The Dynamics of Bubbles and Golden Ages
Chapter 7: Financial Capital and Production Capital
71 7. Financial Capital and Production Capital A. Different Functions; Different Criteria The time has come to make explicit the definitions of finance and production capital, which have been implicit in the previous discussion. Neither refers to the actual capital (which is both paper and real at the same time), but rather to the agents and their purposes. In both cases, the term ‘capital’ is used here to embody the motives and criteria that lead certain people to perform – or hire others to perform – a particular function in the process of wealth creation within the capitalist system.90 Thus, financial capital represents the criteria and behavior of those agents who possess wealth in the form of money or other paper assets. In that condition, they will perform those actions that, in their understanding, are most likely to increase that wealth. In the process, they may acquire deposits, stocks, bonds, oil futures, derivatives, diamonds or whatever. They may receive interest, dividends or capital gains, but in the end, by whatever means, their purpose remains tied to having wealth in the form of money (‘liquid’ or quasiliquid) and making it grow. To achieve this purpose, they use the services of banks, brokers and other intermediaries who provide information, perform the contracts and in general embody the drive to make paper wealth grow. It is the behavior of these intermediaries while fulfilling the function of making money from money that can be observed and analyzed as the behavior of financial capital. In essence, financial...
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