stock. These institutions were linked to a new market-based financial system that relied on complex chains of financial transactions to generate credit. The collapse of this system was at the heart of the 2008 financial crisis, the most severe crisis of capitalism since the 1930s. Subsequently, through a series of intense and unprecedented interventions, the state restructured the financial order. By providing extensive liquidity to stabilize the system, the state inadvertently facilitated the integration of a new form of financial capital centered around asset management firms.

By tracing the roots of contemporary financialization back to the moment of the end of classical financial capital, we emphasize how finance and industry are fundamentally interconnected rather than opposed. Furthermore, we illustrate that from the early days of corporate capitalism, finance has been crucial to the health, vitality, and competitiveness of industry. Finance is not the problem but rather a solution to the systemic contradictions of capitalism. This description of how finance operates within the development of capitalism sharply contrasts with many views that see the rise of finance as a sign of decline, with decline only emerging in the relatively recent "late" phase. Thus, our analysis reveals how misguided the prescriptions embedded in these works, which aim to return to healthier, pre-financialized forms of capitalism, truly are. From our analysis, several key challenges facing financialization theory can be distilled:

1) Financialization is not something new. Financialization is often viewed as a neoliberal phenomenon originating in the 1980s. As Hilferding understood in the early twentieth century, forms of financialization have existed since the early days of corporate capitalism. For him, a key feature of the corporation is that it allows industry to "operate with monetary capital." Joint-stock companies replaced personal ownership of industrial assets with impersonal ownership of circulating shares, which are a monetary instrument that can also control industrial enterprises. Control over production began to be reorganized around the ownership of monetary capital rather than direct ownership of fixed capital like machines and factories. Thus, during the era of classical financial capital, banks possessed concentrated pools of funds and the ability to generate credit, enabling them to play the most active role in forming and controlling companies.

After the collapse of investment banks, a new form of corporate financialization emerged during the managerial era, often seen as the pinnacle of "pre-financialized" capitalism. In the decades following the war, industrial firms increasingly became financial institutions. Extremely high profits and relatively weak investors allowed industry managers to control large amounts of retained earnings, which they lent to financial markets, directly competing with banks. Meanwhile, these firms adapted to the challenges of internationalization, diversification, and expanding production scales by developing internal capital markets, where executives allocated monetary capital to what they increasingly viewed as competitive financial assets in their portfolios. By the time investor power re-emerged in the 1980s, this process had already been well underway, now taking the form of asset management firms concentrating ownership.

2) Finance and industry are not separate. Control over capital is inherently financial: it depends on the ability to secure sufficient funds to generate profits. The economic power of capital primarily comes from the ability to invest directly, which determines the uses of social productive capacity. In a sense, all capitalists are financiers, facing choices about investing in one thing or another and pursuing the most profitable opportunities. However, capital is divided into several parts: finance plays a specific role within the overall structure of accumulation, competitively circulating investments among various sectors of production. Finance relies on industrial profits to earn interest, while industry collaborates with the financial system to raise investment and circulating capital. Thus, even without being integrated into financial capital, finance and industry are interdependent.

Therefore, political strategies aimed at isolating finance as "bad" capitalism rather than "good" manufacturing are bound to fail. On one hand, capitalists instinctively interpret attacks on finance as challenges to capital as a whole. More fundamentally, this framework fails to recognize that, to a large extent, the interests of finance and industry have become nearly indistinguishable. It is impossible to separate groups of independent entrepreneurs affected by financialization from financiers who benefit from it. While the internal restructuring of companies has transformed industrial managers into financiers, globalization has made finance increasingly important to industrial production. The passive investment strategies underpinning the current form of financial capital have a clear long-term nature, leading to particularly close ties between financiers and industrial firms.

3) Financialization does not signify the decline of capitalism. The growth and empowerment of finance are not signs that capitalism is collapsing. In fact, if the financialization of the past few decades were harmful to the system, capitalists would be very surprised to hear this news. Financialization has been crucial in addressing the crisis of the 1970s, restoring industrial profitability, and opening up the vast low-wage labor force of the global periphery to exploitation. Today, profits and managerial compensation are exorbitantly high. Meanwhile, investors are becoming wealthy through rising stock prices and dividend payments. All of this has not come at the expense of corporate investment or R&D spending, both of which remain at high levels. Finance continually creates conditions for American multinational corporations to maintain the most dynamic and competitive status in the world.

In fact, financial issues are capitalist issues. Financialization has enhanced the competitive discipline of industrial firms and provided managers with tools to pursue new profit-maximization strategies. Just as the concentrated ownership of stocks in the 19th century enabled investment banks to organize companies, today it allows financial institutions to play active and direct roles in controlling industrial capital and restructuring companies. Meanwhile, the competitive redistribution of capital by the financial sector directs savings into the most productive and profitable channels. In this way, financialization has facilitated the formation of dynamic, competitive, and flexible global production and investment networks. This has intensified exploitation and labor discipline, which is not a problem for capital but rather a hallmark of the success of these strategies.

4) Financialization is not monopoly. From the perspective of the reorganization around the distribution of monetary capital, the financialization of non-financial companies reveals a serious flaw in viewing large companies as "monopolies." The development of capitalism is often described as beginning with a "competitive" phase, later replaced by a "monopoly" phase. This assumes a quantitative theory of competition, where competitiveness is a function of the number of firms in any given sector. According to this view, over time, as the number of firms decreases and concentration and centralization increase, competition yields to monopoly, as large firms set prices and earn monopoly profits. However, financialization means that companies are not necessarily tied to specific industries: they allocate monetary capital in the most profitable ways across different businesses, facilities, and entirely new industries.

Capitalism generates trends of concentration, centralization, and financialization. Competitiveness does not come from the number of companies in the market but from the liquidity of capital: the process of capital flowing into areas that generate the highest returns and flowing out of areas that generate lower returns. The organizations that most effectively promote this movement are the most competitive. As long as finance makes capital more liquid, lowers transaction costs, and facilitates the circulation of capital between sectors and geographical spaces, it will make capital more competitive rather than diminish competitiveness. The increase in capital liquidity, in turn, exerts tremendous competitive pressure for efficiency and profit maximization, as workers compete for jobs, states compete for investments, subcontractors compete for contracts, and companies compete to develop and control technologies, intellectual property, and organizational forms.

5) The state has never "retreated." Measures taken in response to COVID-19 have been seen as heralding a "return of the state." This assumes that the state has retreated during the laissez-faire neoliberal period. On the contrary, the increasing complexity of capitalism has prompted state power to become more deeply integrated into the economy. This has not been achieved through a simple linear accumulation of functions. Rather, state forms have emerged through a series of breakthroughs, profoundly reshaping both the scope of their economic functions and their qualitative forms, redefining the relationship between the state and the economy. During the managerial era, the hegemony of industrial firms was supported by the military-industrial complex and social programs that promoted effective demand. The neoliberal state concentrated power in the Federal Reserve and the Treasury, which became more closely intertwined with the financial sector.

The differences between these state forms are not merely matters of degree but of kind. The neoliberal state integrates more directly and organically into capital accumulation, but this does not simply represent "more" than what the New Deal state did. Rather, it is a qualitatively different institutional combination that emerged in the process of class struggle, reflecting and supporting financial hegemony. The risk state that emerged after 2008 has further deepened the integration of the financial system. This state fundamentally internalized the foundational elements of the market-based financial system formed during the neoliberal period and further integrated large banks with state power. Most importantly, it is defined by the core practice of de-risking, which involves deploying state power to absorb or transfer financial risks. The asset price inflation supported by this has been crucial for the development of new financial capital.

6) Financial capital is different from neoliberalism. As Adolph Reed has said, neoliberalism is "capitalism without a working-class opposition," which is certainly true. Others are equally correct to view neoliberalism as synonymous with the state promoting market policies. The issue is not that these observations are incorrect, but that as definitions, they are too broad. Both are compatible with more than one system of capital accumulation: while capitalist states always reproduce some form of market dependence, the failure of the working class in the hands of capital and the state certainly has nothing uniquely neoliberal about it. Therefore, aside from the shift in the balance of class power toward labor, it is difficult to determine how neoliberalism ended, which (allegedly) led to the formation of post-war "Keynesian" capitalism.

If we define the various stages of capitalist development through different forms of corporate governance, state power, and class hegemony, things become clearer. Although the failure of the working class has seen little reversal, we can still observe that neoliberal shareholder capitalism has been replaced by a new financial capital dominated by asset management firms. Based on a series of new economic practices, the consolidation of the risk state also indicates that a new era is emerging. However, the future of this new financial capital is uncertain. In fact, despite the calls from financial capitalists and policymakers, the enduring power of forces supporting austerity hinders the formulation of a coherent new policy paradigm. Whether the hegemony of this new class can be consolidated, especially in the face of stock market volatility and rising interest rates, remains to be seen.

These arguments have developed through tracing the rise and fall of American finance from the 1880s to the present. The next chapter will focus on how the early development of corporations and the banking system led to the consolidation of the classical form of financial capital centered around investment banks, concluding with the end of the stock market crash of 1929. Chapter three reviews the subsequent managerial era, during which industrial firms held hegemonic positions. It shows how industrial firms gradually evolved into financial institutions during this period, laying the crucial groundwork for the neoliberal era. Chapter four explores how the resolution of the crisis of the 1970s led to the return of financial hegemony in the neoliberal era. As it shows, despite the emergence of new competitive challenges for banks from the formation of the shadow banking system, they remained at the center of this decentralized form of financial power.

The last two chapters turn to the study of the new financial capital that emerged from the ashes of the 2008 crisis, demonstrating how the new risk state formed by this crisis increasingly integrates with the burgeoning shadow banking system, in which the Big Three asset management firms are key players. Chapter five illustrates how the state's efforts to respond to the crisis led to the dramatic "nationalization" of the financial system, supporting the formation of a new form of financial capital, in which a small group of asset management firms exerted increasingly direct control over almost all publicly traded companies in the U.S. Chapter six examines the maturation of this system and explores the new challenges and escalating contradictions it faces in the context of the COVID-19 crisis, rising inflation, and increased market volatility. Finally, it reflects on how the emerging interlocking forms of state and financial power affect the urgent project of financial democratization.

2: Classical Financial Capital and the Modern State

Finance was crucial to the emergence of larger and more competitive organizational forms of capitalism in the United States at the end of the 19th and beginning of the 20th centuries. In this chapter, we will show how banks became the dominant force in the American economy, not merely providing funds and passively collecting interest. Banks elevated their role to the center of coordinating investment flows and controlling companies, equivalent to financial capital—the fusion of financial and industrial capital. At the turn of the 20th century, the financial capitalist class, represented by investment bankers like J.P. Morgan, became the most powerful class in the capitalist economy.

By tracing the emergence of financial capital, we demonstrate that finance is far from being a characteristic of the so-called "late" stage of capitalism; in fact, it is at the core of the early development and vitality of American capitalism. Finance cannot be considered parasitic. The accumulation of large amounts of monetary capital in banks, along with their ability to generate credit, enabled banks to organize large-scale accumulation by merging isolated enterprises into large industrial firms. However, the companies controlled by these banks were not "monopoly firms." On the contrary, the emergence of corporate forms and the development of the financial system reduced transaction costs, increased capital liquidity, and intensified competitive pressures. The result was a highly regionalized American economy integrated into a national economy dominated by investment banks and the companies they owned and controlled.

The emergence of financial capital involves the fusion of financial and industrial capital but also relies on the close connection between capital and the state. At the core of the transformation of the American economy is a series of increasingly large state-led projects, from building railroads—one of the most ambitious initiatives in the history of capitalist states—to the more daunting task of waging war on a global scale for the first time. Furthermore, as capitalism expanded, its crisis tendencies also grew, calling for new forms of state intervention that ultimately formed permanent economic functions. As the ever-expanding state economic machine became increasingly intertwined with the circulation and accumulation of capital, state power became more important for constructing the relationship between financial and industrial capital.

In the following, we will examine how the emergence of the modern banking system and industrial companies reached the formation of financial capital in the early decades of the 20th century, based on Karl Marx's unfinished analysis in Volume III of "Capital" and Rudolf Hilferding's "Finance Capital." Although Marx primarily analyzed the British case, and Hilferding focused on Germany, their analyses are also broadly applicable to the United States. In particular, the American case typically follows the process of monetary capital being independently organized within the banking system, after which the banking system becomes the foundation for controlling industrial capital and organizing production on a large scale through the formation of companies. As we will see, the resulting bank-centered network is undoubtedly a network of financial capital.

Financial Capital and Industrial Capital

The emergence of the modern banking system and companies changed the way capitalism produces, creating new interconnections between financial and industrial capital. As Marx observed, the development of capitalism led to an increasingly complex division of labor within the bourgeoisie, so that the "technical operations" related to finance began to be "as far as possible divided among specific agents or capitalists to perform for the entire bourgeoisie as their exclusive function, which should be concentrated in their hands." As "a portion of industrial capital existing in the circulation process is separated out and becomes autonomous in the form of monetary capital," financial capital becomes a qualitatively different part of capital, distinguishing it from industrial capital, even as it remains organically connected to industrial capital.

Thus, the growth of capitalism relies on the formation of an increasingly complex and specialized financial system that pools monetary capital, generates credit, and allocates investments. While industrial capital and financial capital can never be "separated," they are two different forms of capital: the former belongs to the production sphere, while the latter belongs to the circulation sphere. Industrial capital is defined as the cycle in which capitalists start with money, then purchase labor and means of production. Through "productive consumption," these goods move in the labor process, resulting in the production of commodities. These commodities are then sold, realizing a greater monetary value than the capitalists started with. Marx summarized this process with the "general formula" M-C-M′, starting and ending with money, ultimately ending with more money.

However, where does this initial M come from? How does the industrial capitalist possess it? How do the goods produced by workers find the final market that completes the cycle of industrial capital? All these questions belong to the circulation sphere and are largely related to the role of the financial system in facilitating the flow of capital through the "veins" of capitalist society. Like industrial capitalists, financial capitalists initiate capital through a cycle that starts with money and ends with a larger amount of money. But financial capitalists do not directly enter industrial production. Instead, they advance a sum of money (in the form of a loan) in hopes of receiving a return (interest). Thus, for financial capitalists, money "automatically" generates more money. Marx summarized this process with the formula M-M′.

Marx viewed this distinction from the perspective of the relationship between active industrial capitalists and passive financial capitalists. When "operating" industrial capitalists actively organize and manage production, financial capital contributes nothing substantive to the production process; it merely advances a sum of money to the industrialist, waiting for its return and interest. Therefore, financial capitalists are the owners of interest-bearing capital, profiting merely by putting money into circulation. As Marx stated, interest is "a specific name, a special title for a portion of the profits that the actual operating capitalists must pay to the capital owners, rather than pocketing it themselves." Financiers exist independently of production, "merely as owners of capital," relying on legal ownership as the basis for claiming a portion of the surplus.

However, through this process, banks occupy a key position in the structure of accumulation, performing a series of specialized functions in "managing interest-bearing capital": mediating financial transactions, generating credit, and allocating investments among industrial capitals. As Marx explained, this means concentrating large amounts of monetary capital used for loans in banks, so that the bankers, as representatives of all monetary lenders, confront industrial capitalists, rather than individual lenders. They become the general managers of monetary capital.

The banking system thus became the central nervous system of American capitalism. It transformed money into monetary capital by concentrating small amounts of idle funds into the vast pools of capital it controlled, which could be lent to "normally operating capitalists" in the form of industrial credit or invested in speculative activities. But banks are not merely aggregators of funds; they also create money. One way they do this is by acting as a central clearinghouse for debts and claims—canceling mutual debts, organizing final payments, and executing transactions. By resolving complex transactions between capitalists without using "real" money, banks create credit money, significantly lowering transaction costs and facilitating the flow of capital.

In fact, credit funds come from every bank deposit: the deposited funds are represented both as a number in savings accounts that can be withdrawn or disposed of at any time and as part of the bank's reserves supporting other loans. However, in the national banking system that emerged during the Civil War, such customer deposits constituted only a small portion of actual credit. More importantly for the American monetary system, banks played a crucial role in expanding credit by creating deposits for clients (including merchants and increasingly industrialists) through issuing loans and purchasing (or "discounting") so-called bills of exchange.

Bills of exchange are written promises for future payments. As long as they offset each other, these notes serve as money, as payments can be made without the actual transfer of money. But beyond that, banks also purchase these notes, creating credit in the form of deposits to provide immediate cash to borrowers. Then, when the bills (or debts) come due, the banks receive payment. In this way, banks convert them into money before the bills mature. The banks buy these notes at a "discount," or slightly below their face value, meaning the seller of the note accepts an amount slightly less than the total value of the debt owed but can immediately receive cash. Meanwhile, the bank profits from the difference between the discount rate it pays for the note and its full value upon repayment. Through these practices, the credit system has been "expanded, promoted, and elucidated."

As the credit system developed, banking primarily did not involve collecting deposits and then lending them to others; rather, it was precisely the opposite: banks generate credit by creating deposits for clients (i.e., numbers in bank accounts). As Marx recognized, deposits are at the depositor's disposal and are thus "in a state of constant change," as some people withdraw account balances while others increase them. However, "during normal business periods, the overall average level will only fluctuate slightly." Given that the supply of deposits is always limited, banks can never achieve the scale required for competition solely by issuing loans they actually possess. This forces them to expand credit while holding only a fraction of deposits as reserves.

It is the centralization of credit creation, rather than the accumulation of pools of funds, that forms the basis of the American banking system. While Marx spent most of his time in "Capital: Volume III" discussing the issue of the concentration of funds in banks, he explicitly included discussions of "the relationship of credit to interest-bearing capital itself" in those chapters, which, although often only sketches, began to explore what he understood as "most of bank capital," namely bills of exchange and stocks. These chapters aimed to study "as the development of interest-bearing capital and the credit system progresses, all capital seems to be repeated, and at times even tripled." As he observed, "apart from reserve funds, deposits will never exceed the credit of banks, nor will they ever exist in the form of actual deposits." Later, he pointed out that even these reserve funds "ultimately reduce to" the credit-generating capacity of the central bank, which we will explore below.

The centralization of bank credit creation and monetary transactions greatly alleviated the circulation of capital, giving loans a universal social nature. Since money is an independent form of value, it is not only the universal equivalent of all commodities but also the universal equivalent of all specific capital circuits. The transferability of monetary capital into any specific form of capital means that in the money market, "all specific forms of capital produced by its investment in specific production or circulation sectors are erased." All capitalists are "gathered together" as borrowers, their distinction not lying in what specific use their advanced money will be put to but in their ability to repay loans. Thus, Marx observed that "capital indeed appears as a common capital of the class under the pressure of demand and supply." Monetary capital has become "a concentrated, organized group controlled by bankers representing social capital."

The concentration of monetary capital in the banking system has led to a separation of ownership and control of capital: while the control of the monetary capital advanced by banks transfers to borrowers, ownership does not transfer. The borrowed funds remain the property of the lender (the bank). Therefore, the work of organizing and managing production may be superfluous for capital owners, who can passively acquire profits through property rights. This separation has been greatly expanded by corporations, as professional managers who do not necessarily own any capital of the company are employed by its owners, now supervising production in the form of associated shareholders. Thus, corporations have greatly strengthened the trend of "increasingly separating this function of management work from ownership of capital (whether their own or borrowed)."

In this way, the development of the corporation has led to "the transformation of actual operating capitalists into mere managers and administrators of others' capital, with capital owners becoming merely owners, merely capitalists." The transformation of industrial capitalists into "operating capitalists" marks the loss of capital ownership by entrepreneurs, as they now "merely" manage the capital of investors, whether it be bank loans or shareholder prepayments. Meanwhile, shareholders and financiers have become "pure owners," relying on pure property rights rather than direct control over production conditions to claim a portion of the surplus. Thus, the corporation has influenced the transition from personal ownership to impersonal ownership: now, ownership and control of the means of production are established not through direct possession of fixed assets (factories, machines, etc.) but through credit relationships and holding tradable shares.

The corporation not only places the monetary capital of corporate shareholders under the control of non-owner managers but also allows them to leverage the total monetary savings of society by raising funds in financial markets. The greater rational planning and risk management capabilities of corporations make them particularly worthy of credit, fueling the flames of industrial expansion and concentration. The "private capital" of individual owners has now given way to the "social capital" of bankers and corporate managers. This "socialization of capital" grants "individual capitalists or those who can pose as capitalists absolute control over the capital and property of others… and through this control over the labor of others." Therefore, the separation of ownership and control allows for the concentration of capital far beyond what individual capitalists can directly own.

The improvement of banks' monetary reserves and credit systems is a necessary condition for corporate development. The capital owned by any specific capitalist is now "merely the basis of a credit superstructure," merging with social capital through the corporate and banking systems, thereby granting them control over the social labor force. Equity constitutes a credit relationship that entitles owners to a share of company profits paid in the form of dividends in the future. Banks not only profit from underwriting stocks but also become major shareholders in large companies, playing the most active role in forming large corporations.

The ownership of the means of production is now traded on the stock exchange. The stock market creates further opportunities for concentration and centralization through "the largest-scale expropriation," "now extending from direct producers to small and medium capitalists themselves." While the origins of capitalism lie in the expropriation of workers' means of production,

…within the capitalist system itself, this expropriation takes the opposing form of a few individuals owning social property, while credit increasingly gives these few the characteristics of simple adventurers. Since ownership now exists in the form of shares, its liquidity and transferability are merely the result of trading on the stock exchange, where small fish are eaten by sharks, and sheep are devoured by wolves.

The distinction between "wolves" and "sheep" or "sharks" and "fish" lies in the ability to control monetary power. This enables banks to gain substantial control over large companies and concentrate small companies into larger ones through acquisitions and mergers. Since banks are the primary shareholders of most large companies and can exert control over a company with a shareholding far below 100% or even below 50%, the stock market allows them to further expand their control over the capital of others (i.e., minority shareholders). By the end of the 19th century, banks had become the "wolves of Wall Street," while small capitalists were the sheep, destined to be expropriated and merged.

Thus, with the development of corporate capitalism, securities (i.e., stocks and bonds) became an important component of bank capital. Marx referred to this form of monetary capital as "fictitious capital," as it has no direct connection to the production of surplus value. Unlike industrial loans, which merge the circuits of industrial capital and are repaid over time from the surplus generated by production, stocks represent a legal claim to profits without a specific purpose. After the initial issuance of stocks, the funds used for subsequent stock purchases do not flow directly into production but rather to the sellers of the stocks. Since such securities themselves are exchanged as commodities, their value fluctuations are unrelated to the underlying company capital. Therefore, two different circuits coexist: (1) industrial capital managed by companies, and (2) securities traded on the secondary market. For Marx, the latter is "pure illusion."