Library:Imperialism, the highest stage of capitalism/Banks and their new role

The principal and primary function of banks is to serve as an intermediary in the making of payments. In doing so they transform inactive money capital into active capital, that is, into capital producing a profit; they collect all kinds of money revenues and place them at the disposal of the capitalist class.

As banking develops and becomes concentrated in a small number of establishments the banks become transformed, and instead of being modest intermediaries they become powerful monopolies having at their command almost the whole of the money capital of all the capitalists and small business men and also a large part of the means of production and of the sources of raw materials of the given country and in a number of countries. The transformation of numerous modest intermediaries into a handful of monopolists represents one of the fundamental processes in the transformation of capitalism into capitalist imperialism. For this reason we must first of all deal with the concentration of banking.

In 1907–08, the combined deposits of the German joint stock banks, each having a capital of more than a million marks, amounted to 7,000,000,000 marks, while in 1912–13, they amounted to 9,800,000,000 marks. Thus, in five years their deposits increased by 40 per cent. Of the 2,800,000,000 increase, 2,750,000,000 was divided amongst 57 banks, each having a capital of more than 10,000,000 marks. The distribution of the deposits between big and small banks was as follows:

Percentage of Total Deposits

Year	In 9 big Berlin banks	In the other 48 banks with a capital of more than 10 million marks	In 115 banks with a capital of 1 to 10 million marks	In the small banks with a capital of less than 1 million marks
1907–08	47	32.5	16.5	4
1912–13	49	36	12	3

The small banks are being pushed aside by the big banks, of which nine concentrate in their hands almost half the total deposits. But we have left out of account many important details, for instance, the transformation of numerous small banks practically into branches of big banks, etc. Of this we shall speak later on.

At the end of 1913, Schulze-Gaevernitz estimated the deposits in the nine big Berlin banks at 5,100,000,000 marks, out of a total of about 10,000,000,000 marks. Taking into account not only the deposits, but the total resources of these banks, this author wrote:

“At the end of 1909, the nine big Berlin banks, together with their affiliated banks controlled 11,276,000,000 marks … that is, about 83 per cent of the total German bank capital. The Deutsche Bank, which together with its affiliated banks controls nearly 3,000,000,000 marks, represents, parallel with the Prussian State Railway Administration, the biggest and also the most decentralized accumulation of capital in the old world.”

We have emphasized the reference to the “affiliated” banks because this is one of the most important features of modern capitalist concentration. Large-scale enterprises, especially the banks, not only completely absorb small ones, but also “join” them to themselves, subordinate them, bring them into their “own” group or concern (to use the technical term) by having “holdings” in their capital, by purchasing or exchanging shares, by controlling them through a system of credits, etc., etc. Professor Liefmann has written a voluminous “work” of about 500 pages describing modern “holding and finance companies,” unfortunately adding “theoretical” reflections of a very poor quality to what is frequently partly digested raw material. To what results this “holding” system leads in regard to concentration is best illustrated in the book written on the big German banks by the banker Riesser. But before examining his data, we will quote an example of the “holding” system.

The Deutsche Bank group is one of the biggest, if not the biggest banking group. In order to trace the main threads which connect all the banks in this group, it is necessary to distinguish between holdings of the first, second and third degree, or what amounts to the same thing, between dependence (of the lesser establishments on the Deutsche Bank) in the first, second and third degree. We then obtain the following picture:

The Deutsche Bank participates:

	Permanently	For an indefinite period	Occasionally	Total
1st degree	in 17 banks	in 5 banks	in 8 banks	in 30 banks
2nd degree	of which 9 participate in 34 others		of which 5 participate in 14 others	of which 14 participate in 48 others
3rd degree	of which 4 participate in 7 others		of which 2 participate in 2 others	of which 6 participate in 9 others

Included in the eight banks dependent on the Deutsche Bank in the “first degree,” “occasionally,” there are three foreign banks: one Austrian, the Wiener Bankverein, and two Russian, the Siberian Commercial Bank and the Russian Bank for Foreign Trade. Altogether, the Deutsche Bank group comprises, directly and indirectly, partially and totally, no less than 87 banks; and the capital – its own and others which it controls – is estimated at between two and three billion marks.

It is obvious that a bank which stands at the head of such a group, and which enters into agreement with a half dozen other banks only slightly smaller than itself for the purpose of conducting big and profitable operations like floating state loans, is no longer a mere “intermediary” but a combine of a handful of monopolists.

The rapidity with which the concentration of banking proceeded in Germany at the end of the nineteenth and the beginning of the twentieth centuries is shown by the following data which we quote in an abbreviated form from Riesser:

Six Big Berlin Banks

Year	Branches in Germany	Deposit banks and exchange offices	Constant holdings in German joint stock banks	Total establishments
1895	16	14	1	42
1900	21	40	8	80
1911	104	276	63	450

We see the rapid extension of a close network of canals which cover the whole country, centralizing all capital and all revenues, transforming thousands and thousands of scattered economic enterprises into a single national, capitalist, and then into an international, capitalist, economic unit. The “decentralization” that Schulze-Gaevernitz, as an exponent of modern bourgeois political economy, speaks of in the passage previously quoted, really means the subordination of an increasing number of formerly relatively “independent,” or rather, strictly local economic units, to a single centre. In reality it is centralization, the increase in the role, the importance and the power of monopolist giants.

In the older capitalist countries this “banking network” is still more close. In Great Britain (including Ireland) in 1910, there were in all 7,151 branches of banks. Four big banks had more than 400 branches each (from 447 to 689); four had more than 200 branches each, and eleven more than 100 each.

In France, three big banks (Crédit Lyonnais, the Comptoir National d”Escompte and the Société Générale) extended their operations and their network of branches in the following manner:

	Number of branches and offices
Year	In the provinces	In Paris	Total
1870	47	17	64
1890	192	66	258
1909	1,033	196	1,229

	Capital in million francs
Year	Own capital	Borrowed capital
1870	200	427
1890	265	1,245
1909	887	4,363

In order to show the “connections” of a big modern bank, Riesser gives the following figures of the number of letters dispatched and received by the Disconto-Gesellschaft, one of the biggest banks in Germany and in the world, the capital of which amounted to 300,000,000 marks in 1914:

Year	Letters received	Letters dispatched
1852	6,135	6,292
1870	85,800	87,513
1900	533,102	626,043

In 1875, the big Paris bank, the Crédit Lyonnais, had 28,535 accounts. In 1912 it had 633,539.

These simple figures show perhaps better than long explanations how the concentration of capital and the growth of their turnover is radically changing the significance of the banks. Scattered capitalists are transformed into a single collective capitalist. When carrying the current accounts of a few capitalists, the banks, as it were, transact a purely technical and exclusively auxiliary operation. When, however, these operations grow to enormous dimensions we find that a handful of monopolists control all the operations, both commercial and industrial, of the whole of capitalist society. They can, by means of their banking connections, by running current accounts and transacting other financial operations, first ascertain exactly the position of the various capitalists, then control them, influence them by restricting or enlarging, facilitating or hindering their credits, and finally they can entirely determine their fate, determine their income, deprive them of capital, or, on the other hand, permit them to increase their capital rapidly and to enormous dimensions, etc.

We have just mentioned the 300,000,000 marks” capital of the Disconto-Gesellschaft of Berlin. The increase of the capital of this bank was one of the incidents in the struggle for hegemony between two of the biggest Berlin banks – the Deutsche Bank and the Disconto.

In 1870, the Deutsche Bank, a new enterprise, had a capital of only 15,000,000 marks, while that of the Disconto was 30,000,000 marks. In 1908, the first had a capital of 200,000,000, while the second had 170,000,000. In 1914, the Deutsche Bank increased its capital to 250,000,000 and the Disconto, by merging with a very important bank, the Schaffhausenscher Bankverein, increased its capital to 300,000,000. And, of course, while this struggle for hegemony goes on the two banks more and more frequently conclude “agreements” of an increasingly durable character with each other. This development of banking compels specialists in the study of banking questions – who regard economic questions from a standpoint which does not in the least exceed the bounds of the most moderate and cautious bourgeois reformism – to arrive at the following conclusions:

The German review, Die Bank, commenting on the increase of the capital of the Disconto-Gesellschaft to 300,000,000 marks, writes:

“Other banks will follow this same path and in time the three hundred men, who today govern Germany economically, will gradually be reduced to fifty, twenty-five or still fewer. It cannot be expected that this new move towards concentration will be confined to banking. The close relations that exist between certain banks naturally involve the bringing together of the manufacturing concerns which they favour. … One fine morning we shall wake up in surprise to see nothing but trusts before our eyes, and to find ourselves faced with the necessity of substituting state monopolies for private monopolies. However, we have nothing to reproach ourselves with, except with us having allowed things to follow their own course, slightly accelerated by the manipulation of stocks.”

This is an example of the impotence of bourgeois journalism which differs from bourgeois science only in that the latter is less sincere and strives to obscure essential things, to conceal the wood by trees. To be “surprised” at the results of concentration, to “reproach” the government of capitalist Germany, or capitalist “society” (“us”), to fear that the introduction of stocks and shares might “accelerate” concentration in the same way as the German “cartel specialist” Tschierschky fears the American trusts and “prefers” the German cartels on the grounds that they may not, like the trusts, “accelerate technical and economic progress to an excessive degree” – is not this impotence?

But facts remain facts There are no trusts in Germany; there are “only” cartels – but Germany is governed by not more than three hundred magnates of capital, and the number of these is constantly diminishing. At all events, banks in all capitalist countries, no matter what the law in regard to them may be, greatly intensify and accelerate the process of concentration of capital and the formation of monopolies.

The banking system, Marx wrote half a century ago in Capital, “presents indeed the form of common bookkeeping and distribution of means of production on a social scale, but only the form.” The figures we have quoted on the growth of bank capital, on the increase in the number of the branches and offices of the biggest banks, the increase in the number of their accounts, etc., present a concrete picture of this “common bookkeeping” of the whole capitalist class; and not only of the capitalists, for the banks collect, even though temporarily, all kinds of financial revenues of small business men, office clerks, and of a small upper stratum of the working class. It is “common distribution of means of production” that, from the formal point of view, grows out of the development of modern banks, the most important of which, numbering from three to six in France, and from six to eight in Germany, control billions and billions. In point of fact, however, the distribution of means of production is by no means “common,” but private, i.e., it conforms to the interests of big capital, and primarily, of very big monopoly capital, which operates in conditions in which the masses of the population live in want, in which the whole development of agriculture hopelessly lags behind the development of industry, and within industry itself the “heavy industries” exact tribute from all other branches of industry.

The savings banks and post offices are beginning to compete with the banks in the matter of socializing capitalist economy; they are more “decentralized,” i.e., their influence extends to a greater number of localities, to more remote places, to wider sections of the population. An American commission has collected the following data on the comparative growth of deposits in banks and savings banks:

Deposits (in billions of marks)

	England		France		Germany
Year	Banks	Savings Banks	Banks	Savings Banks	Banks	Credit Societies	Savings Banks
1880	8.4	1.6	?	0.9	0.5	0.4	2.6
1888	12.4	2.0	1.5	2.1	1.1	0.4	4.5
1908	23.2	4.2	3.7	4.2	7.1	2.2	13.9

As they pay interest at the rate of 4 per cent and 4¼ per cent on deposits, the savings banks must seek “profitable” investments for their capital, they must deal in bills, mortgages, etc. The boundaries between the banks and the savings banks “become more and more obliterated.” The Chambers of Commerce at Bochum and Erfurt, for example, demand that savings banks be prohibited from engaging in “purely” banking business, such as discounting bills. They demand the limitation of the “banking” operations of the post office. The banking magnates seem to be afraid that state monopoly will steal upon them from an unexpected quarter. It goes without saying, however, that this fear is no more than the expression, as it were, of the rivalry between two department managers in the same office; for, on the one hand, the billions entrusted to the savings banks are in the final analysis actually controlled by these very same bank magnates, while, on the other hand, state monopoly in capitalist society is nothing more than a means of increasing and guaranteeing the income of millionaires on the verge of bankruptcy in one branch of industry or another.

The change from the old type of capitalism, in which free competition predominated, to the new capitalism, in which monopoly reigns, is expressed, among other things, by a decrease in the importance of the Stock Exchange. The German review, Die Bank, wrote:

“For a long time now, the Stock Exchange has ceased to be the indispensable intermediary of circulation that it was formerly when the banks were not yet able to place the bulk of new issues with their clients.” “Every bank is a Stock Exchange, and the bigger the bank, and the more successful the concentration of banking, the truer does this proverb become.”

“While formerly, in the ”seventies, the Stock Exchange, flushed with the exuberance of youth” (a “subtle” allusion to the crash of 1873, and to the company promotion scandals), “opened the era of the industrialization of Germany, nowadays the banks and industry are able to “do it alone.” The domination of our big banks over the Stock Exchange … is nothing else than the expression of the completely organized German industrial state. If the domain of the automatically functioning economic laws is thus restricted, and if the domain consciously regulated by the banks is considerably increased, the national economic responsibility of a very small number of guiding heads is infinitely increased,” so wrote Professor Schulze-Gaevernitz, an apologist of German imperialism, who is regarded as an authority by the imperialists of all countries, and who tries to gloss over a “detail,” viz., that the “conscious regulation” of economic life by the banks consists in the fleecing of the public by a handful of “completely organized” monopolists. For the task of a bourgeois professor is not to lay bare the mechanism of the financial system, or to divulge all the machinations of the finance monopolists, but, rather, to present them in a favorable light. In the same way, Riesser, a still more authoritative economist and himself a bank man, makes shift with meaningless phrases in order to explain away undeniable facts. He writes:

“… The Stock Exchange is steadily losing the feature which is absolutely essential for national economy as a whole and for the circulation of securities in particular – that of being an exact measuring-rod and an almost automatic regulator of the economic movements which converge on it.”

In other words, the old capitalism, the capitalism of free competition, and its indispensable regulator, the Stock Exchange, are passing away. A new capitalism has come to take its place, which bears obvious features of something transitory, which is a mixture of free competition and monopoly. The question naturally arises: to what is this new, “transitory” capitalism leading? But the bourgeois scholars are afraid to raise this question.

“Thirty years ago, employers, freely competing against one another, performed nine-tenths of the work connected with their businesses other than manual labour. At the present time, nine-tenths of this business “brain work” is performed by officials. Banking is in the forefront of this evolution.”

This admission by Schulze-Gaevernitz brings us once again to the question as to what this new capitalism, capitalism in its imperialist stage, is leading to. Among the few banks which remain at the head of all capitalist economy as a result of the process of concentration, there is naturally to be observed an increasingly marked tendency towards monopolist agreements, towards a bank trust. In America, there are not nine, but two big banks, those of the billionaires Rockefeller and Morgan, which control a capital of eleven billion marks. In Germany, the absorption of the Schaffhausenscher Bankverein by the Disconto-Gesellschaft, to which we referred above, was commented on in the following terms by the Frankfurter Zeitung, one of the organs of the Stock Exchange interests:

“The concentration movement of the banks is narrowing the circle of establishments from which it is possible to obtain large credits, and is consequently increasing the dependence of big industry upon a small number of banking groups. In view of the internal links between industry and finance, the freedom of movement of manufacturing companies in need of bank capital is restricted. For this reason, big industry is watching the growing trustification of the banks with mixed feelings. Indeed we have repeatedly seen the beginnings of certain agreements between the individual big banking concerns, which aim at limiting competition.”

Again, the final word in the development of the banks is monopoly.

The close ties that exist between the banks and industry are the very things that bring out most strikingly the new role of the banks. When a bank discounts a bill for an industrial firm, opens a current account for it, etc., these operations, taken separately, do not in the least diminish the independence of the industrial firm, and the bank plays no other part than that of a modest intermediary. But when such operations are multiplied and become an established practice, when the bank “collects” in its own hands enormous amounts of capital, when the running of a current account for the firm in question enables the bank – and this is what happens – to become better informed of the economic position of the client, then the result is that the industrial capitalist becomes more completely dependent on the bank.

At the same time a very close personal union is established between the banks and the biggest industrial and commercial enterprises, the merging of one with another through the acquisition of shares, through the appointment of bank directors to the Supervisory Boards (or Boards of Directors) of industrial and commercial enterprises, and vice versa. The German economist, Jeidels, has compiled very complete data on this form of concentration of capital and of enterprises. Six of the biggest Berlin banks were represented by their directors in 344 industrial companies; and by their board members in 407 other companies. Altogether, they supervised a total of 751 companies. In 289 of these companies they either had two of their representatives on each of the respective Supervisory Boards, or held the posts of chairmen. These industrial and commercial companies are engaged in the most varied branches of industry: in insurance, transport, restaurants, theaters, art industry, etc. On the other hand, there were on the Supervisory Boards of these six banks (in 1910) fifty-one of the biggest manufacturers, among whom were directors of Krupp, of the powerful “Hapag” (Hamburg-American Line), etc. From 1895 to 1910, each of these six banks participated in the share and bond issues of several hundreds of industrial companies (the number ranging from 281 to 419).

The “personal union” between the banks and industry is completed by the “personal union” between both and the state.

“Seats on the Supervisory Board,” writes Jeidels, “are freely offered to persons of title, also to ex-civil servants, who are able to do a great deal to facilitate [!!] relations with the authorities. … Usually on the Supervisory Board of a big bank there is a member of parliament or a Berlin city councillor.”

The building, so to speak, of the great capitalist monopolies is therefore going on full steam ahead in all “natural” and “supernatural” ways. A sort of division of labour amongst some hundreds of kings of finance who reign over modern capitalist society is being systematically developed.

“Simultaneously with this widening of the sphere of activity of certain big industrialists” (sharing in the management of banks, etc.) “and together with the allocation of provincial bank managers to definite industrial regions, there is a growth of specialization among the managers of the big banks. … Generally speaking, this specialization is only conceivable when banking is conducted on a large scale, and particularly when it has widespread connections with industry. This division of labour proceeds along two lines: on the one hand, the relations with industry as a whole are entrusted to one manager, as his special function; on the other, each manager assumes the supervision of several isolated enterprises, or enterprises with allied interests, or in the same branch of industry, sitting on their Boards of Directors” (capitalism has reached the stage of organized control of individual enterprises). “One specializes in German industry, sometimes even in West German industry alone” (the West is the most industrialized part of Germany). “Others specialize in relations with foreign states and foreign industry, in information about manufacturers, in Stock Exchange questions, etc. Besides, each bank manager is often assigned a special industry or locality, where he has a say as a member of the Board of Directors; one works mainly on the Board of Directors of electric companies, another in the chemical, brewing or sugar beet industry; a third in a few isolated industrial enterprises but at the same time in non-industrial, i.e., insurance companies. … It is certain that, as the extent and diversification of the big banks” operations increase, the division of labour among their directors also spreads, with the object and result of lifting them somewhat out of pure banking and making them better experts, better judges of the general problems of industry and the special problems of each branch of industry, thus making them more capable of action within the respective bank”s industrial sphere of influence. This system is supplemented by the banks” endeavors to have elected to their own Board of Directors, or to those of their subsidiary banks, men who are experts in industrial affairs, such as manufacturers, former officials, especially those formerly in the railway service or in mining,” etc.

We find the same system, with only slight difference, in French banking. For instance, one of the three biggest French banks, the Crédit Lyonnais, has organized a financial research service (Service des études financières), which permanently employs over fifty engineers, statisticians, economists, lawyers, etc., at a cost of six or seven hundred thousand francs annually. The service is in turn divided into eight sections, of which one deals with industrial establishments, another with general statistics, a third with railway and steamship companies, a fourth with securities, a fifth with financial reports, etc. The result is twofold: on the one hand the merging, to an ever greater extent, or, as N. Bukharin aptly calls it, the coalescence of bank and industrial capital; and on the other hand, a transformation of the banks into institutions of a truly “universal character.” On this question we think it necessary to quote the exact terms used by Jeidels, who has best studied the subject:

“An examination of the sum total of industrial relationships reveals the universal character of the financial establishments working on behalf of industry. Unlike other kinds of banks and contrary to the requirements often laid down in literature – according to which banks ought to specialize in one kind of business or in one branch of industry in order to maintain a firm footing – the big banks are striving to make their industrial connections as varied and far-reaching as possible, according to locality and branch of business, and are striving to do away with the inequalities in the distribution among localities and branches of business resulting from the historical development of individual banking houses. … One tendency is to make the ties with industry general; another tendency is to make these ties durable and close. In the six big banks both these tendencies are realized, not in full, but to a considerable extent and to an equal degree.”

Quite often industrial and commercial circles complain of the “terrorism” of the banks. And it is not surprising that such complaints are heard, for the big banks “command,” as will be seen from the following example: on November 19, 1901, one of the big Berlin “D” banks (such is the name given to the four biggest banks whose names begin with the letter D) wrote to the Board of Directors of the German Central Northwest Cement Syndicate in the following terms:

“As we learn from the notice you published in the Reichsanzeiger of the 18th instant, we must reckon with the possibility that the next general meeting of your company, fixed for the 30th of this month, may decide on measures which are likely to effect changes in your undertakings which are unacceptable to us. We deeply regret that, for these reasons, we are obliged henceforth to withdraw the credit which has been hitherto allowed you. … But if the said next general meeting does not decide upon measures which are unacceptable to us and if we receive suitable guarantees on this matter for the future, we shall be quite willing to open negotiations with you on the grant of a new credit.”

As a matter of fact, this is small capital”s old complaint about being oppressed by big capital, but in this case it was a whole syndicate that fell into the category of “small” capital! The old struggle between big and small capital is being resumed on a new and higher stage of development. It stands to reason that undertakings, financed by big banks handling billions, can accelerate technical progress in a way that cannot possibly be compared with the past. The banks, for example, set up special technical research societies, and only “friendly” industrial enterprises benefit from their work. To this category belong the Electric Railway Research Association and the Central Bureau of Scientific and Technical Research. The directors of the big banks themselves cannot fail to see that new conditions of national economy are being created. But they are powerless in the face of these phenomena.

“Anyone who has watched, in recent years, the changes of incumbents of directorships and seats on the Supervisory Boards of the big banks, cannot fail to have noticed that power is gradually passing into the hands of men who consider the active intervention of the big banks in the general development of industry to be indispensable and of increasing importance. Between these new men and the old bank directors, disagreements of a business and often of a personal nature are growing on this subject. The question that is in dispute is whether or not the banks, as credit institutions, will suffer from this intervention in industry, whether they are sacrificing tried principles and an assured profit to engage in a field of activity which has nothing in common with their role as intermediaries in providing credit, and which is leading the banks into a field where they are more than ever before exposed to the blind forces of trade fluctuations. This is the opinion of many of the older bank directors, while most of the young men consider active intervention in industry to be a necessity as great as that which gave rise, simultaneously with big modern industry, to the big banks and modern industrial banking. The two parties to this discussion are agreed only on one point: and that is, that as yet there are neither firm principles nor a concrete aim in the new activities of the big banks.”

The old capitalism has had its day. The new capitalism represents a transition towards something. It is hopeless, of course, to seek for “firm principles and a concrete aim” for the purpose of “reconciling” monopoly with free competition. The admission of the practical men has quite a different ring from the official praises of the charms of “organized” capitalism sung by its apologists, Schulze-Gaevernitz, Liefmann and similar “theoreticians.” At precisely what period were the “new activities” of the big banks finally established? Jeidels gives us a fairly exact answer to this important question:

“The ties between the banks and industrial enterprises, with their new content, their new forms and their new organs, namely, the big banks which are organized on both a centralized and a decentralized basis, were scarcely a characteristic economic phenomenon before the ”nineties; in one sense, indeed, this initial date may be advanced to the year 1897, when the important “mergers” took place and when, for the first time, the new form of decentralized organization was introduced to suit the industrial policy of the banks. This starting point could perhaps be placed at an even later date, for it was the crisis [of 1900] that enormously accelerated and intensified the process of concentration of industry and banking, consolidated that process, for the first time transformed the connection with industry into the monopoly of the big banks, and made this connection much closer and more active.”

Thus, the beginning of the twentieth century marks the turning point from the old capitalism to the new, from the domination of capital in general to the domination of finance capital.