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The state and accumulation under contemporary capitalism

Since the 1970s, the capitalist world system has undergone fundamental transformations in both its structure and institutional framework. This paper is an attempt to study the interrelation between changes in the process of capitalist accumulation and the political structure that supports it. Historically, capitalism develops institutions and ideologies that justify surplus extraction and capital accumulation. In the last decades of the twentieth century, the financialization of capitalism initiated a new era of accumulation which is known in academic contexts as finance-capital-driven neoliberalism.(2) This new ideology results from the dominant form of international capital having shifted its center of gravity from industrial capital to finance capital. A new institutional framework accompanies that change. The state, which once protected the interests of industrial capital, is now irretrievably diminished. In its place a new kind of state has emerged based on the neoliberal ideology now dominating the world’s major economies. That ideology’s common agenda consists in the deregulating national economies, liberalizing trade practices, creating a single global market, and facilitating the free movement of commodities and capital beyond national boundaries.

Neoliberal ideology adduces that human well-being can be advanced by liberating individuals’ entrepreneurial freedom and skill within a specific economic structure and institutional framework. Two famous intellectuals, Friedrich Hayek and Milton Freidman (along with their followers) formulated the neoliberal credo, which was later put in practice by Ronald Reagan in the United States and Margaret Thatcher in England.(3) Rhetoric aside, neoliberalism’s real raison d’etre is to accelerate accumulation in the face of the increased power of the working class and the rise of the socialist bloc during 1950s. Thomas Piketty refers to the era of Thatcher and Reagan as a conservative revolution. His data shows that, since the 1970s, state-initiated neoliberal policies have accelerated the process of capital accumulation.(4)

Neoliberalism is international finance capital’s current agenda. It was initially implemented in the developed countries using state power together with an institutional network that subsequently extended to the developing economies of Asia and Africa. International institutions such as the World Trade Organization (WTO), the World Bank (IBRD), and the International Monetary Fund (IMF) played an important role in getting developing countries to adopt the neoliberal agenda. Recent experience shows that neoliberal ideology not only dominates Third World nations’ economic and political spheres; it also molds their cultural and social affairs according to the needs of international finance capital. Today’s neoliberal “club” is comprised of global power elites; managers and executives of big corporations; corporate lobbies; celebrities and top entertainers; a subset of intellectuals; and, importantly, state bureaucrats and politicians. A constant in neoliberalism is that the state openly works as an agent of international finance capital, justifying both the exploitation of the masses and of natural resources and public goods in the name of efficiency, freedom, democracy, and economic growth. The explanation offered is that socio-economic inequality and intense exploitation of both the human being and nature are necessary for economic growth. The collusion of state officials and capitalists in our time, implies that an analysis of contemporary capitalism is incomplete without simultaneously examining the state’s role in shaping it.

The following is an attempt to scrutinize the evolution of the state, the most important institution of capitalism, which emerged together with the social classes and always organizes economic and social affairs according to the needs of the dominant class. The first part of the paper summarizes Marx’s thought on the state, at the center of which is his critique of the state’s apparent universality to reveal its real class character. The second part looks at how the state functions in the capitalist mode of production, emphasizing its class character and its role in production, exchange, distribution and accumulation. The last part analyzes how the capitalist state’s role changes over time to stabilize and accelerate capital accumulation.


Marx intended to write a special treatise on the state but was never able to even initiate the work. Nevertheless, Marx’s views on the state are found scattered throughout his oeuvre. An early article, “On the Theft of Wood (1842),” constitutes his first attempt to present the class character of state power, showing how it represents particular interests. Nevertheless, in the Marxian tradition “The Critique of Hegel’s Philosophy of State (1843)” is generally taken to be his first important reflection on the state. Marx’s critique of Hegel in that text aims specifically at his philosophical idealism and proceeds on two levels. First, Marx questions the philosophical form of Hegel’s work. Second, he makes a detailed textual analysis of Hegel’s argument in order to highlight the problematic relation of Hegel’s philosophy to real concrete phenomena. Marx shows how Hegel inverts the real situation by deriving empirical institutions–such as the state, civil society, and the family–from the absolute idea.

Marx’s starting point is Hegel’s claim that “concrete freedom” consists in the identity of the system of particular interest (the family and civil society) with the system of general interest (the state). Hegel presents the state as an external necessity, standing above and opposed to the family and civil society. The state as an external necessity means that, in the event of a conflict, the laws and interests of the family and civil society must yield to those of the state. Marx points out how, in Hegel’s philosophy, the family and civil society are subordinated to the state. In Hegel’s philosophy, the “idea” becomes the subject, and real subjects–such as civil society, the family, existing circumstances–are all transformed into the idea’s unreal, objective “moments.”(5) Marx writes that the crux of the state-society relationship is that “Hegel everywhere makes the idea into the subject, while the genuine, real subject is turned into the predicate.” The real development and movement of society, however, “proceeds at all times on the side of the predicate,” i.e. civil society and the family.(6)

Marx’s critical examination of Hegel’s philosophy of state leads him to conclude that the state is a product of society’s development and movement and as a result cannot represent the universal interest. The state always acts in accordance with the interest of a particular class. Although Hegel alleges that the state is universal, it actually functions as the protector and promoter of private property. Its bureaucrats exploit and oppress civil society for the interest of a particular group, with the state itself tending to become the bureaucracy’s private property in its struggle for self-advancement. In summary, Marx not only rejected the idea of a universal state able to rise above the conflicts of civil society, he also showed it to be a class instrument protecting the dominant class’s interests. In Bob Jessop’s words, “the earliest theoretical work of Marx treats the state as an irrational abstract system of political domination that denies the social nature of man and alienates him from genuine involvement in public life.”(7)

Hegel deserves credit for differentiating state and civil society, but it was Marx who correctly established the relationship between the two spheres by rejecting the universality of the state and explaining it as a product of civil society’s conflicts. V. I. Lenin follows Marx in arguing that the state is a product of irreconcilable class conflicts. For him, the state arises where, when and insofar as class antagonisms cannot be objectively reconciled. Conversely, the existence of the state proves that class antagonisms have become irreconcilable. The state only exists when there are class antagonisms and class struggle. In that sense, the state can be said to be an organ for class reconciliation.(8)

After attaining a general understanding of the state-society relationship, Marx turned to the historical evolution of the state and its role in socio-economic development. Marx’s preface to A Contribution to the Critique of Political Economy (1859) emphasizes the state’s position in the mode of production. That text’s base-superstructure model presents the state as dependent on the economic base, which is the real foundation of society. Marx argues:

In the social production of their existence men inevitably enter into definite relations, which are independent of their will, namely the relations of production, appropriate to a given stage of development of their material forces of production. The totality of these relations constitutes the economic structure, the real foundation, on which arises a legal and political superstructure.(9)

Like culture and religion, the state forms part of the superstructure, which is not independent but rather a product of existing production relations: the relations between the different classes involved in the production process. Because these production relations are antagonistic, the state protects the dominant class’s interest as the owners of the means of production. The base-superstructure model teaches us that analyzing the state under a given socio-economic formation is not possible without considering economic and class relations. This means that an understanding of the economic structure and the existing class structure is a precondition for understanding the state’s character and how it changes over time. However, the base-superstructure model does not deny the importance of ideology. In fact, the state’s role as an instrument of class domination requires the universal acceptance of the ruling class’s ideas. For this reason, the state consistently presents the ruling class’s interests as if they were the common interest. Specific class interests are transformed into an illusionary “general interest” precisely so that the dominant class can successfully universalize its ideas.

The result is that the ruling class’s ideas appear to be universal truths, valid for all time and having an autonomous existence. For example, the notions of freedom, justice, equality, rights and duties are all presented as if they had a meaning independent of any particular class interest. The state apparatus imposes the ruling class’s ideology. That apparatus includes the government and the public administration together with the police and the army, the latter intervening as a supplementary repressive force to be applied in the last instance.(10) The whole state apparatus has an undeniable class character in as much as it organizes the cultural, economic, and social spheres to protect the dominant class’s interests and, above all, its property.

In summary, a materialist or scientific understanding of the state shows that:

  1. the state is not the product of an abstract, timeless idea, but rather comes into existence to protect the interest of a particular class.
  2. the state is not a static institution, but continuously evolves, pointing to the need to distinguish between those aspects of its activities which are temporary and transient versus those that are more stable.
  3. an individual state cannot be understood separately from existing economic relations, but must be studied precisely in the context of economic forces and activities.

The needs of the economy and of the dominant class change over time. Together they determine state forms and state institutions. In society’s overall movement, two forces–the economic and the political–move together to effect the progress of human civilization from one socio-economic formation to another. Throughout this process, economic relations constitute the primary force, though they are themselves organized by political and legal institutions in an organic and dialectical unity. According to Marxian theory, the state is a product of class antagonisms. However, that theory also holds that, once established, the state seems to stand above society, continually alienating itself from its basis in class conflict. Appearances notwithstanding, society’s administration is always a means of preserving the economically dominant class’s interests.


Marx’s critique of political economy focuses primarily on the capitalist mode of production. The latter requires accumulation: an individual capitalist aims not only to guarantee his own luxury consumption, but also aims to accumulate more and more capital, as a necessary condition for maintaining his position as a capitalist in society. This process of constant accumulation in turn requires an institutional framework, which is never static. This means that the state, as part of the superstructure and the central capitalist institution, alters its form periodically to facilitate profitability and capital accumulation.

The fundamental difference between pre-capitalist and capitalist social relations is that the economic and political spheres were not yet fully separated in pre-capitalist societies. In these earlier formations, the state openly protected the dominant class’s interests. The owners of the means of production directly controlled the state and justified their exploitation of other classes through the constitution and through law. The state also deployed its repressive apparatus such as the police and the army in direct support of the dominant class’s economic interests. Capitalism changes all of this. The economic and political spheres diverge, gaining an important degree of autonomy, and direct political force is no longer needed to maintain economic relations. Indeed, the relative autonomy of the political sphere from the economic one is what differentiates the capitalist state from pre-capitalist forms.

In capitalism, production for exchange and relations based on exchange value are conditions for sustainable accumulation. The production process depends on relations of exchange between two antagonistic classes: capitalists and workers. The state plays an important role in managing the conflict between these two classes and develops and ideological system to that end based on private property, individuality, equality, freedom, and rights. David Harvey argues that the capitalist state’s field of action includes guaranteeing the rights of private property over the means of production and labor power, enforcing contracts, protecting the mechanisms of accumulation, eliminating the barriers to capital and labor mobility, and stabilizing the money system (via central banking).(11) In this sense, as Marx and Engels point out, the capitalist state “is nothing more than the form of organization which the bourgeois necessarily adopt both for internal and external purpose, for the mutual guarantee of their property and interest.”(12)

The capitalist state also plays a crucial role in distribution. The Marxian theory of distribution has two foci: first, the distribution of the total product between capitalists and workers and, second, the channeling of total surplus value into industrial profit, interest (to finance capital) and rent (to landlords). To manage the relation between capitalists and workers, the state develops and enforces laws in a manner such that class conflict remains in check. For example, it may offer benefits and guarantees to workers that are not in the capitalist class’s immediate economic interest but will maintain its dominance and protect its accumulation in the long run. Similarly, the intellectuals involved in the state apparatus (particularly those concerned with economic policy and research) defend elaborate economic theories justifying capitalist production and distribution as contributing to the common good. As against theories that expose working-class exploitation, they typically favor the Ricardian marginal productivity theory of distribution, in which workers’ wages correspond to their marginal productivity and capitalist “producers” earn only normal profits.

The state’s role varies to the degree that capitalist economies differ in their composition. In labor-scarce economies, operating near full employment equilibrium, the state protects the interest of the capitalist class by capping wages and linking them to productivity. These state-regulated wages check workers’ power and inhibit their capacity to protest. By contrast, in labor-surplus economies, the state and state-sponsored intellectuals work to dismantle labor laws in the name of employment growth and labor market flexibility. In this way, the state not only eases conflictual distribution relations but also justifies its policies as conducive to employment growth.

As indicated above, capitalist distribution relations involve not only the antagonistic relation between labor and capital, but also the repartition of surplus value into the areas of industrial profit, interest, and rent. This latter process is also antagonistic. To the degree that industrialists, landlords, and financial capitalists struggle against each other to secure their respective profits, the homogeneity of the capitalist class breaks down. In these circumstances, the state works to guarantee the long-term interests of the entire capitalist class and arbitrate among the conflicting interests of each class fraction. Importantly, this can only be done by a relatively autonomous state: a state structured so as to transcend the parochial interests of the fractions of the capitalist class.(13)

In the capitalist mode of production, the state’s main objective is to reproduce the economic system, which in turn requires a stable process of capital accumulation. Since the logic of capital is far from harmonious and at times even self-destructive, the state intervenes to prevent the disintegration of the capitalist system, dampening the contradictions produced by the accumulation process. The state’s solutions to problems of continuous and expanded accumulation vary according to the context. This means that there is a third sphere of state activity–beyond arbitrating in production and distribution relations–which is stabilizing capitalist accumulation during downswings in the business cycle. Faced with depressions and recessions, the state responds in various ways, including subsidies to consumption, unemployment allowances, tax concessions, and direct investment to ensure effective demand, all with a view to preserving the dominant class’s project. In this way, the state plays a central role in mitigating the contradictions resulting from class struggle in times of crisis.

Bourgeois democracy is the preferred form that the capitalist state takes on. This is precisely because it excels in managing the contradictions mentioned above. Lenin pointed out that the democratic republic is the best possible political “shell” for capitalism. Once capitalism attains that “shell,” its power becomes so secure as to be impervious to a change in persons, institutions, or parties.(14) A constant of capitalist rule is that, even as the state transforms itself according to the dominant class’s needs, it always projects the illusion of representing the whole society. A number of slogans that circulate in the world today reveal their ideological character in as much as they imply that the state is a neutral, supra-social entity: all who are against the oppressive state are presented as being against society, when in fact they reject only an economically-dominant and politically-oppressive class. By contrast, the task of Marxist scholarship is to reveal the real state-society relation as it unfolds in time. It must explore production relations and the mechanisms of surplus extraction and at the same time carry out a historical analysis of the state’s role in capital accumulation.


So far we have only considered the state in abstract, relating it to the general characteristics of the capitalist mode of production. Clearly, analyzing the state as a superstructural form, based on a given mode of production, is perfectly appropriate for the purpose of theoretical work. However, beyond a theoretical analysis, it is important to trace the state’s role in actual, concrete capitalist societies. As Marx points out, the bourgeois state does not function as an automatic reflection of capitalist social relations. Instead, state institutions are concrete historical products that develop along with capitalist societies.(15)

Capitalism became the dominant mode of surplus extraction during the seventeenth and eighteenth centuries. Along with it came the liberal ideology of the classical economists, such as Adam Smith and his followers, which held sway in the capitalist world up until the twentieth century. Philosophers as varied as Thomas Hobbes, John Locke, David Hume, Immanuel Kant, and Smith all coincide in defending the key liberal proposition that the state should be a facilitator for private ends. About Locke’s philosophy, Marx wrote:

Locke championed the new bourgeoisie in every way, taking the side of the industrialists against the working class and against the paupers, the merchants against the old-fashioned usurers, the financial aristocracy against the governments that were in debt, and he even demonstrated in one of his books that the bourgeois way of thinking was the normal one for human beings.(16)

The laissez-faire phase of capitalism coincided with liberal ideology. During this period, the state’s participation in the economic sphere tended to be external: a passive “refereeing” of economic activities that became somewhat more active in relation to foreign trade. Although considered a non-economic institution, the liberal state nevertheless exercised indirect influence through politics, ideology and occasionally through the military and police. All the classical political economists and philosophers, except Marx, believed the capitalist economy to be self-regulating and self-sustaining and hence requiring only minimal state intervention (a belief reflected in Say’s law, the Walrasian theory of general equilibrium, and Smith’s reference to an “invisible hand”).

Throughout the liberal phase of capitalism, classical political theory worked to justify a hands-off approach to the economy and present state intervention as a hindrance to capital accumulation. However, the notion of a self-regulating capitalist system is nothing more than a myth. In reality, capitalism is a highly unstable system, requiring the continuous intervention of a supra-social entity: the state. The historical record shows how, even during the era of classical political economy, colonialism was always central to capitalist accumulation in the metropolitan countries. Since colonialism depends on the state’s military intervention, it follows that capitalism has always needed state intervention, contrary to the image presented by the liberal economists.

Prior to World War I, unregulated banking and free competition, relatively progressive forces, drove world capitalism. However, capital accumulation entered into a new phase during the last quarter of the nineteenth century (from 1870 onward). In his work on imperialism, Lenin pointed to the concentration of production and the emergence of monopolies as the defining features of this new phase. In effect, the concentration of capital in cartels, syndicates, trusts and other forms of association signaled the emergence of a new capitalist phase: a shift from competitive capitalism into monopoly capitalism. New tendencies also emerged in the banking sector, which became increasingly centralized and concentrated. Big banks ousted smaller ones, and big industries became increasingly dependent upon a restricted number of large banks. In this way, industrial capitalism became subordinated to the banking sector.(17) During this period, concentration was also enhanced by the overlap between key players in industry with the board members of the big banks, with both groups including state personnel. Rudolf Hilferding dubbed the new phenomenon, which he saw as the fusion of industrial and banking capital, finance capital.(18) To illustrate the role of finance capital in politics, Lenin recurred to the words of Lysis: “the French Republic is a financial monarchy, it is the complete dominance of the financial oligarchy; the latter dominates over the press and the government.”(19)

This new phase of capitalism had three major actors: big industrial organizations, large-scale financial intermediaries and, last but not least, the state. They worked together to accelerate capital accumulation. For example, the state strengthened the monopolies during this period through its tariff policy. As Bukharin demonstrates, high protective tariffs were the cartels’ economic project, which the state then formulated as policy and carried out.(20) The tariffs aimed to eliminate competition in the home market, so that domestic producers could maintain their profitability and market share. This worked to secure the monopolies’ profits within national boundaries. However, after saturating the domestic market, the monopolies’ only remaining option was to force open the markets of other countries, subordinating them as colonies. During the last decades of the nineteenth century and the beginning of the twentieth century, exporting both commodities and capital to pre-capitalist countries became the main exogenous stimulus to industrial capitalism. As Lenin predicted, the conflicts among rival states in the service of finance capital–each aiming to capture the world’s pre-capitalist markets–led inexorably to imperialist war.

Together with World War I, a series of other crises emerged that shook the foundations of the laissez-faire model of capitalism. In wartime, the state assumed measures and controls that later became standard techniques for maintaining the existing economic system. However, the other major historical event of the time was Russia’s 1917 socialist revolution. As a result of that revolution, the working class emerged as an “independent variable” in the face of the capitalist economy and politics. It began to threaten every level of capitalist organization, and the science of capital accumulation had no choice but to recognize the new relations of force. The working class, once considered outside of the bourgeois economy and state politics, was now acknowledged as the mainspring of capitalist development.

John Maynard Keynes stands out as the most penetrating theorist of capitalist reconstruction at the time, and his ideas informed the new capitalist state that emerged in the face of a revolutionary working class. In effect, the classical liberal separation of politics from economics came to an end at the conclusion of World War I. Say’s law was no longer considered valid, because it failed to recognize the evidently crisis-ridden character of the capitalist system. Keynes’ work during the 1920s was critical of both Say’s law and the emerging political situation in Europe. He insisted that state intervention was needed to mediate class conflict and guarantee economic equilibrium. In these early writings, however, Keynes argued only in political terms: he did not yet have a clear scientific appreciation of the new dynamics of class relations and the role of the working class within it.(21)

After the war came the Great Depression of the 1930s, which caused the U.S. gross domestic product to fall 46 percent in just four years and unemployment to soar from 4 to 25 percent in the same time period. The Great Depression cast further doubt on the sustainability of a capitalism driven by unregulated private industrial and finance capital. In this period, Keynes developed scientific arguments to the effect that capitalism’s cyclical downswings were due to lack of effective demand. The 1929 crisis had resulted from a broadening of supply during the preceding decade that was not accompanied by a corresponding increment in demand.(22) Supply of durable goods had increased due to the reconversion of the war industry, technological innovations, and an extraordinary increase in the productivity of labor. The resulting imbalance manifested itself as a lack of effective demand, which is the precondition for sustainable accumulation in a capitalist economy.

In order to stabilize the cyclical fluctuations of capitalism, Keynes prescribed state intervention and recommended a comprehensive socialization of investment.23 He argued that employment growth and domestic prosperity are preconditions for capitalist stability. By contrast, Keynes demonstrated that economic instability results from the unreliability of private investment spending. This meant that the state must not only control private investment, it should also invest in public works and big projects. Additionally, the state ought to facilitate the accumulation process through active monetary and fiscal policies.

Keynes’ ideas helped shape the new capitalist state. To preserve the capitalist system, the liberal capitalist state now metamorphosed into a monopoly capitalist one. The new state’s capacity for intervention extended throughout the whole society, and its structures responded to the working class’s newly-felt muscle. The influence of the working class can be seen in the way the new state assumed a series of economic and social responsibilities in the major capitalist countries. In this emergent scenario, monopoly and banking capital allied with the state’s upper strata, resulting in more organized and stronger state.(24) The connection that was forged between finance and industrial capital intensified the processes of concentration in both of these forms of capital. The previous century’s competitive capitalism, driven by the exogenous stimulus of colonial trade, now gave way to a mixture of monopoly and free competition facilitated by the state’s initiatives. The new state became more directly involved in the exploitation process through active monetary and fiscal policies that favored major capitalists.

This new state form is popularly known as the “welfare state” in recognition of some of its more superficial features. However, a scientific perspective reveals how state monopoly capitalism and the so called “welfare state” arose out of a need to stabilize the capitalist system. The stories of the origins of this new institutional framework are often misleading. Capitalism’s apologists downplay the influence of trade unions and the institutional development of the socialist countries. It should also be kept in mind that the breakdown of laissez-faire capitalism and the turn to a more interventionist state actually pre-dates the Keynesian revolution. As mentioned above, at the outbreak of World War I, large-scale state-induced demand and control of economic variables such as finance, money, credit, trade, and commerce had already become widespread.

Keynes role must also be carefully located in history. What Keynes did was to highlight the need for state intervention in economic affairs to ensure the stability of the accumulation process. Keynesian philosophy did not aim to limit or tame capitalism. In fact, it was always strongly committed to capitalist stability and corporate profitability, seeking only to make capitalism more robust and efficient through state initiatives. As a theory that denied the stability of the laissez-faire model, Keynesian doctrine had the added attraction in the capitalist countries of employing a non-Marxian lexicon. A posteriori, we can see that the Keynesian era coincided with the rise of big corporations and large-scale capital concentration, together with a relative hegemony of industrial over financial capital. This marked a sharp contrast with the period prior to World War I.(25)

All the main theoretical elements of the Keynesian system played a part in shaping the New Deal. Roosevelt understood that, in the United States, the capitalist class would soon face powerful anti-capitalist forces seeking more fundamental changes to the system. With a view to preempting these changes, he built a class partnership favoring a kind of social democracy. The New Deal demonstrates how, throughout the world, strong working-class movements can impact capitalism’s structure. At the center of Roosevelt’s plan to preserve U.S. capitalism were Keynesian techniques for stimulating effective demand and thus raising the general wage level and boosting employment.

Considered by some the “golden age of capitalism,” the period between 1950 and 1970 was one in which the organized working class accepted capitalist markets and property rights in exchange for political democracy. This social pact enabled workers to achieve social security and higher wages, on the one hand, and, on the other, it bolstered demand, thereby stabilizing the accumulation process and maintaining profits.(26) During the whole period, in which the free market coexisted with certain guaranteed public goods, Keynesian’s state policies pursued two main objectives: first, to generate the demand that would maintain the accumulation process and profitability and, second, to limit financial speculation through state-controlled monetary and fiscal policies. The Keynesian theory of employment and effective demand took for granted that class struggle was a real threat to capitalism and its sustainability. It set out to confront that threat, in ways favorable to capitalist development, through an interventionist state.

The crisis that emerged in the 1970s was characterized by “stagflation”–an unanticipated combination of high inflation along with high unemployment and stagnated real wages. The phenomenon contradicted the basic tenets of Keynesianism, spelling an end to its hegemony. Nevertheless, the crisis turned out to be an opportunity for Friedrich Hayek and Milton Friedman to implement their long-ignored ideas. Faced with the new scenario, they revived liberal dogmas, presenting state intervention (particularly regulation of finance and of private capital) as impediments to the functioning of market signals and to the market’s allocative efficiency. In the name of entrepreneurial freedom and economic growth, the monetarist school carried out an organized ideological attack against Keynesian doctrine. They criticized Keynes’ theoretical framework, arguing that state regulations actually caused both inflation and unemployment. Specifically, they contended that state spending, backed up by deficit financing and high taxes on corporate capital, generated inflation and unemployment through excess money supply. On the contrary, Friedman argued that the basic role of the government should be to maintain law and order and define property rights, with most economic activities being left to the free play of market forces.(27)

Reversing more than three decades of accepted wisdom, Friedman and other neoliberal thinkers held that there is no need for direct state intervention in the economy. The state’s role should be restricted to maintaining law and order, and, to the degree that intervention is required, it can best be done through adjusting monetary policy. In his influential article, “The Role of Monetary Policy (1968),” Friedman argued that, as against fiscal activism, monetary policy was the key tool for stabilizing the capitalist system. What class interest supported this new ideology that overturned the longstanding hegemony of Keynesian theory and practice? In truth, Friedman and Hayek’s doctrine was the ideology of finance and rentier capitalists. With the rise of monetarism, the pendulum of state power now shifted away from the interests of industrial capital towards those of finance capital.

During the 1980s and 1990s, the right-wing coalition of finance capital, big business and high income groups (along with allied intellectuals) declared state regulations to be major constraints on economic efficiency and individual freedom. By contrast, they presented liberalizing the economy as a cure-all to any form of stagnation and a sure-fire guarantee of growth. In the name of freedom and efficiency, the spokespeople for this coalition prescribed a package of deregulation policies that came to be known as “neoliberalism.” Despite dubious efforts to link free markets to democracy and individual freedom, a scientific understanding of neoliberalism points to it being merely the latest institutional form that capitalism has assumed to facilitate the accumulation process.

In many respects, neoliberalism revived and intensified eighteenth and nineteenth century liberalism. In David Harvey’s words,

Neoliberalism is in the first instance a theory of political economic practices that proposes that human well-being can best be advanced by liberating individual entrepreneurial freedom and skill within an institutional framework characterized by strong private property rights, free market and free trade. The role of the state is to create and preserve an institutional framework appropriate to such practices. The state has to guarantee, for example, the quality and integrity of money. The state must set up those military, political and legal structures and functions required to secure private property rights and to guarantee by force, if need be, the proper functioning of markets.(28)

The neoliberal agenda eventually crystalized into a shared set of ideological and political dogmas. It was a universally applicable model emphasizing free markets and the free movement of capital, with a view to maximizing profits and capital growth in stable conditions. Ironically, the state itself, so vilified by these market fundamentalists, played a key role in justifying neoliberal methods of exploitation.

As a result of neoliberal doctrine, state controls on industrial and finance capital virtually disappeared. Radical deregulation led to a spectacular growth of finance capital, changing the character of capital accumulation and shifting the balance in favor of financial activities. In Samir Amin’s words:

The dominant stratum of capital should be characterized as “oligopoly-finance capital,” not in the sense of referring to capitalists operating in the financial sector of the system (banks and others), but in the sense of capitalists having privileged access to the capital necessary for the development of their activities, which may concern various sectors of the economy (industrial production, commercialization, financial services, research and development). That privileged access gives them a particular and powerful authority in the shaping of markets, which they regulate for their profit. It is specifically that oligopolistic group of the bourgeoisie that, in the present phase, dominates the financial market (particularly interest rates) and the global economy (particularly exchange rates).(29)

The financialization of capitalism is an expression of the policies promoted by oligopoly-finance capital. The nearly universal acceptance of these policies is proof that that oligopolistic group has domesticated the state, even in those countries (such as the United States) where democracy is most vociferously exalted. To accelerate the process of capital accumulation in the neoliberal era, the financial sector altered its role in two ways: first, through the quantitative expansion of its activities on a global scale; second, through direct involvement in financial markets and the creation of new financial instruments. Deregulation of the financial sector in the 1980s permitted financial institutions to enter areas where they were formerly prohibited, while mergers, once restricted by antitrust legislation, began to take place with greater frequency.

Evidence of the increasing power of banking capital is not difficult to find. For example in the United States, the six largest bank holding companies (J.P. Morgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley) had assets equal to 17 percent of the U.S. GDP in 1995. By 2010, their share of the GDP had risen to 64 percent. Again, the financial sector went from getting 16 percent of corporate profits in that 1970s to 40 percent at the beginning of the new century.(30) A grand oligopoly has come into existence which includes not only the leading international banks but also a network of international investors managed and controlled by their subsidiaries and affiliates, insurance companies, and a group of major firms associated with the leading banks. It now dominates the whole planet’s economic and political affairs.

Under the reign of oligopoly-finance capital, a powerful ideological cluster takes shape that preaches privatization, market deregulation, and retreat from state intervention. However, despite the small government rhetoric, the neoliberal state continually protects the interest of oligopoly-finance capital and plays an important role by facilitating, subsidizing and building a favorable environment for private capital accumulation. It does all this, of course, without intervening to promote employment and social services (health and education), and without building a safety net for the bottom strata of the society via subsidized food and other basic goods. The state’s macroeconomic policy is confined to monetary adjustments aimed at stabilizing prices. At the same time, its political function involves using the police, military and public administration to guarantee international finance capital’s access to domestic resources. (To secure these assets, state power backs up finance capital, and both aid industrial capital).

The International Monetary Fund (IMF) was key in promoting the global retreat from state intervention in production and distribution. No longer viewed as a mere economic indicator, fiscal deficit emerged in the IMF’s discourse as the main economic problem, its elimination being a necessary precondition for economic growth. The IMF pointed the finger especially at state expenditures in the social sector (subsides to poor people and other welfare programs) as the main cause of fiscal deficits, ignoring the role played by declining state revenues from custom duties and taxes on corporations. The search for fiscal equilibrium justified privatizing not only state-owned industries and other assets, but even social services such as education and health. The end result defies logic and common sense: a capitalist state that rules “on the masses’ behalf” without providing any services to them. In reality, the state’s (and the IMF’s) objective is to put the masses’ labor power and the country’s resources at the service of oligopoly-finance capital, with a view to accelerating accumulation.

Another important feature of today’s capitalism is the displacement of industry towards the developing regions of the world to counterbalance declining profits in the central countries. International capital relies on the developing countries’ states, which have become an integral part of the capitalist world system, to ensure access to cheap labor, raw materials, land and other resources to accelerate the accumulation process and enhance profits. The peripheral states also intervene in those areas of social life that private corporate capital cannot easily manipulate. For example, their ideological apparatuses present the interests of big capital as identical to national interests. The developing countries’ states also use their repressive apparatuses to displace millions of people and forcibly transfer resources to private corporations, in the name of industrialization and modernization. In this latest phase of capitalism, the state has become oblivious to the real problems that the masses face. More exactly, it is a major contributing factor to those problems. To disguise this fact, fascist forces supported by oligopoly capital have usurped state power in many parts of the world. Michael Kalecki has pointed out how the collusion between fascist forces and the capitalist class responds to big business’s dislike of government expenditure.31 Fascist rule overcomes this problem by putting the state machinery under direct control of big business and its fascist partners.

In this regard, the experience of India is especially revealing. After the shift to neoliberal policies in the 1990s, the Indian state reduced its role in economic affairs but continued to assist the poorest people through food subsidies, housing programs, and employment schemes. Its objective was to dampen the contradictions of the accumulation process. Recently, however, it appears that international capital considers even these limited programs to be unacceptable obstacles to accumulation. To remove them and widen the scope of exploitation, capital embarked on the new experiment of promoting the seizure of state power by communal forces: that is, those parties and power groups that foment ethnic or religious rivalry. Through a dangerous slight of hand, capitalist media groups have learned that they can covertly support communal forces by renaming them as “nationalist.” The end result is an insidious form of fascist neoliberalism that advances under the banners of governance and nationalism. This new form of social legitimacy–forged through an intertwining of communal forces, the capitalist state, and oligopoly-finance capital–aims to accelerate the accumulation process, regardless of the cost.


  1. This paper is an adapted version of a presentation made at the Tenth Forum of the World Association of Political Economy, June 19-21, 2015, Johannesburg, South Africa. Paramjit Singh is Assistant Professor in the Department of Economics, Panjab University, Chandigarh (India). Balwinder Singh Tiwana is Professor in the Department of Economics, Punjabi University, Patiala (India).
  2. For more on the financialization of capitalism, see John Bellamy Foster and Fred Magdoff’s The Great Financial Crisis: Causes and Consequences (2009) and John Bellamy Foster and Robert W. McChesney’s The Endless Crisis: How Monopoly Finance Capital Produces Stagnation and Upheaval from the USA to China (2012).
  3. Friedrich Hayek’s Road to Serfdom (1944) and Milton Friedman’s Capitalism and Freedom (1962) are key texts promoting and justifying neoliberal ideology. Both authors were Nobel Prize winners.
  4. Thomas Pikkety, Capital in the Twenty-First Century (London: Harvard University Press, 2014),
  5. Karl Marx, “Critique of Hegel’s Doctrine of the State,” in K. Marx, Early Writings (London: Penguin Publishers, 1992), 62-65.
  6. Karl Marx, “Critique of Hegel’s Doctrine of the State,” in K. Marx, Early Writings (London: Penguin Publishers, 1992), 65.
  7. Bob Jessop, The Capitalist State: Marxist Theories and Method (London: Martin Robertson Publications, Oxford, 1982), 7-8.
  8. Vladimir I. Lenin , State and Revolution, (New Delhi: People’s Publishing House, 2011), 1-17.
  9. Karl Marx, A Contribution to the Critique of Political Economy (Lucknow: Rahul Foundation, 2010), 26.
  10. Louis Althusser, “Ideology and Ideological State Apparatuses”, in L. Althusser’s Lenin and Philosophy and other Essays (New Delhi: Aakar Books, 2006),
  11. David Harvey, Spaces of Capital: Towards a Critical Geography, (New York: Routledge Publications 2001), 274.
  12. Karl Marx and Frederick Engels, The German Ideology (Moscow: Progress Publication, 1970) P. 80.
  13. David A. Gold, Clarence Y. H. Lo, and Erik Olin Wright, “Recent Developments in Marxist Theories of the Capitalist State,” Monthly Review, Vol. 27, No. 5. (1975): 38.
  14. Vladimir I. Lenin, State and Revolution (New Delhi: People’s Publishing House, 2011), 1-17.
  15. Michael Heinrich, An introduction to Three Volumes of Karl Marx’s Capital (New York: Monthly Review Press, 2012), 197-218.
  16. Karl Marx and Frederick Engels, On Colonialism (Moscow: Progress Publication, 1972) P. 592.
  17. Vladimir I. Lenin, Imperialism: The Highest Stage of Capitalism (Lucknow: Rahul Foundation, 2010), 49.
  18. Rudolf Hilferding, Finance Capital: A Study of Latest Phase of Capitalist Development (London: Routledge and Kagan Paul Ltd., 1981), 197-218.
  19. Vladimir I. Lenin, Imperialism: The Highest Stage of Capitalism (Lucknow: Rahul Foundation, 2010), 49.
  20. Nikolai Bukharin, Imperialism and World Economy (New Delhi: Aakar Books 2010), 337-350.
  21. Keynes’s, “Liberalism and Labour” (1926) and “The End of Laissez-Faire” (1926). John Maynard Keynes, Essays in Persuasion (W.W. Norton and Company, New York, 1963), 312-321; 339-348.
  22. Toni Negri, “Keynes and the Capitalist Theory of the State Post-1929,” in T. Negri, Revolution Retrieved: Writings on Marx, Keynes, Capitalist Crisis and the New Social Subject (1967-83) (London: Red Notes, London, 1988), 12-13.
  23. John Maynard Keynes, The General Theory of Employment, Interest and Money (New Delhi: Atlantic Publications, 2008), 21-30.
  24. Amal Sanyal, “On the Economic Role of the State under State Monopoly Capitalism” Social Scientist 10 No. 12 (1982): 3-14.
  25. Wolfgang Streeck, “The Crisis of Democratic Capitalism,” New Left Review, Vol. 71 (2011): 5-29.
  26. A now classic treatment of the post-war era is Paul A. Baran and Paul M. Sweezy’s Monopoly Capital: An Essay on the American Economic and Social Order (New York: Monthly Review Press, 1966)
  27. Chapter 2 of Friedman’s Capitalism and Freedom:“The Role of Government in a Free Society.”
  28. David Harvey, A Brief History of Neoliberalism (New York: Oxford University Press, 2007), 2.
  29. Samir Amin, “Market Economy or Oligopoly-Finance Capitalism?” Monthly Review, Vol. 59, No. 11 (2008). Available at:
  30. Robert W. McChesney, “This Isn’t What Democracy Look Like” Monthly Review, Vol. 10, No. 8 (2010): 1-28.
  31. Michal Kalecki, “Political Aspects of Full Employment” in M. Kalecki, Selected Essays on the Dynamics of the Capitalist Economy 1933-1970 (Cambridge University Press, London, 1971), 141.

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